BW20030602002106 20030602T152038Z UTC
( BW)(SONY-CORP.)(SON) Final Results - Part 4
Business Editors
UK REGULATORY NEWS
TOKYO--(BUSINESS WIRE)--June 2, 2003--
PART 4 OF 4
During the year ended March 31, 2003, YEN7,665 million ($64 million)
of foreign currency translation adjustments was transferred from other
comprehensive income and charged to income as a result of the
liquidation of certain foreign subsidiaries.
17. Stock-based compensation plans
Sony has four types of stock-based compensation plans as incentive
plans for directors and selected employees.
(1) Warrant plan:
Upon issuance of unsecured bonds with detachable warrants which are
described in Note 12, Sony Corporation has purchased all of the
detachable warrants and distributed them to the directors and selected
employees of Sony. By exercising a warrant, directors and selected
employees can purchase the common stock or subsidiary tracking stock
of Sony Corporation, the number of which is designated by each plan.
The warrants generally vest ratably over a period of three years, and
are generally exercisable up to six years from the date of grant.
(2) Convertible Bond plan:
In April 2000, Sony adopted an equity-based compensation plan for
selected executives of Sony's United States of America subsidiaries
using U.S. dollar-denominated non-interest bearing convertible bonds
which have characteristics similar to that of an option plan. Each
convertible bond can be converted into 100 shares of the common stock
of Sony Corporation at an exercise price based on the prevailing
market rate shortly before the date of grant. The convertible bonds
vest ratably over a three-year period and are exercisable up to ten
years from the date of grant. As the convertible bonds were issued in
exchange for a non-interest bearing employee loan, no accounting
recognition was given to either the convertible bonds or the employee
loans in Sony's consolidated balance sheet as a right of offset exists
between the convertible bonds and the employee loans.
(3) Stock Acquisition Rights:
During the year ended March 31, 2003, Sony adopted an equity-based
compensation plan that issues common stock acquisition rights for the
purpose of granting stock options to the directors and selected
employees of Sony, and subsidiary tracking stock acquisition rights
for the purpose of granting stock options to the directors and
selected employees of Sony Communication Network Corporation, pursuant
to the Commercial Code of Japan. The stock acquisition rights
generally vest ratably over a three-year period and are exercisable up
to ten years from the date of grant.
Presented below is a summary of the activity for common stock warrant,
convertible bond and stock acquisition rights plans for the years
shown:
Year ended March 31
----------------------------------------------------------------------------
2001 2002 2003
-------------------- -------------------- ----------------------------------
Weighted- Weighted- Weighted- Weighted-
average average average average
Number of exercise Number of exercise Number of exercise exercise
Shares price Shares price Shares price price
---------- --------- ---------- --------- ---------- --------- -------------
Yen Yen Yen Dollars
--------- --------- --------- -------------
Outstanding at
beginning of year1,531,573 YEN6,456 2,800,270 YEN9,911 5,853,892 YEN8,648 $72.07
Granted 1,420,900 12,788 3,397,300 6,877 3,874,100 5,313 44.28
Exercised (111,103) 5,341 (8,294) 6,264
Forfeited (41,100) 12,544 (335,384) 6,384 (87,100) 8,306 69.22
---------- ---------- ----------
Outstanding at end
of year 2,800,270 YEN9,911 5,853,892 YEN8,648 9,640,892 YEN7,832 $65.27
========== ========== ==========
Exercisable at end
of year 825,265 YEN6,332 2,082,640 YEN8,127 4,314,292 YEN9,773 $81.44
A summary of common stock warrants, convertible bond options and stock
acquisition rights outstanding and exercisable at March 31, 2003 is as
follows:
Outstanding Exercisable
------------------------------------------ ----------------------------------
Weighted- Weighted- Weighted- Weighted- Weighted-
average average average average average
Exercise price Number of exercise exercise remaining Number of exercise exercise
range Shares price price life Shares price price
--------------- ---------- --------- --------- ----------- ---------- --------- -------------
Yen Yen Dollars Years Yen Dollars
--------------- --------- --------- ----------- --------- -------------
YEN4,38810,000 8,277,792 YEN6,948 $57.90 7.57 3,358,792 YEN8,774 $73.12
10,00114,757 1,363,100 13,201 110.01 4.71 955,500 13,282 110.68
---------- ----------
YEN4,38814,757 9,640,892 YEN7,832 $65.27 7.17 4,314,292 YEN9,773 $81.44
========== ==========
A summary of subsidiary tracking stock warrants and stock acquisition
rights outstanding and exercisable at March 31, 2003 is as follows:
Outstanding Exercisable
------------------------------------------- ----------------------------------
Weighted- Weighted- Weighted- Weighted- Weighted-
Number average average average Number average average
Exercise price of exercise exercise remaining of exercise exercise
range Shares price price life Shares price price
-------------- -------- --------- --------- ----------- -------- --------- -------------
Yen Yen Dollars Years Yen Dollars
-------------- -------- --------- --------- ----------- -------- --------- -------------
YEN1,0083,300 90,500 YEN2,148 $17.90 7.77 14,850 YEN3,300 $27.50
As the exercise prices for the warrant, convertible bond and stock
acquisition rights plans were determined based on the prevailing
market price shortly before the date of grant, the compensation
expense for these plans were not significant for the years ended March
31, 2001, 2002 and 2003, respectively.
The weighted-average fair value per share at the date of grant for
common stock warrants, convertible bond options and stock acquisition
rights granted during the years ended March 31, 2001, 2002 and 2003
was YEN4,111, YEN2,554 and YEN1,707 ($14.23), respectively. The fair
value of common stock warrants, convertible bond options and stock
acquisition rights granted on the date of grant, which is amortized to
expense over the vesting period in determining the pro forma impact,
is estimated using the Black-Scholes option-pricing model with the
following weighted-average assumptions:
Year ended March 31
--------------------------------------
Weighted-average
assumptions 2001 2002 2003
----------- ----------- ------------
Risk-free interest rate 2.68 % 2.58 % 1.73 %
Expected lives 3.26 years 3.28 years 3.30 years
Expected volatility 44.07 % 50.81 % 44.54 %
Expected dividend 0.21 % 0.40 % 0.49 %
(4) SAR plan:
Sony grants stock appreciations rights ("SARs") in Japan, Europe and
the United States of America for selected employees. Under the terms
of these plans, employees on exercise receive cash equal to the amount
that the market price of Sony Corporation's common stock exceeds the
strike price of the SARs. The SARs generally vest ratably over a
period of three years, and are generally exercisable up to six to ten
years from the date of grant. Sony holds treasury stock for the SAR
plan in Japan to minimize cash flow exposure associated with the SARs.
In addition, Sony uses various strategies to minimize the compensation
expense associated with the SAR plans in the United States of America
and Europe.
In December 2001, Sony granted options under its convertible bond plan
to certain employees in exchange for the employees agreeing to cancel
an equal number of outstanding SARs. Under FASB Interpretation No. 44
"Accounting for Certain Transactions Involving Stock Compensation - an
interpretation of APB Opinion No. 25", no compensation charge was
recorded as the number and terms of the new options under the
convertible bond plan were substantially the same as the SARs that
were cancelled.
The status of the SAR plans is summarized as follows:
Year ended March 31
----------------------------------------------------------------------------
2001 2002 2003
-------------------- --------------------- ---------------------------------
Weighted- Weighted- Weighted- Weighted-
average average average average
Number of exercise Number of exercise Number of exercise exercise
SARs price SARs price SARs price price
---------- --------- ----------- --------- ---------- --------- ------------
Yen Yen Yen Dollars
--------- --------- --------- ------------
Outstanding at
beginning of year4,046,490 YEN5,443 3,565,246 YEN6,218 2,410,394 YEN6,644 $55.37
Granted 154,700 9,801 141,525 7,813 28,750 6,323 52.69
Exercised (588,092) 5,198 (91,330) 5,862 (11,800) 5,727 47.73
Cancelled (1,192,672) 5,951
Expired or
forfeited (47,852) 5,869 (12,375) 8,520 (84,316) 7,274 60.62
---------- ----------- ----------
Outstanding at end
of year 3,565,246 YEN6,218 2,410,394 YEN6,644 2,343,028 YEN6,341 $52.84
========== =========== ==========
Exercisable at end
of year 1,397,216 YEN5,966 1,864,928 YEN6,282 2,176,319 YEN6,211 $51.76
A summary of SARs outstanding and exercisable at March 31, 2003 is as
follows:
Outstanding Exercisable
------------------------------------------ ----------------------------------
Weighted- Weighted- Weighted- Weighted- Weighted-
average average average average average
Exercise price Number of exercise exercise remaining Number of exercise exercise
range SARs price price life SARs price price
--------------- ---------- --------- --------- ----------- ---------- --------- -------------
Yen Yen Dollars Years Yen Dollars
--------------- --------- --------- ----------- --------- -------------
YEN3,6155,000 242,534 YEN4,455 $37.12 1.79 241,601 YEN4,455 $37.13
5,00110,000 2,046,369 6,393 53.28 2.17 1,896,036 6,298 52.48
10,00115,000 54,125 12,823 106.86 6.56 38,682 12,940 107.83
---------- ----------
YEN3,61515,000 2,343,028 YEN6,341 $52.84 2.23 2,176,319 YEN6,211 $51.76
========== ==========
In accordance with APB No. 25 and its related interpretations, the
SARs compensation expense is measured as the excess of the quoted
market price of Sony Corporation's common stock over the SARs strike
price, which is consistent with the accounting treatment prescribed
for SAR plans in FAS No. 123. For the years ended March 31, 2001, 2002
and 2003, Sony recognized a reduction in SARs compensation expense of
YEN5,587 million, YEN4,748 million and YEN670 million ($6 million),
respectively, due to the decline in Sony's stock price during the
years.
