Sony 2005 Annual Report Download - page 87

84 Sony Corporation
Notes to Consolidated Financial Statements
Sony Corporation and Consolidated Subsidiaries
1. Nature of operations
Sony Corporation and consolidated subsidiaries (hereinafter
collectively referred to as “Sony”) are engaged in the develop-
ment, design, manufacture, and sale of various kinds of elec-
tronic equipment, instruments, and devices for consumer and
industrial markets. Sony also develops, produces, manufac-
tures, and markets home-use game consoles and software.
Sony’s principal manufacturing facilities are located in Japan, the
United States of America, Europe, and Asia. Its electronic
products are marketed throughout the world and game prod-
ucts are marketed mainly in Japan, the United States of America
and Europe by sales subsidiaries and unaffiliated local distribu-
tors as well as direct sales via the Internet. Sony is engaged in
the development, production, manufacture, marketing, distribu-
tion and broadcasting of image-based software, including film,
video and television product. Sony is also engaged in the devel-
opment, production, manufacture, and distribution of recorded
music, in all commercial formats and music genres. Further,
Sony is engaged in various financial service businesses including
insurance operations through a Japanese life insurance subsid-
iary and non-life insurance subsidiaries, banking operations
through a Japanese internet-based banking subsidiary and
leasing and credit financing operations in Japan. In addition to
the above, Sony is engaged in Internet-related businesses, an
animation production and marketing business, an imported
general merchandise retail business, an IC card business and an
advertising agency business in Japan.
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 accepted 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 incorporated in the
accompanying consolidated financial statements 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.
(1) Newly adopted accounting pronouncements:
■Accounting and reporting by insurance enterprises for
certain nontraditional long-duration contracts and for
separate accounts
In July 2003, the Accounting Standards Executive Committee of
the American Institute of Certified Public Accountants (“AcSEC”)
issued the Statement of Position (“SOP”) 03-1, “Accounting and
Reporting by Insurance Enterprises for Certain Nontraditional
Long-Duration Contracts and for Separate Accounts”. SOP 03-
1 requires insurance enterprises to record additional reserves for
long-duration life insurance contracts with minimum guarantee
or annuity receivable options. Additionally, SOP 03-1 provides
guidance for the presentation of separate accounts. This state-
ment is effective for fiscal years beginning after December 15,
2003. Sony adopted SOP 03-1 on April 1, 2004. As a result of
the adoption of SOP 03-1, Sony’s operating income decreased
by ¥5,156 million ($48 million) for the year ended March 31,
2005. Additionally, on April 1, 2004, Sony recorded a ¥4,713
million ($44 million) charge (net of income taxes of ¥2,675
million) as a cumulative effect of an accounting change. In
addition, the separate account assets, which are defined by
insurance business law in Japan and were previously included in
“Securities investments and other” in the consolidated balance
sheet, were excluded from the category of separate accounts
under the provision of SOP 03-1. Accordingly, the assets previ-
ously treated as separate account assets are now treated within
general account assets (Note 8).
■The effect of contingently convertible instruments on
diluted earnings per share
In July 2004, the Emerging Issues Task Force (“EITF”) issued
EITF Issue No. 04-8, “The Effect of Contingently Convertible
Instruments on Diluted Earnings per Share”. In accordance with
Statement of Financial Accounting Standards (“FAS’’) No.128,
“Earnings per Share’’, Sony had not previously included in the
computation of diluted earnings per share (“EPS’’) the number of
potential common stock issuable upon the conversion of contin-
gently convertible debt instruments (“Co-Cos’’) that had not met
the conditions to exercise the stock acquisition rights. EITF Issue
No. 04-8 requires that the maximum number of common stock
that could be issued upon the conversion of Co-Cos be in-
cluded in diluted EPS computations from the date of issuance
regardless of whether the conditions to exercise the stock
acquisition rights have been met. EITF Issue No. 04-8 is effec-
tive for reporting periods ending after December 15, 2004. Sony
adopted EITF Issue No. 04-8 during the quarter ended Decem-
ber 31, 2004. As a result of the adoption of EITF Issue No. 04-8,
Sony’s diluted EPS of income before cumulative effect of an
accounting change and net income for the year ended March
31, 2004 were restated respectively. Sony’s diluted EPS of
income before cumulative effect of an accounting change and
net income for the year ended March 31, 2005 were decreased
by ¥7.26 ($0.07) and ¥7.06 ($0.07), respectively, compared to
those before adopting EITF Issue No. 04-8.
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