Sony 2000 Annual Report Download - page 70

68
SONY CORPORATION ANNUAL REPORT 2000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sony Corporation and Consolidated Subsidiaries
1. Nature of operations
Sony Corporation and consolidated subsidiaries (herein-
after collectively referred to as “Sony”) are engaged in the
development, design, manufacture, and sale of various
kinds of electronic equipment, instruments, and devices
for consumer and industrial markets. Sony’s principal
manufacturing facilities are located in Japan, the United
States of America, Europe, and Asia, and its products
are marketed by sales subsidiaries and unaffiliated
local distributors as well as direct sales via the Internet
throughout the world. Sony also develops, produces,
manufactures, and markets home-use game consoles and
software. Sony is engaged in the development, production,
manufacture, and distribution of recorded music, in all
commercial formats and musical genres. Sony is also
engaged in the development, production, manufacture,
marketing, distribution and broadcasting of image-based
software, including film, video, and television. Further,
Sony conducts insurance operations through a Japanese
stock life insurance subsidiary and non-life insurance
subsidiaries. In addition to the above, Sony is engaged
in a financial business through leasing and credit card
operations, satellite distribution services including pro-
gram supplying businesses in Japan, Internet-related
businesses, development and operation of location-based
entertainment complexes, and others.
2. Summary of significant accounting policies
Sony Corporation and its subsidiaries in Japan maintain
their records and prepare their financial statements in
accordance with accounting principles generally ac-
cepted 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 domiciles. Certain
adjustments and reclassifications have been incorpo-
rated in the accompanying consolidated financial state-
ments 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 Sony Corporation and those of its majority-
owned subsidiary companies. All intercompany transac-
tions and accounts are eliminated. Investments in which
Sony has significant influence or ownership of more
than 20% but less than or equal to 50% are accounted
for under the equity method. Under the equity method,
investments are stated at cost plus/minus Sony’s equity
in undistributed earnings/losses. Consolidated net in-
come includes Sony’s equity in current earnings/losses
of such companies, after elimination of unrealized inter-
company profits. Effective with the fiscal year ended
March 31, 2000, equity in net earnings/losses of affiliated
companies, which were previously included in sales and
operating revenue, are shown separately below income
before minority interest and equity in net losses of
affiliated companies.
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 con-
version of convertible debt to common stock at amounts
per share in excess of or less than Sony’s average per
share carrying value. With respect to such transactions,
the resulting 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
accounted for on an equity basis is allocated to identifi-
able assets and liabilities 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 result-
ing translation adjustments are accumulated as a compo-
nent of accumulated other comprehensive income.
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