18. Restructuring charges and asset impairments
As part of its effort to improve the performance of the various
businesses, Sony has undertaken a number of restructuring initiatives
within the Electronics, Music and Pictures businesses. For the years
ended March 31, 2001, 2002 and 2003, Sony recorded total restructuring
charges of YEN34,718 million, YEN106,974 million and YEN106,251
million ($885 million), respectively. Significant restructuring
charges and asset impairments include the following:
Electronics Segment
In an effort to improve the performance of the Electronics segment,
Sony has undergone a number of restructuring efforts to reduce its
operating costs. For the years ended March 31, 2001, 2002 and 2003,
Sony recorded total restructuring charges of YEN20,620 million,
YEN86,852 million and YEN72,473 million ($604 million), respectively,
within the Electronics segment. Significant restructuring activities
are the following:
Shutdown of computer display CRT operations -
In the year ended March 31, 2002, as flat panel monitors became more
popular in the marketplace, the demand for computer display CRTs was
drastically reduced. In this situation, Sony decided to abandon
certain manufacturing equipments for computer display CRTs mainly in
the U.S. in the second quarter of the year ended March 31, 2002.
Restructuring charges totaling YEN19,639 million consisted of non-cash
equipment write-downs of YEN6,261 million, costs related to the
buy-out and cancellation of operating leases totaling YEN11,264
million and other costs related to the disposal of equipment of
YEN2,114 million. Of the total restructuring charges recorded, YEN946
million was recorded in cost of sales and YEN18,693 million was
included in selling, general and administrative expense in the
consolidated statements of income. The restructuring activity was
completed in the year ended March 31, 2003, and all reserve balances
were fully utilized as of March 31, 2003.
In the year ended March 31, 2003, due to further market shrinkage and
demand shift from CRT displays to LCDs, Sony made a decision to
discontinue certain computer display CRT manufacturing operations in
Japan and Southeast Asia to rationalize production facilities and
downsize its business. Restructuring charges totaling YEN6,902 million
($58 million) consisted of personnel related costs of YEN1,208 million
($10 million), non-cash equipment write-downs of YEN4,010 million ($34
million) and contract termination and other costs of YEN1,684 million
($14 million). Of the total restructuring charges, YEN1,264 million
($11 million) was recorded in cost of sales and YEN5,638 million ($47
million) was included in selling, general and administrative expense
in the consolidated statements of income. The remaining reserve
balance as of March 31, 2003 was YEN383 million ($3 million) and will
be utilized in the year ending March 31, 2004.
Aiwa Co. Ltd. restructuring -
In the year ended March 31, 2002, in response to a decline in
performance of Aiwa Co., Ltd., and its subsidiaries ("Aiwa"), Aiwa
underwent a drastic restructuring program to eliminate the causes of
this downward trend and to return to be profitable. Aiwa recorded
restructuring charges totaling YEN25,484 million in the year ended
March 31, 2002, which included a reduction of unprofitable product
lines, plant closures and a reduction of the work forces. These
charges consisted of non-cash equipment write-downs of YEN10,244
million, personnel related costs of YEN8,209 million, and other costs
of YEN7,031 million including the devaluation of inventory. Among
these charges YEN5,734 million was recorded in cost of sales and
YEN19,750 million was included in selling, general and administrative
expense in the consolidated statements of income. Aiwa eliminated its
employees from various employee levels, business functions, operating
units and geographic regions.
Due to the continued decline in the operating results of Aiwa, the
restructuring program that was initiated in the year ended March 31,
2002 was accelerated and additional restructuring charges of YEN23,007
million ($192 million) were recorded in the year ended March 31, 2003.
Additional restructuring included further cuts in staffing levels and
shutdown of remaining production facilities. These charges consisted
of non-cash equipment write-downs of YEN3,504 million ($29 million),
personnel related costs of YEN7,647 million ($64 million), devaluation
of inventory of YEN6,144 million ($51 million), operating lease
termination costs of YEN3,823 million ($32 million) and other costs of
YEN1,889 million ($16 million). Among these charges YEN13,791 million
($115 million) was recorded in cost of sales and YEN9,216 million ($77
million) was included in selling, general and administrative expense
in the consolidated statements of income. The restructuring program
was completed in the year ended March 31, 2003 and no reserve existed
as of March 31, 2003. Aiwa Co., Ltd. was merged into Sony Corporation
as of December 1, 2002. No further costs are expected to be incurred
for the Aiwa restructuring.
Closing of a semiconductor plant in the U.S. -
Due to a significant decline in the business conditions of the U.S.
semiconductor industry, Sony made a decision in the fourth quarter of
the year ended March 31, 2003, to close a semiconductor plant in the
U.S. The total estimated cost of the restructuring program is YEN8,148
million ($68 million), of which YEN5,856 million ($49 million) was
incurred through March 31, 2003. These restructuring charges consisted
of accelerated depreciation of equipments of YEN3,128 million ($26
million), personnel related costs of YEN1,329 million ($11 million),
the devaluation of inventory and other costs of YEN1,399 million ($12
million). These charges were all recorded in cost of sales in the
consolidated statements of income. This restructuring activity is
expected to complete in the year ending March 31, 2004. The remaining
reserve balance as of March 31, 2003 was YEN1,452 million ($12
million).
Early retirement program in Japan -
In addition to the restructuring efforts disclosed above, Sony has
undergone several headcount reduction programs to further reduce
operating costs in the Electronics segment. As a result of these
programs, Sony recorded restructuring charges totaling YEN14,440
million, YEN12,252 million and YEN10,932 million ($91 million) for the
years ended March 31, 2001, 2002 and 2003, respectively, and these
charges were included in selling, general and administrative expense
in the consolidated statements of income. These staff reductions were
achieved through the implementation of early retirement programs in
Japan. The remaining reserve balance as of March 31, 2003 was YEN1,009
million ($8 million) and will be utilized through the year ending
March 31, 2004.
Music Segment
Due to the continued contraction of the worldwide music market due to
slow worldwide economic growth, the saturation of the CD market, the
effects of piracy and other illegal duplication, parallel imports,
pricing pressures and the diversification of customer preferences,
Sony has been actively repositioning the Music segment for the future
by looking to create a more effective and profitable business model.
As a result, the Music segment has undergone a worldwide restructuring
program to reduce staffing and other costs through the consolidation
and rationalization of facilities worldwide. For the years ended March
31, 2001, 2002 and 2003, Sony recorded total restructuring charges of
YEN7,908 million, YEN8,599 million and YEN22,350 million ($186
million), respectively, within the Music segment. The total estimated
costs of the worldwide restructuring program are YEN43,371 million
($361 million), of which YEN38,857 million ($324 million) was incurred
through March 31, 2003. At March 31, 2003, the remaining reserve
balance was YEN11,522 million ($96 million). This reserve balance will
be utilized over the next two to three years, with most of the
payments being made during the year ending March 31, 2004. The
worldwide restructuring program is expected to complete by the year
ending March 31, 2006. Significant restructuring activities included
the following:
In the year ended March 31, 2001, the Music segment initiated its
worldwide restructuring program with the shutdown of a CD and audio
cassette manufacturing plant in the U.S., as part of its effort to
consolidate manufacturing operations, and staff reductions in other
areas. As a result, Sony recorded restructuring charges totaling
YEN7,908 million in the year ended March 31, 2001. The restructuring
charges consisted of personnel related costs of YEN3,540 million,
non-cash asset write-downs of YEN3,160 million and other costs of
YEN1,208 million including lease termination costs. Of the total
restructuring charges, YEN779 million was recorded in cost of sales
and YEN7,129 million was included in selling, general and
administrative expense in the consolidated statements of income.
In the year ended March 31, 2002, Sony recorded additional
restructuring charges totaling YEN8,599 million. Restructuring
activities included the rationalization of digital media initiative
and portfolio investment businesses in order to focus on core music
activities and staff reductions. Charges incurred in the year ended
March 31, 2002 consisted of personnel related costs of YEN5,100
million, non-cash asset write-downs of YEN787 million, and other costs
of YEN2,712 million including lease termination costs. These charges
were included in selling, general and administrative expense in the
consolidated statements of income.
