Sony 2003 Annual Report Download - page 173

Consolidated Financial Information 2003
- 87 -
Shipping and handling costs -
The majority of shipping and handling, warehousing and internal transfer costs for finished goods are
included in selling, general and administrative expenses. An exception to this is in the Pictures business
where such costs are charged to cost of sales as it is an integral part of producing and distributing the film
under SOP 00-2. All other costs related to Sony's distribution network are included in cost of sales,
including inbound freight charges, purchasing and receiving costs, inspection costs and warehousing
costs for raw materials and in-process inventory. In addition, amounts paid by customers for shipping and
handling costs are included in net sales.
Income taxes -
The provision for income taxes is computed based on the pretax income included in the consolidated
statements of income. The asset and liability approach is used to recognize deferred tax assets and
liabilities for the expected future tax consequences of temporary differences between the carrying amounts
and the tax bases of assets and liabilities.
Net income per share -
Sony calculates and presents per share data separately for Sony’s common stock and for the subsidiary
tracking stock, based on FAS No. 128, “Earnings per Share”. The holders of the subsidiary tracking stock
have the right to participate in earnings, together with common stock holders. Accordingly, Sony calculates
per share data by the “two-class” method based on FAS No. 128. Under this method, basic net income per
share (“EPS”) for each class of stock is calculated based on the earnings allocated to each class of stock
for the applicable period, divided by the weighted-average number of outstanding shares in each class
during the applicable period.
The earnings allocated to the subsidiary tracking stock are determined based on the subsidiary tracking
stock holders’ economic interest in the targeted subsidiary’s earnings available for dividends. As defined
by Sony Corporation’s articles of incorporation, the amount distributable to the subsidiary tracking stock
holders is based on the declared dividends of the targeted subsidiary, which only may be declared from the
amounts available for dividends of the targeted subsidiary. The targeted subsidiary’s earnings available for
dividends are, as stipulated by the Japanese Commercial Code, not including those of the targeted
subsidiary’s subsidiaries. If the targeted subsidiary has accumulated losses, a change in accumulated
losses is also allocated to the subsidiary tracking stock. The subsidiary tracking stock holders’ economic
interest is calculated as the number of the subsidiary tracking stock outstanding (3,072,000 shares) divided
by the number of the targeted subsidiary’s common stock outstanding (235,520 shares), subject to
multiplying by the Standard Ratio (tracking stock : subsidiary’s common stock = 1 : 100, as defined in the
articles of incorporation). The earnings allocated to the common stock are calculated by subtracting the
earnings allocated to the subsidiary tracking stock from Sony’s net income for the period.
The computation of diluted net income per common stock reflects the maximum possible dilution from