Sony 2005 Annual Report Download - page 122

Sony Corporation 119
The valuation allowance mainly relates to deferred tax assets
of Sony Corporation and certain consolidated subsidiaries with
operating loss carryforwards and tax credit carryforwards for tax
purposes that are not expected to be realized. The net changes in
the total valuation allowance were a decrease of ¥136,140 million
for the year ended March 31, 2003, an increase of ¥11,509
million for the year ended March 31, 2004 and a decrease of
¥38,467 million ($360 million) for the year ended March 31, 2005.
As a result of recording of operating losses in the past, the
U.S. subsidiaries of Sony have had valuation allowances against
deferred tax assets for U.S. federal and certain state taxes.
However, based on both improved operating results in recent
years and a sound outlook for the future operating performance
of Sony’s U.S. subsidiaries, Sony reversed ¥67,892 million ($635
million) of valuation allowance, resulting in a reduction of income
tax expenses for the year ended March 31, 2005.
For the year ended March 31, 2003, ¥33,525 million of the
decrease in the valuation allowance relates to the realization of tax
benefits from operating loss carryforwards that were acquired in
connection with Sony’s acquisition of companies within the
Electronics, Music and Pictures segments. The reversal of the
valuation allowance upon realization of tax benefit from operating
loss carryforwards resulted in the reduction of goodwill.
Tax benefits which have been realized through utilization of
operating loss carryforwards for the years ended March 31,
2003, 2004 and 2005 were approximately ¥19,000 million,
¥12,000 million and ¥30,000 million ($280 million), respectively.
Net deferred tax assets are included in the consolidated
balance sheets as follows:
Dollars in
Yen in millions millions
March 31 2004 2005 2005
Current assets—
Deferred income taxes . . . .
¥125,532 ¥141,154 $1,319
Other assets—
Deferred income taxes . . . .
203,203 240,396 2,247
Current liabilities—
Other . . . . . . . . . . . . . . . . .
(8,110) (12,025) (113)
Long-term liabilities—
Deferred income taxes . . . . (96,193) (72,227) (675)
Net deferred tax assets . . . . ¥224,432 ¥297,298 $2,778
At March 31, 2005, no deferred income taxes have been
provided on undistributed earnings of foreign subsidiaries not
expected to be remitted in the foreseeable future totaling
¥988,515 million ($9,238 million), and on the gain of ¥61,544
million on a subsidiary’s sale of stock arising from the issuance
of common stock of Sony Music Entertainment (Japan) Inc.
(“SMEJ”) in a public offering to third parties in November 1991,
as Sony does not anticipate any significant tax consequences
on possible future disposition of its investment based on its tax
planning strategies. The unrecognized deferred tax liabilities as
of March 31, 2005 for such temporary differences amounted to
¥217,792 million ($2,035 million).
Operating loss carryforwards for corporate income tax and
local income tax purposes of Sony Corporation and certain
consolidated subsidiaries in Japan at March 31, 2005 amounted
to ¥266,763 million ($2,493 million) and ¥520,556 million
($4,865 million), respectively, which are available as an offset
against future taxable income. Deferred tax asset on the operat-
ing loss carryforwards for corporate income tax and local in-
come tax in Japan are calculated by multiplying approximately
28% and 13%, respectively.
Operating loss carryforwards for tax purposes of certain
foreign consolidated subsidiaries at March 31, 2005 amounted
to ¥139,100 million ($1,300 million).
With the exception of ¥115,714 million ($1,081 million) with no
expiration period, total available operating loss carryforwards
expire at various dates primarily up to 7 years.
Tax credit carryforwards for tax purposes at March 31, 2005
amounted to ¥8,552 million ($80 million). With the exception of
¥6,995 million ($65 million) with no expiration period, total
available tax credit carryforwards expire at various dates prima-
rily up to 9 years. Realization is dependent on whether such
companies will be able to generate sufficient taxable income
prior to expiration of the loss carryforwards and tax credit
carryforwards. Although realization is not assured, management
believes it is more likely than not that all of the deferred tax
assets, less valuation allowance, will be realized. The amount of
such net deferred tax assets considered realizable, however,
could be changed in the near term if estimates of future taxable
income during the carryforward period are changed.
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