In the year ended March 31, 2003, restructuring charges related to the
worldwide restructuring of the Music segment totaled YEN22,350 million
($186 million). Restructuring activities included the further
consolidation of operations through the shutdown of a cassette and CD
manufacturing and distribution center in Holland and a second CD
manufacturing facility in the U.S. as well as further staff reductions
in other areas. The restructuring charges consisted of personnel
related costs of YEN14,932 million ($124 million), non-cash asset
write-downs of YEN3,256 million ($27 million) and other costs of YEN
4,162 million ($35 million) including lease termination costs. These
charges were included in selling, general and administrative expense
in the consolidated statements of income. Employees were eliminated
across various employee levels, business functions, operating units,
and geographic regions during this phase of the worldwide
restructuring program.
Pictures Segment
Due to changes within the television production and distribution
business, the competition to obtain customers between the major
television networks and other production and distribution companies is
becoming more intense. This competitive environment has resulted in
fewer opportunities to produce shows for the networks and a shorter
lifespan for ordered shows that do not immediately achieve favorable
ratings. Consistent with this trend, Sony has seen an increase in the
number of new programs being distributed yet canceled in their first
or second season and that are generally less profitable, and a
decrease in the number of network programs that are able to achieve
syndication and that are generally more profitable. As a result, in
the year ended March 31, 2002, Sony decided to consolidate its
television operations and downsize the network television production
business in the Pictures segment. Sony recorded restructuring charges
totaling YEN8,452 million which consisted of personnel related costs
of YEN1,753 million, non-cash asset write-downs of YEN1,767 million,
and other costs of YEN4,932 million including those relating to the
buy-out of term deal commitments. These restructuring charges were all
recorded in cost of sales in the consolidated statements of income. In
the year ended March 31, 2003, additional restructuring charges
totaling YEN480 million ($4 million) were recorded. These costs were
included in cost of sales in the consolidated statements of income.
The remaining reserve balance as of March 31, 2003 was YEN947 million
($8 million). The restructuring plan is expected to complete by the
second quarter of the year ending March 31, 2005 and all reserves will
be utilized over the next two years.
The following table displays the balance of the accrued restructuring
charges recorded for the years ended March 31, 2001, 2002 and 2003.
Yen in millions
---------------------------------------------------------------------
Employee Non-cash Other
termination write-down associated Total
benefits costs
------------- ------------- ------------- ------------------
Balance at March 31,
2000 YEN58 - YEN2,131 YEN2,189
Restructuring costs 19,200 YEN14,070 1,448 34,718
Non-cash charges - (14,070) - (14,070)
Cash payments (18,142) - (2,617) (20,759)
Adjustments 145 - 126 271
------------- ------------- ------------- ------------------
Balance at March 31,
2001 1,261 - 1,088 2,349
Restructuring costs 38,123 39,598 29,253 106,974
Non-cash charges - (39,598) - (39,598)
Cash payments (33,291) - (16,907) (50,198)
Adjustments 150 - 203 353
------------- ------------- ------------- ------------------
Balance at March 31,
2002 6,243 - 13,637 19,880
Restructuring costs 46,953 42,768 16,530 106,251
Non-cash charges - (42,240) - (42,240)
Cash payments (38,548) - (23,172) (61,720)
Adjustments 136 (528) (1,208) (1,600)
------------- ------------- ------------- ------------------
Balance at March 31,
2003 YEN14,784 - YEN5,787 YEN20,571
============= ============= ============= ==================
Dollars in millions
---------------------------------------------------------------------
Employee Non-cash Other
termination write-down associated Total
benefits costs
------------- ------------- ------------- ------------------
Balance at March 31,
2002 $52 - $113 $165
Restructuring costs 391 $356 138 885
Non-cash charges - (352) - (352)
Cash payments (321) - (193) (514)
Adjustments 1 (4) (10) (13)
------------- ------------- ------------- ------------------
Balance at March 31,
2003 $123 - $48 $171
============= ============= ============= ==================
19. Research and development costs, advertising costs and shipping and
handling costs
(1) Research and development costs:
Research and development costs charged to cost of sales for the years
ended March 31, 2001, 2002 and 2003 were YEN416,708 million,
YEN433,214 million and YEN443,128 million ($3,693 million),
respectively.
(2) Advertising costs:
Advertising costs included in selling, general and administrative
expenses for the years ended March 31, 2001, 2002 and 2003 were
YEN389,359 million, YEN401,960 million and YEN442,741 million ($3,690
million), respectively.
(3) Shipping and handling costs:
Shipping and handling costs for finished goods included in selling,
general and administrative expenses for the years ended March 31,
2001, 2002 and 2003 were YEN104,155 million, YEN98,800 million and
YEN98,195 million ($818 million), respectively, which included the
internal transfer costs of finished goods.
20. Gain on issuances of stock by equity investees
In August 2000, Monex Inc., which provides on-line security trading
services in Japan, issued 150,000 shares at YEN41,850 per share valued
at YEN6,278 million in connection with its initial public offering. As
a result of this issuance, Sony recorded a gain of YEN1,900 million
and provided deferred taxes on this gain. This issuance reduced Sony's
ownership interest from 36.6% to 32.8%.
In August 2000, Crosswave Communications Inc., which provides
high-capacity/high-speed network services in Japan, issued 101,960
shares at YEN304,360 per share valued at YEN28,958 million after the
deduction of stock issue costs in connection with its initial public
offering. As a result of this issuance, Sony recorded a gain of
YEN6,406 million and provided deferred taxes on this gain. This
issuance reduced Sony's ownership interest from 30.0% to 23.9%.
In October 2000, SKY Perfect Communications Inc., which provides
satellite broadcasting services in Japan, issued 400,000 shares at
YEN304,000 per share valued at YEN121,600 million in connection with
its initial public offering. In connection with this issuance, Sony
recorded a gain of YEN9,551 million and provided deferred taxes on
this gain. This issuance reduced Sony's ownership interest from 9.9%
to 8.1%. As a result of this transaction, SKY Perfect Communications
Inc. is no longer accounted for under the equity method, as Sony no
longer has significant influence.
In addition to the above transactions, for the year ended March 31,
2001, Sony recognized YEN173 million of other gains on issuances of
stock by equity investees resulting in total gains of YEN18,030
million. Total gains on issuances of stock by equity investees were
YEN503 million for the year ended March 31, 2002. There were no gains
on issuances of stock for equity investees for the year ended March
31, 2003. These gains resulted from stock issued by equity investees
or otherwise. These transactions were not part of a broader corporate
reorganization and the reacquisition of such shares was not
contemplated at the time of issuance.
21. Income taxes
Income before income taxes and income tax expense comprise the
following:
Dollars in
Yen in millions millions
----------------------------------- -----------
Year ended
Year ended March 31 March 31,
-----------------------------------
2001 2002 2003 2003
---------- ----------- ----------- -----------
Income (loss) before income taxes:
Sony Corporation and subsidiaries in
Japan YEN158,987 YEN(5,103) YEN(7,998) $(67)
Foreign subsidiaries 106,881 97,878 255,619 2,131
---------- ----------- ----------- -----------
YEN265,868 YEN92,775 YEN247,621 $2,064
========== =========== =========== ===========
Income taxes - Current:
Sony Corporation and subsidiaries in
Japan YEN89,708 YEN55,641 YEN69,311 $578
Foreign subsidiaries 31,405 59,289 109,536 913
---------- ----------- ----------- -----------
YEN121,113 YEN114,930 YEN178,847 $1,491
========== =========== =========== ===========
Income taxes - Deferred:
Sony Corporation and subsidiaries in
Japan YEN(106) YEN(46,082) YEN(90,016) $(750)
Foreign subsidiaries (5,473) (3,637) (8,000) (67)
---------- ----------- ----------- -----------
YEN(5,579) YEN(49,719) YEN(98,016) $(817)
========== =========== =========== ===========
Sony is subjected to a number of different income taxes. Due to
changes in Japanese income tax regulations, a consolidated tax filing
system was introduced on April 1, 2002. Sony applied to file its
return under the consolidated tax filing system beginning with the
year ending March 31, 2004. Under the Japanese consolidated tax filing
system, a 2% surtax will be imposed only for the year ending March 31,
2004. As a result, the statutory tax rate will be approximately 44%
for the year ending March 31, 2004.
For the year ending March 31, 2005, a corporation size-based
enterprise tax will be introduced which will supersede the current
enterprise tax. As a result, the statutory tax rate for the year
ending March 31, 2005 will be approximately 41% effective April 1,
2004. The respective newly enacted rates were used in calculating the
future expected tax effects of temporary differences as of March 31,
2003. The effect of the changes in the tax rates on the balance of
deferred tax assets and liabilities was insignificant.
