Consolidated Financial Results for the Fiscal Year Ended March 31, 2003
Electronics, Game and Pictures Businesses Lead an Improvement in Full Year Operating Performance
Although Fourth Quarter Sales Decreased and Losses Increased
PRNewswire-FirstCall
TOKYO
04/24/2003
Sony Corporation announced today its consolidated results for the fiscal year ended March 31, 2003 (April 1, 2002 to March 31, 2003).
Highlights
* Although sales decreased slightly year on year to Yen 7,473.6 billion
($62.3 billion), operating income increased Yen 50.8 billion to
Yen 185.4 billion ($1.55 billion). Net income was Yen 115.5 billion
($963 million), a year on year increase of Yen 100.2 billion. The
depreciation of the yen against the euro had a positive impact on sales
and operating income.
* Although sales in the Electronics business decreased 6.5% due to a
decrease in sales of Aiwa products and VAIO PCs, an operating income of
Yen 41.4 billion ($345 million) was recorded compared to an operating
loss of Yen 1.2 billion in the previous fiscal year. The improved
operating performance resulted from the benefit of restructuring
initiatives primarily in the components category, and the contribution
to profitability of digital still cameras and CCDs. Inventory decreased
Yen 79.6 billion year on year.
* Unit sales of hardware and software in the Game business increased
mainly in the U.S and Europe. Sales decreased 4.9% year on year due, in
part, to strategic price reductions of hardware in all major regions.
Operating income increased Yen 29.7 billion to Yen 112.7 billion
($939 million) because of strong software unit sales and reductions of
hardware manufacturing costs.
* The Pictures business recorded its highest ever sales and operating
income, Yen 802.8 billion ($6,690 million) and Yen 59.0 billion
($491 million), respectively, for the fiscal year due to the strong
worldwide theatrical and home entertainment performance of current year
releases including Spider-Man, Men in Black II, xXx and Mr. Deeds.
* The Music business recorded a Yen 8.7 billion ($72 million) operating
loss due to an increase in restructuring charges at the U.S. subsidiary
and a decrease in worldwide album sales, as a result of the contraction
of the global music market primarily brought on by increased digital
piracy.
* Cash flow was positive throughout the fiscal year and significantly
improved compared with the previous fiscal year due to an increase in
operating income and reduced capital expenditures.
* In the quarter ended March 31, 2003, sales decreased 12% year on year to
Yen 1,654.4 billion ($13.8 billion), operating loss increased Yen 92.9
billion to Yen 116.5 billion ($971 million), and net loss increased
Yen 105.7 billion to Yen 111.1 billion ($926 million), primarily due to
a deterioration in the operating performance of the Electronics
business. The primary reasons for the increase in operating loss
included the lower sales, the implementation of inventory adjustments
resulting from production adjustments in the Electronics business, the
acceleration of restructuring initiatives in the Electronics and Music
businesses, and increased expenses related to patent royalties.
(Billions of yen, millions of U.S. dollars, except
per share amounts)
Year ended March 31
2002 2003 Change 2003*
Sales and operating
revenue Y7,578.3 Y7,473.6 -1.4% $62,280
Operating income 134.6 185.4 +37.7 1,545
Income before income
taxes 92.8 247.6 +166.9 2,064
Net income 15.3 115.5 +654.5 963
Net income per share of common stock
- Basic Y16.72 Y125.74 +652.0 $1.05
- Diluted 16.67 118.21 +609.1 0.99
* U.S. dollar amounts have been translated from yen, for convenience only,
at the rate of Yen 120 = U.S.$1, the approximate Tokyo foreign exchange
market rate as of March 31, 2003.
Consolidated Results for the Fiscal Year
Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Sales were Yen 7,473.6 billion ($62.3 billion), a decrease of 1.4% year on year (2% decrease on a local currency basis -- see Note I on page 10).
* Sales to external customers fell 4.8% in the Electronics business and
5.1% in the Game business.
* However, sales in the Pictures segment rose 26.3% to reach a record
Yen 802.8 billion ($6,690 million).
