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SONY CORPORATION ANNUAL REPORT 2000
56
In October 1998, AcSEC issued an exposure draft of a
proposed Statement of Position, “Accounting by Producers
and Distributors of Films” (the “SOP”). The proposed SOP
would significantly change the current accounting for the
motion picture and television businesses. AcSEC currently is
in the process of finalizing these proposed rules. Based on
the conclusions AcSEC reached as of March 31, 2000, the
SOP would require that advertising costs for theatrical and
television product be expensed as incurred. In addition, the
SOP would require development costs for abandoned projects
be charged directly to expense. The SOP would also require
all film costs to be classified in the balance sheet as a non-
current asset. The proposed SOP’s provisions in other areas,
such as revenue recognition, generally are consistent with
Sony’s current accounting policies.
The provisions of the SOP are still being deliberated by
AcSEC and the Financial Accounting Standards Board and
could change prior to the issuance of a final standard. Ac-
cordingly, the impact to Sony is not currently known, as it
may vary depending on the final SOP as well as the exact
date it becomes effective. Although the proposed SOP has
not been finalized, Sony believes it will be issued during the
first quarter of the fiscal year ending March 31, 2001. The
SOP, when issued, is expected to be effective for fiscal years
beginning on or after December 16, 2000, with early appli-
cation encouraged. Sony expects to adopt the provisions of
the SOP upon issuance. Also, if adopted for the fiscal year
ending March 31, 2001, certain expenses, primarily advertis-
ing costs for theatrical and television product and abandoned
development costs, which are currently capitalized and rec-
ognized over time, would be recognized when incurred. For
illustrative purposes, if the SOP had been implemented as of
March 31, 2000, based upon AcSEC’s current proposal, the
aforementioned operating income, income before income
taxes, and net income for the fiscal year ending March 31,
2001 could each be expected to decrease by approximately
200 to 250 million dollars as a result of the accounting change.
Sony would also have to record in the fiscal year ending
March 31, 2001, a one-time non-cash cumulative effect ad-
justment of approximately 900 to 950 million dollars for the
period through the end of the fiscal year ended March 31,
2000, which would appear in the income statement directly
above the caption of “net income.” These items have no
impact on cash flow.
The aforementioned consolidated forecast for the fiscal
year ending March 31, 2001 includes the following factors.
Research and development expenses for the fiscal year end-
ing March 31, 2001 are expected to remain at a high level as
in the fiscal year ended March 31, 2000. Major areas are
semiconductors, communications, and displays. Capital ex-
penditures for the fiscal year ending March 31, 2001 are ex-
pected to be approximately 475.0 billion yen, which is
approximately 39.0 billion yen, or approximately 9%, higher
than those in the previous year. This is principally because
investments for semiconductors and new products produc-
tion equipment in the Electronics business, for semiconduc-
tor production equipment in the Game business, and for
DVD discs manufactured in the Music business are expected
to increase. Regarding the breakdown of capital expendi-
tures for the fiscal year ending March 31, 2001, the portion
attributable to the Other business is expected to be the larg-
est after the Electronics and Game businesses. This is princi-
pally because the Other business includes large amounts of
purchases for leasing assets in the leasing and credit card
business. Depreciation and amortization (including amorti-
zation of deferred insurance acquisition costs) for the fiscal
year ending March 31, 2001 is expected to be approximately
350.0 billion yen, which is approximately 44.0 billion yen, or
approximately 14%, higher than that in the previous year.
This is principally because investments for semiconductors
and other products production equipment in the Electronics
business and for semiconductor production equipment in
the Game business are expected to increase.