Sony 1998 Annual Report Download - page 56

[54] Sony Corporation Annual Report 1998
[ Notes to Consolidated Financial Statements ]
Sony Corporation and Consolidated Subsidiaries
1. Nature of operations
The company is engaged in the development, design, manufacture, and sale of various kinds of electronic equipment,
instruments, and devices for consumer and industrial markets. The company’s principal manufacturing facilities are
located in Japan, the United States, Europe, and Asia, and its products are marketed by sales subsidiaries and unaffili-
ated local distributors throughout the world. The company also develops, produces, manufactures, and markets
home-use game consoles and software. The company is engaged in the development, production, manufacture, and
distribution of recorded music, in all commercial formats and musical genres. The company is also engaged in the
development, production, manufacture and marketing of image-based software, including film, video and television.
Further, the company conducts insurance operations principally through a Japanese stock life insurance subsidiary. In
addition to the above, the company is engaged in customer financing and leasing business and has begun to partici-
pate in new business activities including digital broadcasting, information and communications and others.
2. Summary of significant accounting policies
The parent company and its subsidiaries in Japan maintain their records and prepare their financial statements in
accordance with accounting principles generally accepted in Japan while its foreign subsidiaries maintain their
records and prepare their financial statements in conformity with accounting principles generally accepted in the
countries of their domicile. Certain adjustments and reclassifications, including those relating to the tax effects of
temporary differences, capitalization of stock purchase warrants, deferral of insurance acquisition costs, the accrual
of certain expenses and the accounting for foreign currency translation, have been incorporated in the accompany-
ing consolidated financial statements to conform with accounting principles generally accepted in the United States
of America (U.S. GAAP). These adjustments were not recorded in the statutory books of account.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Significant accounting policies are as follows:
Basis of consolidation and accounting for investments in affiliated companies
The consolidated financial statements include the accounts of the parent company and those of its majority-owned
subsidiary companies. All intercompany transactions and accounts are eliminated. Investments in 20% to 50%
owned companies are stated at cost plus equity in undistributed earnings; consolidated net income includes the
company’s equity in current earnings/losses of such companies, after elimination of unrealized intercompany profits.
On occasion, a subsidiary or affiliated company accounted for by the equity method may issue its shares to third
parties as either a public offering or upon conversion of convertible debt to common stock at amounts per share in
excess of or less than the company’s average per share carrying value. With respect to such transactions, the result-
ing gains or losses arising from the change in interest are recorded in income for the year the change in interest
transaction occurs.
The excess of the cost over the underlying net equity of investments in subsidiaries and affiliated companies ac-
counted for on an equity basis is allocated to identifiable assets based on fair values at the date of acquisition. The
unassigned residual value of the excess of the cost over the underlying net equity is recognized as goodwill.
Translation of foreign currencies
All asset and liability accounts of foreign subsidiaries and affiliates are translated into Japanese yen at appropriate
year-end current rates and all income and expense accounts are translated at rates that approximate those rates
prevailing at the time of the transactions. The resulting translation adjustments are accumulated as a component of
stockholders’ equity.
Foreign currency receivables and payables are translated at appropriate year-end current rates and the resulting
translation gains or losses are taken into income currently.
Revenue recognition
Revenues from electronics, game and music sales are recognized when products are shipped to customers.
Motion picture revenue is recognized beginning on the date of theatrical exhibition. Revenue from television
licensing agreements is recognized when the motion picture or television series first becomes available for telecast.
Revenue from home videocassette sales is generally recognized on the date of shipment.
Insurance premiums are reported as revenue when due from policyholders. Benefits and expenses are associated
with earned insurance premiums so as to result in the recognition of profits over the life of the contracts. This asso-
ciation is accomplished through a provision for liabilities for future benefits and amortization of acquisition costs.