Sony 1997 Annual Report Download - page 58

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The significant components of deferred tax assets and liabilities are as follows:
Yen in millions Dollars in thousands
March 31 March 31,
1996 1997 1997
Deferred tax assets:
Operating loss carryforwards for tax purposes . . . . . . . . . ¥ 58,304 ¥ 75,536 $ 609,161
Warranty reserve and accrued expenses . . . . . . . . . . . . . . 29,998 46,187 372,476
Accrued pension and severance costs . . . . . . . . . . . . . . . 37,938 45,418 366,274
Inventory—intercompany profits and write-down . . . . . . . 38,793 44,416 358,194
Future insurance policy benefits . . . . . . . . . . . . . . . . . . . . 25,717 34,580 278,871
Other accrued employees’ compensation . . . . . . . . . . . . . 11,723 14,465 116,653
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,261 87,125 702,621
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . 296,734 347,727 2,804,250
Less: Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . (118,356) (122,258) (985,952)
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . 178,378 225,469 1,818,298
Deferred tax liabilities:
Unrealized gain on securities . . . . . . . . . . . . . . . . . . . . . . (85,204) (72,741) (586,621)
Undistributed earnings of foreign subsidiaries . . . . . . . . . (51,995) (68,928) (555,871)
Insurance acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . (51,064) (67,004) (540,355)
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,807) (17,041) (137,427)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (33,647) (39,133) (315,589)
Gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . (240,717) (264,847) (2,135,863)
Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . ¥ (62,339) ¥ (39,378) $ (317,565)
The valuation allowance mainly relates to deferred tax assets of consolidated subsidiaries with operating
loss carryforwards for tax purposes that are not expected to be realized. The net changes in the total valuation
allowance for the years ended March 31, 1995, 1996 and 1997 were increases of ¥9,264 million, ¥28,174
million and ¥3,902 million ($31,468 thousand), respectively.
Net deferred tax liabilities are included in the consolidated balance sheets as follows:
Yen in millions Dollars in thousands
March 31 March 31,
1996 1997 1997
Deferred income taxes (Current assets) . . . . . . . . . . . . . . . . . ¥ 83,291 ¥ 111,756 $ 901,258
Other assets—Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,351 27,158 219,016
Current liabilities—Other . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,583) (4,341) (35,008)
Deferred income taxes (Long-term liabilities) . . . . . . . . . . . . (160,398) (173,951) (1,402,831)
Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . ¥ (62,339) ¥ (39,378) $ (317,565)
At March 31, 1997, no deferred income taxes have been provided on undistributed earnings of foreign
subsidiaries not expected to be remitted in the foreseeable future totaling ¥214,815 million ($1,732,379
thousand), and on the gain on a subsidiary’s sale of stock of ¥61,544 million arising from the issuance of
common stock of Sony Music Entertainment (Japan) Inc. in a public offering to third parties in November
1991, as the company does not anticipate any significant tax consequences on possible future disposition of
its remaining investment based on its tax planning strategies. The unrecognized deferred tax liabilities as of
March 31, 1997 for such temporary differences amounted to ¥104,743 million ($844,702 thousand).
Operating loss carryforwards for tax purposes of consolidated subsidiaries at March 31, 1997 amounted to
approximately ¥218,100 million ($1,758,871 thousand) and are available as an offset against future taxable
income of such subsidiaries. These carryforwards expire at various dates primarily up to 15 years. Realization
is dependent on such subsidiaries generating sufficient taxable income prior to expiration of the loss carry-
forwards. Although realization is not assured, management believes it is more likely than not that all of the
deferred tax assets, less valuation allowance, will be realized. The amount of such net deferred tax assets
considered realizable, however, could be reduced in the near term if estimates of future taxable income
during the carryforward period are reduced.