Reconciliation of the differences between the statutory tax rate and
the effective income tax rate is as follows:
Year ended March 31
--------------------------------------
2001 2002 2003
----------- ----------- ------------
Statutory tax rate 42.0% 42.0% 42.0%
Increase (reduction) in taxes resulting from:
Income tax credits (1.7) (2.1) (1.9)
Change in valuation allowances 14.2 55.5 5.5
Decrease in deferred tax liabilities on
undistributed earnings of foreign
subsidiaries (6.5) (21.6) (14.8)
Reversal of foreign tax reserves - (6.5) -
Other (4.5) 3.0 1.8
----------- ----------- ------------
Effective income tax rate 43.5% 70.3% 32.6%
=========== =========== ============
The significant components of deferred tax assets and liabilities are
as follows:
Dollars in
Yen in millions millions
------------------------- -----------
March 31 March 31,
-------------------------
2002 2003 2003
----------- ------------ -----------
Deferred tax assets:
Accrued pension and severance costs YEN125,745 YEN213,284 $1,777
Operating loss carryforwards for tax
purposes 155,979 130,473 1,087
Warranty reserve and accrued expenses 59,979 64,094 534
Future insurance policy benefits 28,552 34,734 289
Inventory - intercompany profits and
write-down 41,294 34,423 287
Film costs 41,917 33,907 283
Tax credit carryforwards 16,004 33,762 281
Accrued bonus 31,060 32,694 272
Reserve for doubtful accounts 16,401 20,256 169
Depreciations 19,067 15,724 131
Other 134,373 119,671 998
----------- ------------ -----------
Gross deferred tax assets 670,371 733,022 6,108
Less: Valuation allowance (252,208) (116,068) (967)
----------- ------------ -----------
Total deferred tax assets 418,163 616,954 5,141
----------- ------------ -----------
Deferred tax liabilities:
Insurance acquisition costs (111,570) (118,689) (989)
Undistributed earnings of foreign
subsidiaries (72,713) (46,449) (387)
Intangible assets acquired through
exchange offerings (40,580) (38,882) (324)
Gain on securities contribution to
employee
retirement benefit trust (29,313) (17,438) (145)
Unrealized gains on securities (21,487) (11,672) (97)
Other (55,169) (81,374) (679)
----------- ------------ -----------
Gross deferred tax liabilities (330,832) (314,504) (2,621)
----------- ------------ -----------
Net deferred tax assets YEN87,331 YEN302,450 $2,520
=========== ============ ===========
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 increases of YEN86,422 million and YEN53,595 million
for the years ended March 31, 2001 and 2002, respectively, and a
decrease of YEN136,140 million ($1,135 million) for the year ended
March 31,2003.
As discussed in Note 10, YEN 33,525 million ($279 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 businesses. The reversal of the
valuation allowance upon realization of tax benefit from operating
loss carryforwards resulted in the reduction of goodwill.
During the year ended March 31, 2003, approximately YEN19,000 million
($158 million) of tax benefits have been realized through utilization
of operating loss carryforwards.
Net deferred tax assets are included in the consolidated balance
sheets as follows:
Dollars in
Yen in millions millions
------------------------- -----------
March 31 March 31,
-------------------------
2002 2003 2003
----------- ------------ -----------
Current assets - Deferred income taxes YEN134,299 YEN143,999 $1,200
Other assets - Deferred income taxes 120,168 328,091 2,734
Current liabilities - Other (7,563) (10,561) (88)
Long-term liabilities - Deferred income
taxes (159,573) (159,079) (1,326)
----------- ------------ -----------
Net deferred tax assets YEN87,331 YEN302,450 $2,520
=========== ============ ===========
At March 31, 2003, no deferred income taxes have been provided on
undistributed earnings of foreign subsidiaries not expected to be
remitted in the foreseeable future totaling YEN813,923 million ($6,783
million), and on the gain of YEN61,544 million on a subsidiary's sale
of stock arising from the issuance of common stock of Sony Music
Entertainment (Japan) Inc. 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, 2003 for such temporary differences amounted to
YEN200,103 million ($1,668 million).
Operating loss carryforwards for tax purposes of Sony Corporation and
certain consolidated subsidiaries at March 31, 2003 amounted to
YEN304,634 million ($2,539 million) and are available as an offset
against future taxable income. With the exception of YEN64,315 million
($536 million) with no expiration period, total available operating
loss carryforwards expire at various dates primarily up to 6 years.
Tax credit carryforwards for tax purposes at March 31, 2003 amounted
to YEN33,762 million ($281 million). With the exception of YEN9,969
million ($83 million) with no expiration period, total available tax
credit carryforwards expire at various dates primarily up to 10 years.
Realization is dependent on such companies generating 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.
22. Reconciliation of the differences between basic and diluted net
income per share ("EPS")
(1) Income before cumulative effect of accounting changes and net
income allocated to each class of stock:
Year ended
Year ended March 31 March 31,
---------------------------------------------
2001 2002 2003 2003
------------- ------------- --------------- -----------
Dollars
Yen in millions in millions
--------------------------------------------- -----------
Income before cumulative effect of
accounting changes allocated to
the
common stock YEN121,227 YEN9,381 YEN115,648 $964
Income before cumulative effect of
accounting changes allocated to
the
subsidiary tracking stock - (49) (129) (1)
------------- ------------- --------------- -----------
Income before cumulative effect of
accounting changes YEN121,227 YEN9,332 YEN115,519 $963
============= ------------- =============== ===========
Net income allocated to the
common stock YEN16,754 YEN15,359 YEN115,648 $964
Net income allocated to the
subsidiary tracking stock - (49) (129) (1)
------------- ------------- --------------- -----------
Net income YEN16,754 YEN15,310 YEN115,519 $963
============= ============= =============== ===========
As discussed in Note 2, the earnings allocated to the subsidiary
tracking stock are determined based on the subsidiary tracking stock
holders' economic interest.
The statutory retained earnings of SCN (the subsidiary tracking stock
entity as discussed in Note 16) available for dividends to the
shareholders were YEN209 million as of March 31, 2002, which decreased
by YEN374 million during the year ended March 31, 2002.
The accumulated losses of SCN were YEN779 million ($6 million) as of
March 31, 2003. The accumulated losses increased by YEN989 million ($8
million) during the year ended March 31, 2003.
(2) EPS attributable to common stock:
Basic and diluted EPS as well as the number of shares in the
following table have been adjusted to reflect the two-for-one stock
split that was completed on May 19, 2000. Reconciliation of the
differences between basic and diluted EPS for the years ended March
31, 2001, 2002 and 2003 is as follows:
Year ended
Year ended March 31 March 31,
---------------------------------------------
2001 2002 2003 2003
------------- ------------- --------------- ------------
Dollars
Yen in millions in millions
--------------------------------------------- ------------
Income before cumulative effect of
accounting changes allocated to YEN121,227 YEN9,381 YEN115,648
the
common stock $964
Effect of dilutive securities:
Convertible bonds 2,417 - 2,398 20
------------- ------------- --------------- ------------
Income before cumulative effect of
accounting changes allocated to
the
common stock YEN123,644 YEN9,381 YEN118,046
for diluted EPS computation $984
============= ============= =============== ============
Thousands of shares
---------------------------------------------
Weighted-average shares 913,932 918,462 919,706
Effect of dilutive securities:
Warrants 472 108 12
Convertible bonds 79,830 2,664 78,873
------------- ------------- ---------------
Weighted-average shares
for diluted EPS computation 994,234 921,234 998,591
============= ============= ===============
Yen Dollars
--------------------------------------------- ------------
Basic EPS YEN132.64 YEN10.21 YEN125.74 $1.05
============= ============= =============== ============
Diluted EPS YEN124.36 YEN10.18 YEN118.21 $0.99
============= ============= =============== ============
In accordance with FAS No. 128, "Earnings per Share", the computation
of diluted EPS for the years ended March 31, 2001 and 2002 uses the
same weighted-average shares used for the computation of diluted
income before cumulative effect of accounting changes per share, and
reflects the effect of assumed conversion of convertible bonds in
diluted net income.
For the year ended March 31, 2002, 75,201 thousand shares of potential
common stock upon the conversion of convertible bonds were excluded
from the computation of diluted EPS due to their antidilutive effect.
Potential common stock upon the exercise of warrants and stock
acquisition rights, which were excluded from the computation of
diluted EPS since they have an exercise price in excess of the average
market value of Sony's common stock during the fiscal year, were 1,329
thousand shares, 2,665 thousand shares, and 4,141 thousand shares for
the years ended March 31, 2001, 2002 and 2003, respectively.
Warrants and stock acquisition rights of subsidiary tracking stock for
the years ended March 31, 2002 and 2003, which have a potentially
dilutive effect by decreasing net income allocated to common stock,
were excluded from the computation of diluted EPS since they did not
have a dilutive effect.
Stock options issued by affiliated companies accounted for under the
equity method for the years ended March 31, 2001, 2002 and 2003, which
have a potentially dilutive effect by decreasing net income allocated
to common stock, were excluded from the computation of diluted EPS
since such stock option did not have a dilutive effect.
On October 1, 2002, Sony implemented a share exchange as a result of
which Aiwa became a wholly-owned subsidiary. As a result of this share
exchange, Sony issued 2,502 thousand shares. The shares were included
in the computation of basic and diluted EPS.
