Sony 2006 Annual Report Download - page 103

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alternative to use of the intrinsic value method prescribed
by APB No. 25. With limited exceptions, FAS No. 123(R)
requires that the grant-date fair value of share-based payments
to employees be expensed over the period the service is
received. Sony has accounted for its employee stock-based
compensation in accordance with the provisions prescribed
by APB No. 25 and its related interpretations and has disclosed
the net effect on net income and net income per share allocated
to the common stock if Sony had applied the fair value recogni-
tion provisions of FAS No. 123 to stock-based compensation
as described above in (2) Significant accounting policies—
Stock-based compensation. Sony adopted FAS No. 123(R)
on April 1, 2006. Sony has elected the modified prospective
method of transition prescribed in FAS No. 123(R), which
requires that compensation expense be recorded for all
unvested stock acquisition rights as the requisite service is
rendered beginning with the first period of adoption. As of
March 31, 2006, the aggregate value of the unvested stock
acquisition rights was ¥4,402 million ($38 million). Sony expects
the total expenses to be recorded in the future periods will be
consistent with the pro forma information shown above in (2)
Significant accounting policies—Stock-based compensation.
■ Inventory costs
In November 2004, the FASB issued FAS No. 151, “Inventory
Costs, an amendment of ARB No. 43, Chapter 4”. This state-
ment requires certain abnormal expenditures to be recognized
as expenses in the current period. It also requires that the
amount of fixed production overhead allocated to the costs of
conversion be based on the normal capacity of the production
facilities. This statement shall be effective for fiscal years
beginning after June 15, 2005, with early adoption during the
fiscal years beginning after the date this statement is issued
encouraged. The adoption of FAS No. 151 is not expected to
have a material impact on Sony’s results of operations and
financial position.
■ Derivative instruments and hedging activities
In February 2006, the FASB issued FAS No. 155, “Accounting
for Certain Hybrid Financial Instruments”, an amendment of FAS
No. 133 and FAS No. 140. This statement permits an entity to
elect fair value remeasurement for any hybrid financial instrument
if the hybrid instrument contains an embedded derivative that
would otherwise be required to be bifurcated and accounted for
separately under FAS No. 133. The election to measure the
hybrid instrument at fair value is made on an instrument-by-
instrument basis and is irreversible. The statement will be effective
for all financial instruments acquired, issued, or subject to a
remeasurement event occurring after the beginning of an entity’s
fiscal years beginning after September 15, 2006, with earlier
adoption permitted as of the beginning of fiscal year, provided
that financial statements for any interim period of that fiscal year
have not been issued. The adoption of FAS No. 155 is not
expected to have a material impact on Sony’s results of operations
and financial position.
■ Accounting for servicing of financial assets
In March 2006, the FASB issued FAS No. 156, “Accounting for
Servicing of Financial Assets—an amendment of FASB Statement
No. 140 ”. This statement amends FASB Statement No. 140,
“Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities’ with respect to the accounting for
separately recognized servicing assets and servicing liabilities.
This statement shall be effective for fiscal years beginning after
September 15, 2006. Sony is currently evaluating the impact of
adopting this new pronouncement.
(4) Reclassifications:
Certain reclassifications of the financial statements for the fiscal
years ended March 31, 2004 and 2005 have been made to con-
form to the presentation for the fiscal year ended March 31, 2006.
3. U.S. dollar amounts
U.S. dollar amounts presented in the financial statements are
included solely for the convenience of the reader. These transla-
tions should not be construed as representations that the yen
amounts actually represent, or have been or could be converted
into U.S. dollars. As the amounts shown in U.S. dollars are for
convenience only, the rate of ¥117=U.S.$1, the approximate
current rate at March 31, 2006, has been used for the purpose
of presentation of the U.S. dollar amounts in the accompanying
consolidated financial statements.
4. Inventories
Inventories comprise the following:
Dollars in
Yen in millions millions
March 31 2005 2006 2006
Finished products . . . . . . . . ¥405,616 ¥534,766 $4,571
Work in process . . . . . . . . . . 93,181 123,381 1,055
Raw materials, purchased
components and
supplies . . . . . . . . . . . . . . . 132,552 146,577 1,252
. . . . . . . . . . . . . . . . . . . . ¥631,349 ¥804,724 $6,878