Operating income was Yen 185.4 billion ($1,545 million), an increase of Yen 50.8 billion, or 37.7%, year on year (5% decrease on a local currency basis).
* Business segments that contributed to an increase in operating income:
* Operating performance in the Electronics business improved Yen
42.5 billion from an operating loss recorded in the previous year. In
the Game business, operating income increased Yen 29.7 billion, and in
the Pictures business, operating income increased Yen 27.7 billion.
* Business segments that contributed to a decrease in operating income:
* Operating performance in the Music business deteriorated
significantly, by Yen 28.8 billion, and an operating loss was
recorded. In the Other business, operating loss increased Yen 15.3
billion (an operating loss was recorded in the previous year as well).
* Selling, general and administrative expenses during the fiscal year
increased Yen 76.6 billion primarily due to an increase in advertising
and promotion expenses and severance related expenses.
* Restructuring charges for the fiscal year amounted to approximately
Yen 100 billion ($833 million). The severance related expenses
mentioned above are included in these charges.
* On a business segment basis, the most significant charges were
recorded in Electronics, approximately Yen 70 billion ($583 million),
and in Music, approximately Yen 24 billion ($200 million).
Income before income taxes was Yen 247.6 billion ($2,064 million), an increase of Yen 154.8 billion, or 166.9%, year on year.
* In addition to the increase in operating income, other income increased
Yen 61.2 billion and other expenses decreased Yen 42.8 billion.
* Primary factor contributing to the increase in other income:
-- The recording of a Yen 66.5 billion gain* on the sale of Sony's
equity interest in Telemundo Communications Group, Inc. and its
subsidiaries ("Telemundo"), a U.S. based Spanish language
television network and station group that was accounted for by the
equity method. (*The dollar amount of the gain recorded on the
sale of Telemundo at Sony's U.S. based subsidiary was
$511 million.)
* Primary factors contributing to the decrease in other expenses:
-- The recording of a net foreign exchange gain of Yen 1.9 billion
($16 million) compared with a net foreign exchange loss of
Yen 31.7 billion recorded in the previous year.
-- A decrease in interest expense of Yen 9.1 billion as a result of
lower average balances of short-term borrowings and lower interest
rates.
-- Partially offsetting these factors was a Yen 4.7 billion increase
in losses on the devaluation of securities.
Net income was Yen 115.5 billion ($963 million), an increase of Yen 100.2 billion, or 654.5%, year on year.
* Factor positively effecting net income: increase in income before income
taxes.
* Factors negatively effecting net income:
* An income tax increase of Yen 15.6 billion.
-- Factor adding to tax expense: increase in income before income
taxes.
-- Factors offsetting the increase in tax expense:
~ A reversal of Yen 51.9 billion ($433 million) in valuation
allowances on deferred tax assets held by Aiwa Co. Ltd. ("Aiwa")
because these assets became recoverable as a result of Sony's
decision to merge with Aiwa.
-- The effective income tax rate was 32.6% compared to 70.3% in the
previous year.
* The recording of a Yen 6.6 billion ($55 million) minority interest in
the income of consolidated subsidiaries, compared to a Yen 16.2
billion minority interest in the loss of consolidated subsidiaries in
the previous year.
-- With regards to minority interest of Aiwa, a significant loss was
recorded in the previous year due to a loss incurred by Aiwa, and
income was recorded in the current year due to a reversal in
taxable incomes mentioned above.
* A Yen 10.2 billion increase in equity in net losses of affiliated
companies.
-- Losses increased at the following companies:
~ Sony Ericsson Mobile Communications ("SEMC"), a mobile handset
joint venture established in October 2001 in which Sony has a 50%
equity holding.
~ ST-Liquid Crystal Display Corp ("ST-LCD"), a joint venture
based in Japan which manufactures LCD panels.
-- Factors offsetting the increase in net losses of affiliated
companies:
~ The elimination of losses at Columbia House Company, a direct
marketer of music and videos in the U.S., and Telemundo, due to
the sale of Sony's equity interest in these companies, which had
recorded losses in the prior year.