(3) EPS attributable to subsidiary tracking stock:
Weighted-average shares used for computation of EPS attributable to
subsidiary tracking stock for the years ended March 31, 2002 and 2003
were 3,072 thousand shares. As discussed in Note 2, there were no
potentially dilutive securities for EPS of subsidiary tracking stock
outstanding at March 31, 2002 and 2003.
23. Variable Interest Entities
Sony has, from time to time, entered into various arrangements with
VIEs. These arrangements consist of facilities which provide for the
leasing of certain property, the financing of film production, the
development and operation of a multi-use real estate complex and the
implementation of a stock option plan for Japanese employees. As
discussed below, certain of these entities are currently not
consolidated by Sony. As described in Note 2, the FASB issued FIN No.
46, which will require the consolidation or disclosure of VIEs.
Although Sony continues to evaluate the impact of FIN No. 46 on Sony's
results of operations and financial position, the potential VIEs that
may be consolidated or disclosed are described as follows:
Sony leases the headquarters of its U.S. subsidiary from a VIE, which
was not consolidated by Sony at March 31, 2002 and 2003. Effective
July 1, 2003, Sony will be required to consolidate this entity. Assets
and liabilities are expected to increase by approximately YEN30,600
million ($255 million). Upon consolidation of the VIE, Sony will
record a cumulative effect of accounting change of YEN1,800 million
($15 million). The impact on net income for the year ending March 31,
2004 will be a decrease of YEN840 million ($7 million). Sony has the
option to purchase the building at any time during the lease term
which expires in December 2008 for YEN30,600 million ($255 million).
At the end of the lease term, Sony has agreed to either renew the
lease, purchase the building or remarket it to a third party on behalf
of the owner. If the sales price is less than YEN30,600 million ($255
million), Sony is obligated to make up the lesser of the shortfall or
YEN25,727 million ($214 million). At March 31, 2003, the fair value of
the building exceeded YEN30,600 million ($255 million).
A subsidiary in the Pictures business entered into a joint venture
agreement with a VIE for the purpose of funding the acquisition of
certain international film rights. The subsidiary is required to
distribute the product internationally, for contractually defined fees
determined as percentages of gross receipts, as defined, and is
responsible for all distribution and marketing expenses, which are
recouped from such distribution fees. The VIE was capitalized with
total financing of YEN48,720 million ($406 million). Of this amount,
YEN1,320 million ($11 million) was contributed by the subsidiary,
YEN11,400 million ($95 million) was provided by unrelated third party
investors and the remaining funding is provided through a YEN36,000
million ($300 million) bank credit facility of which YEN1,320 million
($11 million) was outstanding as of March 31, 2003. Effective July 1,
2003, Sony will be required to consolidate this entity. Assets and
liabilities are expected to increase by YEN7,080 million ($59
million); however, there will be no impact to net income. Under the
agreement, the subsidiary's YEN1,320 million ($11 million) equity
investment is the last equity to be repaid. Additionally, it must pay
to the third party investors up to YEN2,280 million ($19 million) of
any losses out of a portion of its distribution fees. Any losses
incurred by the VIE over and above the YEN3,600 million ($30 million)
will be shared by the other investors. The subsidiary is obligated to
acquire the international distribution rights, as defined, for twelve
pictures meeting certain minimum requirements within a 3.5 to 4.5 year
period and transfer those rights to the VIE at cost plus a 5 percent
fee. If the subsidiary is unable to deliver twelve pictures to the VIE
and the bank credit facility or the third party equity investors are
not paid in full by March 10, 2008 (or earlier upon the occurrence of
certain events), the subsidiary is required to reimburse the VIE to
the extent necessary to repay the bank credit facility in full and pay
certain minimum returns to the third party equity investors. At March
31, 2003, the maximum exposure amount is YEN30,574 million ($255
million).
Sony utilized a VIE to erect and operate a multi-use real estate
complex in Berlin, Germany, which was accounted for under the equity
method by Sony at March 31, 2002 and 2003. Effective July 1, 2003,
Sony will be required to consolidate this entity. Upon consolidation,
Sony's assets and liabilities are expected to increase by YEN59,662
million ($497 million). However, there will be no impact to Sony's net
income. The VIE was initially capitalized with YEN90,790 million ($757
million) of total funding, YEN32,561 million ($271 million) was
provided by the equity investors with the remaining funding of
YEN58,229 million ($485 million) being provided through a syndicated
bank loan which matures in November 2004. The syndicated bank loan is
secured by the multi-use real estate complex. Should the VIE be unable
to meet its obligations under the syndicated bank loan, Sony would be
exposed to the potential impairment of its investment in the VIE which
was YEN12,840 million ($107 million) at March 31, 2003.
Sony has utilized a VIE to implement a stock option plan for Japanese
selected employees. The VIE has been consolidated by Sony since its
establishment. There will be no impact to Sony's results of operations
and financial position upon the adoption of FIN No. 46. Under the
terms of the stock option plan, upon exercise, Japanese employees on
exercise receive cash equal to the amount that the market price of
Sony Corporation's common stock exceeds the strike price of the plan.
In order to minimize cash flow exposure associated with the plan, Sony
holds treasury stock through the VIE. The VIE purchased the common
stock with funding provided by the employee's cash contribution and a
bank loan which has been guaranteed by Sony Corporation. If the market
value of common stock is below the price that Sony acquired the
treasury stock for at the time of settlement of stock option plan,
Sony is required to reimburse the VIE for repayment of the bank loan.
At March 31, 2003, the balance of the bank loan was YEN6,909 million
($58 million).
24. Commitments and contingent liabilities
(1) Commitments:
Commitments outstanding at March 31, 2003 amounted to YEN297,768
million ($2,481 million). The major components of the commitments are
as follows:
In the ordinary course of business, Sony makes commitments for the
purchase of property, plant and equipment. As of March 31, 2003, such
commitments outstanding were YEN30,814 million ($257 million).
Certain subsidiaries in the Music business have entered into long-term
contracts with recording artists and companies for the production
and/or distribution of prerecorded music and videos. These contracts
cover various periods mainly through March 31, 2006. As of March 31,
2003, these subsidiaries were committed to make payments under such
long-term contracts of YEN54,508 million ($454 million).
Certain subsidiaries in the Pictures business have entered into
agreements under which the subsidiaries acquire completed films, or
certain rights therein, from third parties. These agreements cover
various periods through March 31, 2005. As of March 31, 2003, these
subsidiaries were committed to make payments under such contracts of
YEN40,116 million ($334 million).
A subsidiary in the Pictures business has also entered into a
distribution agreement with a third party to distribute, in certain
markets and territories, all feature length films produced or acquired
by the third party during the term of the agreement. The distribution
agreement expires on December 31, 2006 if a minimum of 36 films have
been delivered as of that date. If 36 films have not been delivered by
December 31, 2006, the distribution agreement expires on the earlier
of the delivery of the 36th film or May 25, 2007. The subsidiary has
the right to distribute the films for 15 years from the initial
theatrical release of the film. Under the terms of the distribution
agreement, the subsidiary must fund a portion of the production cost
and is responsible for all distribution and marketing expenses. As of
March 31, 2003, 17 films have been released or funded by the
subsidiary. The subsidiary's estimated commitment to fund the
production of the remaining films under this agreement is YEN88,024
million ($734 million).
Aggregate amounts of year-by-year payment schedule of commitments
during the next five years and thereafter are as follows:
Year ending Dollars in
March 31 Yen in millions millions
------------- ---------------- --------------
2004 YEN140,935 $1,174
2005 70,045 584
2006 51,744 431
2007 8,777 73
2008 9,146 76
Thereafter 17,121 143
---------------- --------------
Total YEN297,768 $2,481
================ ==============
(2) Contingent liabilities:
Contingent liabilities including guarantees given in the ordinary
course of business have a maximum exposure of YEN139,119 million
($1,159 million) at March 31, 2003. The major components of the
contingent liabilities are as follows:
Sony has issued loan guarantees to related parties comprised of
affiliated companies accounted for under the equity method and
unconsolidated subsidiaries. The terms of these guarantees are mainly
up to 3 years. Sony would be required to perform under these
guarantees upon non-performance of the primary borrowers. The maximum
exposure of these guarantees is YEN49,078 million ($409 million) and
is not recorded on the balance sheet as of March 31, 2003.
As discussed in Note 23, in connection with the lease of the
headquarters of Sony's U.S. subsidiary, Sony has guaranteed residual
value to a VIE. The maximum exposure of the guarantee is YEN25,727
million ($214 million). This guarantee is secured by the underlying
leased asset and is not recorded on the balance sheet as of March 31,
2003.
As discussed in Note 23, a subsidiary in the Pictures business entered
into a joint venture agreement with a VIE. At March 31, 2003, the
maximum exposure associated with this arrangement is YEN30,574 million
($255 million).
