Sony 2003 Annual Report Download - page 162

Consolidated Financial Information 2003
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Derivative instruments and hedging activities -
On April 1, 2001, Sony adopted FAS No. 133, “Accounting for Derivative Instruments and Hedging
Activities” as amended by FAS No. 138, “Accounting for Certain Derivative Instruments and Certain
Hedging Activities - an Amendment of FASB statement No. 133”. FAS No. 133, as amended, establishes
accounting and reporting standards for derivative instruments. Specifically, FAS No. 133 requires an entity
to recognize all derivatives, including certain derivative instruments embedded in other contracts, as either
assets or liabilities in the balance sheet and to measure those instruments at fair value. Additionally, the fair
value adjustments will affect either stockholders’ equity or net income depending on whether the derivative
instruments qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity.
As a result of the adoption of the new standards, Sony’s operating income, income before income taxes
and net income for the year ended March 31, 2002 decreased by ¥3,007 million, ¥3,441 million and ¥2,167
million, respectively. Additionally, on April 1, 2001, Sony recorded a one-time non-cash after-tax unrealized
gain of ¥1,089 million in accumulated other comprehensive income in the consolidated balance sheet, as
well as an after-tax gain of ¥5,978 million in the cumulative effect of accounting changes in the consolidated
statement of income. This after-tax gain was primarily attributable to fair value adjustments of convertible
rights embedded in convertible bonds held by Sony’s life insurance subsidiary as available-for-sale debt
securities.
Goodwill and other intangible assets -
In July 2001, Sony elected early adoption, retroactive to April 1, 2001, of FAS No. 142, “Goodwill and Other
Intangible Assets” which superseded APB No. 17, “Intangible Assets”. FAS No. 142 addresses the
accounting for acquired goodwill and other intangible assets. Under FAS No. 142, goodwill and certain
other intangible assets that are determined to have an indefinite life are no longer amortized, but rather are
tested for impairment on an annual basis and between annual tests if an event occurs or circumstances
change that would more likely than not reduce the fair value below its carrying amount. Prior to the
adoption of FAS No. 142, goodwill recognized in acquisitions accounted for as purchases was amortized
on a straight-line basis principally over a 20 or 40-year period. As a result of the adoption of FAS No. 142,
Sony’s operating income and income before income taxes for the year ended March 31, 2002 increased by
¥20,114 million and income before cumulative effect of accounting changes as well as net income for the
year ended March 31, 2002 increased by ¥18,932 million.
Accounting for consideration paid to a reseller -
In the fourth quarter of the year ended March 31, 2002, Sony adopted retroactive to April 1, 2001 EITF
Issue No. 00-25, “Vendor Income Statement Characterization of Consideration Paid to a Reseller of the
Vendor’s Products”, which was later codified along with other similar issues into EITF Issue No. 01-09,
“Accounting for Consideration Given by a Vendor to a Customer or Reseller of the Vendor’s Products”.