Sony 2006 Annual Report Download - page 119

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16. Stockholders’ equity
(1) Subsidiary tracking stock:
On June 20, 2001, Sony Corporation issued shares of subsid-
iary tracking stock in Japan, the economic value of which is
intended to be linked to the economic value of Sony Communi-
cation Network Corporation (“SCN”), a directly and indirectly
wholly owned subsidiary of Sony Corporation which is engaged
in Internet-related services. The subsidiary tracking stock hold-
ers had no direct rights in the equity or assets of SCN or the
assets of Sony Corporation.
On October 26, 2005, the Board of Directors of Sony Corpo-
ration decided to terminate all shares of subsidiary tracking
stock and convert such shares to shares of Sony common
stock. All shares of subsidiary tracking stock were converted to
shares of Sony common stock on December 1, 2005. As a
result of the conversion, the number of shares of Sony common
stock to be issued upon conversion was calculated by multiply-
ing the number of shares of subsidiary tracking stock as of
November 30, 2005, by 1.114, and the number of shares of
Sony common stock to be issued upon conversion was
3,452,808.
(2) Common stock:
Changes in the number of shares of common stock issued and
outstanding during the fiscal years ended March 31, 2004, 2005
and 2006 have resulted from the following:
Number of shares
Balance at March 31, 2003 . . . . . . . . . . . . . . . . . 922,385,176
Conversion of convertible bonds . . . . . . . . . . . . . 2,944,800
Stock issued under exchange offering . . . . . . . . . 1,088,304
Balance at March 31, 2004 . . . . . . . . . . . . . . . . . 926,418,280
Conversion of convertible bonds . . . . . . . . . . . . . 70,765,533
Exercise of stock acquisition rights . . . . . . . . . . . 27,400
Balance at March 31, 2005 . . . . . . . . . . . . . . . . . 997,211,213
Conversion of convertible bonds . . . . . . . . . . . . . 484,200
Conversion of subsidiary tracking stock . . . . . . . . 3,452,808
Exercise of stock acquisition rights . . . . . . . . . . . 531,443
Balance at March 31, 2006 . . . . . . . . . . . . . . . . . 1,001,679,664
At March 31, 2006, 58,976,132 shares of common stock
would be issued upon conversion or exercise of all convertible
bonds, warrants and stock acquisition rights outstanding.
On May 1, 2003, Sony Corporation implemented a share
exchange as a result of which CIS Corporation became a
wholly-owned subsidiary. As a result of this share exchange,
Sony Corporation issued 1,088,304 new shares, and additional
paid-in capital increased ¥5,409 million.
On November 20, 1991, Sony Corporation made a free share
distribution of 33,908,621 shares in ratios of one share for each
ten shares held for which no accounting entry was required in
Japan. Had the distribution been accounted for in the manner
adopted by companies in the United States of America,
¥201,078 million would have been transferred from retained
earnings to the appropriate capital accounts. This has been the
only free distribution of common stock where no accounting
entry was required in Japan.
Conversions of convertible bonds into common stock are
accounted for in accordance with the provisions of the Japa-
nese Commercial Code by crediting approximately one-half of
the conversion proceeds to the common stock account and the
remainder to the additional paid-in capital account.
The Ordinary General Meeting of Shareholders held on June 20,
2003 approved that Sony Corporation acquire up to a total not
exceeding 90 million outstanding shares of its common stock at
an amount in total not exceeding ¥400 billion and a total not
exceeding 300 thousand outstanding shares of the subsidiary
tracking stock at an amount in total not exceeding ¥1 billion. As
a result, Sony Corporation had acquired 2 million outstanding
shares of its common stock at an amount in ¥8,200 million.
The Ordinary General Meeting of Shareholders held on June 22,
2004 approved to amend the articles of incorporation that Sony
Corporation may purchase its own shares by a resolution of the
Board of Directors, in accordance with the amendments to the
Japanese Commercial Code enacted on September 25, 2003.
With the amendment of the articles of incorporation, Sony
Corporation may purchase its own shares at any time by a
resolution of the Board of Directors up to the retained earnings
available for dividends to shareholders. No common stock and
subsidiary tracking stock had been acquired by the resolution of
the Board of Directors during the fiscal year ended March 31,
2005 and 2006.
(3) Retained earnings:
The amount of statutory retained earnings of Sony Corporation
available for dividends to shareholders as of March 31, 2006 was
¥565,936 million ($4,837 million). The appropriation of retained
earnings for the fiscal year ended March 31, 2006 including
cash dividends for the six-month period ended March 31, 2006
has been incorporated in the accompanying consolidated
financial statements. This appropriation of retained earnings
was approved at the meeting of the Board of Directors of Sony
Corporation held on May 17, 2006 and was then recorded in the
statutory books of account, in accordance with the Japanese
Commercial Code.
Retained earnings include Sony’s equity in undistributed
earnings of affiliated companies accounted for by the equity
method in the amount of ¥2,724 million and ¥13,557 million
($116 million) at March 31, 2005 and 2006, respectively.