Sony has agreed to indemnify certain third parties against tax losses
resulting from transactions entered into in the normal course of
business. The maximum amount of potential future payments under these
guarantees cannot be estimated at this time. These guarantees are not
recorded on the balance sheet as of March 31, 2003.
Sony Corporation and certain of its subsidiaries are defendants in
several pending lawsuits. However, based upon the information
currently available to both Sony and its legal counsel, management of
Sony believes that damages from such lawsuits, if any, would not have
a material effect on Sony's consolidated financial statements.
The changes in product warranty liability for the year ended March 31,
2003 are as follows:
Yen in Dollars in
millions millions
------------ ------------
Year ended Year ended
March 31 March 31
2003 2003
------------ ------------
Balance at beginning of year YEN53,671 $447
Provision for warranty reserve 47,260 394
Settlements (in cash or in kind) (46,628) (389)
Changes in estimate for pre-existing
warranty reserve (2,032) (17)
Translation adjustment (379) (3)
------------ ------------
Balance at end of year YEN51,892 $432
============ ============
25. Business segment information
Effective for the year ended March 31, 2003, Sony has partly changed
its business segment configuration as described below.
Related businesses in the Network Application and Contents Service
Sector ("NACS"), established in April 2002 to enhance network
businesses, are included in the Other segment. In addition to Sony
Communications Network Corporation, which was originally contained in
the Othersegment, NACS-related businesses include an internal
information system related business, and an IC card business formerly
contained in the "Other" category of the Electronics segment.
As a result, business segment information for the years ended March
31, 2001 and 2002 have been restated to conform to the presentation
for the year ended March 31, 2003.
The Electronics segment designs, develops, manufactures and
distributes audio-visual, informational and communicative equipment,
instruments and devices throughout the world. The Game segment
designs, develops and sells PlayStation and PlayStation 2 game
consoles and related software mainly in Japan, the United States of
America and Europe, manufactures semiconductors used in the game
consoles in Japan, and licenses to third party software developers.
The Music segment is mainly engaged worldwide in the development,
production, manufacture, and distribution of recorded music, in all
commercial formats and musical genres. The Pictures segment develops,
produces and manufactures image-based software, including film, video,
and television mainly in the United States of America, and markets,
distributes and broadcasts in the worldwide market. The Financial
Services segment represents the insurance-related underwriting
business, primarily individual life insurance and non-life insurance
businesses in the Japanese market, leasing and credit financing
businesses and bank business in Japan. The Other segment consists of
various operating activities, primarily including a business focused
on network service business including Internet-related services,
advertising agency business in Japan. Sony's products and services are
generally unique to a single operating segment.
The operating segments reported below are the segments of Sony for
which separate financial information is available and for which
operating profit or loss amounts are evaluated regularly by executive
management in deciding how to allocate resources and in assessing
performance.
Business segments -
Sales and operating revenue:
Dollars in
Yen in millions millions
-------------------------------------- -----------
Year ended
Year ended March 31 March 31,
--------------------------------------
2001 2002 2003 2003
------------ ------------ ------------ -----------
Sales and operating revenue:
Electronics -
Customers YEN4,982,432 YEN4,772,550 YEN4,543,313 $37,861
Intersegment 472,082 513,631 397,137 3,309
------------ ------------ ------------ -----------
Total 5,454,514 5,286,181 4,940,450 41,170
Game -
Customers 646,147 986,529 936,274 7,802
Intersegment 14,769 17,185 18,757 156
------------ ------------ ------------ -----------
Total 660,916 1,003,714 955,031 7,958
Music -
Customers 571,003 588,191 559,042 4,659
Intersegment 41,110 54,649 77,256 644
------------ ------------ ------------ -----------
Total 612,113 642,840 636,298 5,303
Pictures -
Customers 555,227 635,841 802,770 6,690
Intersegment 0 0 0 0
------------ ------------ ------------ -----------
Total 555,227 635,841 802,770 6,690
Financial Services -
Customers 447,147 483,313 512,641 4,272
Intersegment 31,677 28,932 27,878 232
------------ ------------ ------------ -----------
Total 478,824 512,245 540,519 4,504
Other -
Customers 112,868 111,834 119,593 996
Intersegment 93,942 91,977 130,721 1,090
------------ ------------ ------------ -----------
Total 206,810 203,811 250,314 2,086
Elimination (653,580) (706,374) (651,749) (5,431)
------------ ------------ ------------ -----------
Consolidated total YEN7,314,824 YEN7,578,258 YEN7,473,633 $62,280
============ ============ ============ ===========
Electronics intersegment amounts primarily consist of transactions
with the Game business. Music intersegment amounts primarily consist
of transactions with the Game and Pictures businesses. Other
intersegment amounts primarily consist of transactions with the
Electronics business.
Segment profit or loss:
Dollars in
Yen in millions millions
-------------------------------------- -----------
Year ended
Year ended March 31 March 31,
--------------------------------------
2001 2002 2003 2003
----------- ----------- ------------ -----------
Operating income (loss):
Electronics YEN251,146 YEN(1,158) YEN41,380 $345
Game (51,118) 82,915 112,653 939
Music 20,502 20,175 (8,661) (72)
Pictures 4,315 31,266 58,971 491
Financial Services 17,432 22,134 23,338 194
Other (13,715) (16,604) (31,950) (266)
----------- ----------- ------------ -----------
Total 228,562 138,728 195,731 1,631
Elimination 13,781 17,148 15,894 132
Unallocated amounts:
Corporate expenses (16,997) (21,245) (26,185) (218)
----------- ----------- ------------ -----------
Consolidated operating income 225,346 134,631 185,440 1,545
Other income 167,654 96,328 157,528 1,313
Other expenses (127,132) (138,184) (95,347) (794)
----------- ----------- ------------ -----------
Consolidated income before
income taxes YEN265,868 YEN92,775 YEN247,621 $2,064
=========== =========== ============ ===========
Operating income is sales and operating revenue less costs and
operating expenses. Unallocated corporate expenses include stock-based
compensation expenses (Note 17).
Assets:
Dollars in
Yen in millions millions
-------------------------------------- -----------
March 31 March 31,
--------------------------------------
2001 2002 2003 2003
------------ ------------ ------------ -----------
Total assets:
Electronics YEN3,421,624 YEN3,089,791 YEN2,848,492 $23,737
Game 690,737 722,021 673,208 5,610
Music 747,360 739,283 668,702 5,573
Pictures 887,806 960,266 868,395 7,237
Financial Services 2,074,234 2,496,052 2,910,434 24,254
Other 255,495 240,329 273,169 2,276
------------ ------------ ------------ -----------
Total 8,077,256 8,247,742 8,242,400 68,687
Elimination (437,330) (270,374) (261,761) (2,181)
Corporate assets 188,040 208,427 389,906 3,249
------------ ------------ ------------ -----------
Consolidated total YEN7,827,966 YEN8,185,795 YEN8,370,545 $69,755
============ ============ ============ ===========
Unallocated corporate assets consist primarily of cash and cash
equivalents, marketable securities and property, plant and equipment
maintained for general corporate purposes.
Other significant items:
Dollars in
Yen in millions millions
-------------------------------------- -----------
Year ended
Year ended March 31 March 31,
--------------------------------------
2001 2002 2003 2003
----------- ----------- ------------ -----------
Depreciation and amortization:
Electronics YEN209,616 YEN211,910 YEN190,836 $1,590
Game 37,497 49,655 53,496 446
Music 34,648 34,835 33,650 280
Pictures 11,853 10,619 8,552 71
Financial Services, including
deferred insurance acquisition
costs 44,995 37,227 52,041 434
Other 6,184 6,568 9,112 76
----------- ----------- ------------ -----------
Total 344,793 350,814 347,687 2,897
Corporate 3,475 3,321 4,238 36
----------- ----------- ------------ -----------
Consolidated total YEN348,268 YEN354,135 YEN351,925 $2,933
=========== =========== ============ ===========
Capital expenditures for segment
assets:
Electronics YEN281,660 YEN220,032 YEN170,323 $1,419
Game 108,168 47,822 40,986 342
Music 37,776 21,535 21,875 182
Pictures 11,020 11,501 7,138 60
Financial Services 9,341 16,023 3,655 30
Other 13,538 5,208 15,402 128
----------- ----------- ------------ -----------
Total 461,503 322,121 259,379 2,161
Corporate 3,706 4,613 1,862 16
----------- ----------- ------------ -----------
Consolidated total YEN465,209 YEN326,734 YEN261,241 $2,177
=========== =========== ============ ===========
The capital expenditures in the above table represent the additions to
fixed assets of each segment.
The following table is a breakdown of Electronics sales and operating
revenue to external customers by product category. The Electronics
business is managed as a single operating segment by Sony's
management. Effective for the year ended March 31, 2003, Sony has
partly changed its product category configuration. The main changes
are that the projector product group, which includes business
projectors and home-use projectors has been moved from "Information
and Communications" to "Television", and the server product groups
which includes network servers and data storage systems has been moved
from "Component" to "Information and Communications". Accordingly,
sales and operating revenue for the years ended March 31, 2001 and
2002 have been restated to conform to the presentation for the year
ended March 31, 2003.
Dollars in
Yen in millions millions
-------------------------------------- -----------
Year ended
Year ended March 31 March 31,
--------------------------------------
2001 2002 2003 2003
------------ ------------ ------------ -----------
Audio YEN756,393 YEN747,469 YEN682,517 $5,688
Video 791,465 806,401 823,354 6,861
Televisions 797,618 842,388 846,139 7,051
Information and Communications 1,260,531 1,167,328 958,556 7,988
Semiconductors 237,668 182,276 204,710 1,706
Components 569,478 525,568 537,358 4,478
Other 569,279 501,120 490,679 4,089
------------ ------------ ------------ -----------
Total YEN4,982,432 YEN4,772,550 YEN4,543,313 $37,861
============ ============ ============ ===========
Geographic information -
Sales and operating revenue which are attributed to countries based on
location of customers for the years ended March 31, 2001, 2002 and
2003 and long-lived assets as of March 31, 2001, 2002 and 2003 are as
follows:
Dollars in
Yen in millions millions
-------------------------------------- -----------
Year ended
Year ended March 31 March 31,
--------------------------------------
2001 2002 2003 2003
------------ ------------ ------------ -----------
Sales and operating
revenue:
Japan YEN2,400,777 YEN2,248,115 YEN2,093,880 $17,449
U.S.A. 2,179,833 2,461,523 2,403,946 20,033
Europe 1,473,780 1,609,111 1,665,976 13,883
Other 1,260,434 1,259,509 1,309,831 10,915
------------ ------------ ------------ -----------
Total YEN7,314,824 YEN7,578,258 YEN7,473,633 $62,280
============ ============ ============ ===========
Dollars in
Yen in millions millions
-------------------------------------- -----------
March 31 March 31,
--------------------------------------
2001 2002 2003 2003
------------ ------------ ------------ -----------
Long-lived assets:
Japan YEN1,433,038 YEN1,462,709 YEN1,365,160 $11,376
U.S.A. 766,148 812,309 713,524 5,946
Europe 188,174 156,560 164,459 1,371
Other 160,249 174,070 148,616 1,238
------------ ------------ ------------ -----------
Total YEN2,547,609 YEN2,605,648 YEN2,391,759 $19,931
============ ============ ============ ===========
There are not any individually material countries with respect to the
sales and operating revenue and long-lived assets included in Europe
and Other areas.
Transfers between reportable business or geographic segments are made
at arms-length prices.
There are no sales and operating revenue with a single major external
customer for the years ended March 31, 2001, 2002 and 2003.
The following information shows sales and operating revenue and
operating income by geographic origin for the years ended March 31,
2001, 2002 and 2003. In addition to the disclosure requirements under
FAS No. 131, Sony discloses this supplemental information in
accordance with disclosure requirements of the Japanese Securities and
Exchange Law, to which Sony, as a Japanese public company, is subject.
Dollars in
Yen in millions millions
-------------------------------------- -----------
Year ended
Year ended March 31 March 31,
--------------------------------------
2001 2002 2003 2003
------------ ------------ ------------ -----------
Sales and operating
revenue:
Japan -
Customers YEN2,753,063 YEN2,498,641 YEN2,247,030 $18,725
Intersegment 2,322,037 2,312,718 2,433,998 20,283
------------ ------------ ------------ -----------
Total 5,075,100 4,811,359 4,681,028 39,008
U.S.A. -
Customers 2,315,985 2,637,861 2,632,176 21,935
Intersegment 184,581 184,966 189,502 1,579
------------ ------------ ------------ -----------
Total 2,500,566 2,822,827 2,821,678 23,514
Europe -
Customers 1,305,013 1,440,281 1,520,930 12,674
Intersegment 48,991 91,329 121,598 1,013
------------ ------------ ------------ -----------
Total 1,354,004 1,531,610 1,642,528 13,687
Other -
Customers 940,763 1,001,475 1,073,497 8,946
Intersegment 852,648 853,324 789,444 6,579
------------ ------------ ------------ -----------
Total 1,793,411 1,854,799 1,862,941 15,525
Elimination (3,408,257) (3,442,337) (3,534,542) (29,454)
------------ ------------ ------------ -----------
Consolidated total YEN7,314,824 YEN7,578,258 YEN7,473,633 $62,280
============ ============ ============ ===========
Operating income:
Japan YEN155,674 YEN36,188 YEN11,444 $95
U.S.A. 23,131 30,704 98,762 823
Europe 11,641 24,460 62,206 518
Other 71,059 76,061 63,773 532
Corporate and elimination (36,159) (32,782) (50,745) (423)
------------ ------------ ------------ -----------
Consolidated total YEN225,346 YEN134,631 YEN185,440 $1,545
============ ============ ============ ===========
Report of Independent Accountants
To the Stockholders and Board of Directors of
Sony Corporation (Sony Kabushiki Kaisha)
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, cash flows and changes in
stockholders' equity present fairly, in all material respects, the
financial position of Sony Corporation and its consolidated
subsidiaries at March 31, 2002 and 2003, and the results of their
operations and their cash flows for each of the three years in the
period ended March 31, 2003, in conformity with accounting principles
generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United
States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed in Note 2 to the consolidated financial statements, the
Company changed its method of film accounting in the year ended March
31, 2001, and its methods of accounting for derivative instruments and
hedging activities and for goodwill and other intangible assets in the
year ended March 31, 2002.
/S/PricewaterhouseCoopers
May 21, 2003
Report of Independent Accountants
Management As of April 24, 2003
Directors
Nobuyuki Idei (Born: November 22, 1937)
1960 Entered Sony Corporation
1979 General Manager, Audio Division, Audio Group, Sony Corporation
1988 Senior General Manager, Home Video Group, Sony Corporation
1989 Director, Sony Corporation
Senior General Manager, Advertising & Marketing Communication Strategy Group,
1990 Sony Corporation
1994 Senior General Manager, Creative Communication Division, Sony Corporation
President and Representative Director, Chief Operating Officer, Sony
1995 Corporation
President and Representative Director, Chief Executive Officer, Sony
1999 Corporation
1999 to present Director, General Motors Corporation, U.S.A.
Chairman and Chief Executive Officer, Representative Director, Sony
2000 Corporation
2001 to present Director, Nestle S.A., Switzerland
2003 to present Chairman and Group Chief Executive Officer, Representative Director, Sony
Corporation
Kunitake Ando (Born: January 1, 1942)
1969 Entered Sony Corporation
Managing Director, Sony Prudential Life Insurance Co., Ltd. (later renamed
1979 Sony Life Insurance Co., Ltd.)
Deputy President, Sony Prudential Life Insurance Co., Ltd. (later renamed
1985 Sony Life Insurance Co., Ltd.)
President & Chief Operating Officer, Sony Engineering and Manufacturing of
1990 America
1994 Director, Sony Corporation
1996 President, Information Technology Company, Sony Corporation
President & Chief Operating Officer, Personal IT Network Company, Sony
1999 Corporation
President and Chief Operating Officer, Representative Director, Sony
2000 Corporation
2003 to present President and Group Chief Operating Officer, Electronics Chief Executive
Officer, Representative Director, Sony Corporation
Teruhisa Tokunaka (Born: August 9, 1945)
1969 Entered Sony Corporation
1989 Deputy Senior General Manager, Corporate Strategy Group, Sony Corporation
1993 Executive Deputy President, Sony Computer Entertainment Inc.
1995 President, Sony Computer Entertainment Inc.
1999 Senior Managing Director and Chief Financial Officer, Sony Corporation
Executive Deputy President and Chief Financial Officer, Representative
2000 Director, Sony Corporation
2003 to present Executive Deputy President and Group Chief Strategy Officer, Representative
Director,
Officer in charge of Network Application & Content Service Sector, Personal
Solution Business Company, Sony Corporation
Minoru Morio (Born: May 20, 1939)
1963 Entered Sony Corporation
1988 Senior General Manager, Personal Video Systems Group, Sony Corporation
1988 Director, Sony Corporation
1990 Senior General Manager, Home Video Group, Sony Corporation
1993 Executive Deputy President, Sony Corporation
1994 President, Consumer A&V Products Company, Sony Corporation
1995 Chief Technology Officer, Sony Corporation
2000 to present Vice Chairman, Director, Sony Corporation
2001 Chairman, Sony EMCS Corporation
2001 to present Chairman, Sony Ericsson Mobile Communications Japan, Inc.
2001 to present Director, Oki Electric Industry Co., Ltd.
2002 Chief Production Officer, Sony Corporation
2003 to present Representative of Sony Group East Asia, Group Chief Production Officer, Sony
Corporation
Teruo Masaki (Born: August 7, 1943)
1971 Entered Sony Corporation
1987 General Manager, Legal Division, Sony Corporation
Deputy Senior General Manager, Legal and Intellectual Property Group, Sony
1992 Corporation
1997 Executive Vice President, Sony Corporation of America
1999 Senior Managing Director, Sony Corporation
2000 to present Corporate Senior Executive Vice President, Director, Sony Corporation
Group General Counsel, Officer in charge of Legal Matters, Intellectual
2002 Property & Compliance, Sony Corporation
2003 to present Group General Counsel, Officer in charge of Legal Matters and Compliance,
Sony Corporation
Howard Stringer (Born: February 19, 1942)
1986 President, CBS News, U.S.A.
1988 President, CBS Broadcast Group, CBS Inc., U.S.A.
1995 Chairman and CEO, TELE-TV, U.S.A.
1997 President, Sony Corporation of America
1998 to present Chairman, Sony Electronics Inc.
1998 Chairman, Sony Pictures Entertainment Inc.
1998 to present Chairman and Chief Executive Officer, Sony Corporation of America
1999 to present Director, Sony Corporation
2000 to present President, Sony Broadband Entertainment Inc.
2003 to present Vice Chairman, Sony Corporation, Representative of Sony Group Americas,
Head of the Entertainment Business Group
(Continued on following page.)
Ken Kutaragi (Born: August 2, 1950)
1975 Entered Sony Corporation
1991 Manager, PS Project, Video Disc Player Group, Sony Corporation
1993 Senior Director, Sony Computer Entertainment Inc.
1999 Executive President, Sony Computer Entertainment Inc.
2000 to present Director, Sony Corporation
2001 to present President & Chief Executive Officer, Sony Computer Entertainment Inc.
2003 to present Executive Deputy President, Head of Game Business Group, Officer in charge of
Broadband Network
Company, Sony Corporation
Iwao Nakatani (Born: January 22, 1942)
1973 Received Ph.D. in Economics from Harvard University
1984 Professor, Faculty of Economics, Osaka University
1991 Professor, Faculty of Commerce, Hitotsubashi University, Tokyo
1999 to present Director, Sony Corporation
1999 Professor, School of Management and Information Sciences, Tama University
2000 to present Director of Research, SRIC Corporation (later renamed UFJ Institute Ltd.)
2001 to present President, Tama University
Goran Lindahl (Born: April 28, 1945)
1983 President, ASEA Transformers AB, Sweden
1985 President, ASEA Transmission AB, Sweden
1997 President and Chief Executive Officer, Asea Brown Boveri Ltd., Switzerland
1999 Director, LM Ericsson Telephone Co., Sweden
1999 to present Director, E.I. DuPont de Nemours, U.S.A.
2001 to present Director, Sony Corporation
2001 to present Director, Anglo American plc, U.K.
2003 to present Representative of Sony Group Europe
Akishige Okada (Born: April 9, 1938)
1963 Joined the Mitsui Bank, Ltd.
1991 Director, The Mitsui Taiyo Kobe Bank, Ltd.
1995 Managing Director, The Sakura Bank, Ltd.
1996 Senior Managing Director, The Sakura Bank, Ltd.
1997 President, The Sakura Bank, Ltd.
2001 to present Chairman, Sumitomo Mitsui Banking Corp.
2002 to present Director, Sony Corporation
2002 to present Chairman, Sumitomo Mitsui Financial Group, Inc.
------------------------------------------------------------------------------------------------
Statutory Auditors
------------------------------------------------------------------------------------------------
Akihisa Ohnishi (Born: March 10, 1937)
1961 Entered Sony Corporation
1977 Managing Director, Hispano Sony S.A.
1988 Senior General Manager, Accounting Group, Sony Corporation
1989 Director, Sony Corporation
Senior General Manager, Corporate Planning Group, Sony Corporation
1989 (concurrent with prior position)
1993 to present Standing Statutory Auditor, Sony Corporation
Takafumi Abe (Born: July 20, 1938)
1986 General Manager, Singapore Branch, The Mitsui Bank, Ltd.
1989 Director, The Mitsui Bank, Limited
Managing Director, and General Manager, New York Branch, The Sakura Bank,
1992 Ltd.
1996 Counsellor, The Sakura Bank, Ltd.
1997 President, Sakura Asset Management Co., Ltd.
1997 President, Sakura Investment Management Co., Ltd.
2000 to present Standing Statutory Auditor, Sony Corporation
Tadasu Kawai (Born: May 7, 1941)
1964 Entered Sony Shoji Co., Ltd. (Sony's domestic sales company)
1980 General Manager, Sony Overseas S.A. (Swiss entity)
1995 President and Chief Operating Officer, Sony of Canada Ltd.
1996 Deputy President, Sony Corporation of America
1997 Corporate Vice President, Sony Corporation
Corporate Senior Vice President, Officer in charge of Customer Service Center
(later renamed Customer
1999 Satisfaction Center), Sony Corporation
2002 to present Officer in charge of Global Audit, Senior General Manager, International
Marketing Center,
Sony Corporation
2002 to present Standing Statutory Auditor, Sony Corporation
Masasuke Ohmori (Born: May 11, 1937)
1978 Manager, Civil Affairs Bureau of the Ministry of Justice/Prosecutor
1982 Counselor, Civil Affairs Bureau of the Ministry of Justice/Prosecutor
1983 Counselor, The Law Branch of the Cabinet
1992 Deputy Director-General, The Law branch of the Cabinet
1996 Director-General, The Law branch of the Cabinet
2000 to present Guest Professor, Department of Law, Waseda University
2001 to present Statutory Auditor, Sony Corporation
------------------------------------------------------------------------------------------------
Excluding certain cases, company names indicated are as of the specified date.
Investor Information
- 66 -
Sony Corporation
7-35, Kitashinagawa 6-chome, Shinagawa-ku,
Tokyo 141-0001, Japan
Phone: 03-5448-2111
Facsimile: 03-5448-2244
Investor Relations Offices
If you have any questions or would like a copy of our
Form 20-F filed with the U.S. Securities and Exchange Commission or our Annual Report to shareholders,
please direct your request to:
Japan
Sony Corporation
Investor Relations
7-35, Kitashinagawa 6-chome, Shinagawa-ku,
Tokyo 141-0001
Phone: 03-5448-2180
Facsimile: 03-5448-2183
U.S.A.
Sony Corporation of America
Investor Relations
550 Madison Avenue, 27th Floor,
New York, NY 10022-3211
Phone: - U.S. and Canada
- 800- 556-3411
- International
- 402-573-9867
Facsimile: 212-833-6938
U.K.
Sony Global Treasury Services Plc.
Investor Relations
St. Helens, 1 Undershaft, London EC3A 8EE
Phone: 020-7444-9713
Facsimile: 020-7444-9763
Sony on the Internet
Sony's Investor Relations Home Pages on the World Wide Web offer a wealth of corporate information, including the
latest annual report and financial results.
http://www.sony.net/IR/
Ordinary General Meeting of Shareholders
The Ordinary General Meeting of Shareholders will be held in June in Tokyo.
Independent Accountants
PricewaterhouseCoopers
Tokyo, Japan
Depositary, Transfer Agent, and Registrar for
American Depositary Receipts
JPMorgan Chase Bank
270 Park Avenue
New York, NY 10017-2070
Contact Address
JPMorgan Service Center
JPMorgan Chase Bank
P.O. Box 43013
Providence, RI 02940-3013
Phone: - U.S.
- 800-360-4522
- International
- 781-575-4328
Co-Transfer and Co-Registrar Agent
CIBC Mellon Trust Company
2001 University Street, 16th Floor,
Montreal, Quebec, H3A 2A6, Canada
Phone: 514-285-3600
Transfer Agent of Common Shares Handling Office
UFJ Trust Bank
Corporate Agency Department
10-11, Higashisuna 7-chome, Koto-ku,
Tokyo 137-8081, Japan
Phone: 03-5683-5111
Overseas Stock Exchange Listings
New York, Pacific, Chicago, Toronto, London, Paris,
Frankfurt, D�sseldorf, Brussels, Vienna, and Swiss
stock exchanges
Japanese Stock Exchange Listings
Tokyo, Osaka, Nagoya, Fukuoka, and Sapporo stock
exchanges
Number of Shareholders
(As of March 31, 2003)
799,615
Report on Social & Environmental Activities
If you would like a copy of the above report, please
direct your request to:
Sony Corporation
Corporate Social & Environmental Affairs
Phone: 03-5448-3533
Facsimile: 03-5448-7838
This report is also available on the World Wide Web.
Sony's environmental showroom, "Sony Eco Plaza," can
also be visited at the same URL.
http://www.sony.net/eco/
Short Name: Sony Corp.
Category Code: FR
Sequence Number: 00005358
Time of Receipt (offset from UTC): 20030602T155753+0100
--30--KO/uk* AC/uk MH/uk
CONTACT: Sony Corporation
KEYWORD: UNITED KINGDOM JAPAN INTERNATIONAL EUROPE ASIA PACFIC
INDUSTRY KEYWORD: COMPUTERS/ELECTRONICS
ELECTRONIC GAMES/MULTIMEDIA HARDWARE
SOURCE: Sony Corp.
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