SEMC performance for the year ended March 31, 2003
Shipments of mobile handsets: 22.49 million
Net sales: 3,860 million euro
Loss before tax: 404 million euro
Net loss: 348 million euro
Sony's equity in net
loss of affiliate: Yen 20.8 billion ($173 million)
Reasons for loss: Lower than expected revenues for
CDMA and TDMA handsets in the
U.S. market.
Delays in the launches of certain
low-end to mid-end GSM products.
Expenses for establishing the
joint venture and product
development.
* The absence of the Yen 6.0 billion gain recorded in the previous year
due to the cumulative effect of a change in accounting principles.
Operating Performance Highlights by Business Segment
Electronics
(Billions of yen, millions of U.S. dollars)
Year ended March 31
2002 2003 Change 2003
Sales and operating
revenue Y5,286.2 Y4,940.5 - 6.5% $41,170
Operating income (loss) (1.2) 41.4 -- 345
Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Sales were Yen 4,940.5 billion ($41.2 billion), a decrease of 6.5% year on year (7% decrease on a local currency basis).
* Product categories with increased sales:
* "Semiconductors" by 12.3%, "Components" by 2.2%, "Video" by 2.1% and
"Television" by 0.4%.
* Products categories with decreased sales:
* "Information and Communication" by 17.9%, "Audio" by 8.7% and "Other"
(which contains Aiwa) by 2.1%.
* On a local currency basis:
* Products with the largest decreases in sales:
-- Aiwa products, VAIO PCs, audio products, CRT computer displays,
cellular phones (now sold mainly to SEMC), video cameras and CRT
televisions.
* Products with the largest increases in sales:
-- Digital still cameras ("Cybershot"), personal digital assistants
("CLIE"), semiconductors (especially CCDs and LCDs) and projection
TVs.
* On a geographic basis:
-- Sales fell in the U.S., Japan and Europe.
-- Sales rose in other areas, particularly in East Asia (not including
Japan).
In terms of profitability, operating income of Yen 41.4 billion ($345 million) was recorded compared with operating loss of Yen 1.2 billion in the previous fiscal year, an improvement of Yen 42.5 billion year on year.
* The following factors contributed to the improvement in profitability:
* Increased demand for semiconductors, particularly CCDs, and an
increase in sales in the digital still camera and battery businesses.
* An improvement in the profit structure of businesses such as portable
audio and components, particularly cathode ray tubes, due to the
benefit of restructuring (reductions in fixed costs, via the sale and
disposal of underused production facilities, and headcount reductions)
carried out in the previous year.
* The positive impact of the depreciation of the yen against the euro
which exceeded the negative impact of the depreciation of the yen
against the U.S. dollar.
* The transfer of the mobile handset business (which recorded a loss in
the previous year) to SEMC, an affiliate accounted for under the
equity method.
* Product categories information:
* Categories recording operating income:
-- "Audio", which benefited from the effects of restructuring,
"Television", in which demand rose for large-screen televisions,
and "Video", in which there was a significant increase in sales for
digital still cameras. "Components" changed from loss to profit
due to the effects of restructuring.
* Categories recording operating loss:
-- Losses decreased in "Information and Communications," because the
mobile handset business was transferred to SEMC, and in
"Semiconductors," where there was an increase in demand,
particularly for CCDs. Losses increased in the "Other" segment,
principally due to losses at Aiwa.
Sales of Aiwa products fell year on year. Aiwa recorded an operating loss due expenses incurred for restructuring including headcount reductions, inventory write-downs brought about by the concentration of product lines, and the sale and disposal of production facilities. Sony absorbed Aiwa by merger on December 1, 2002.
Inventory on March 31, 2003 was Yen 432.4 billion ($3,603 million), a Yen 79.6 billion, or 15.6%, decrease compared with the level on March 31, 2002.
Game
(Billions of yen, millions of U.S. dollars)
Year ended March 31
2002 2003 Change 2003
Sales and operating
revenue Y1,003.7 Y955.0 - 4.9% $7,958
Operating income 82.9 112.7 + 35.9 939
Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Sales were Yen 955.0 billion ($7,958 million), a decrease of 4.9% year on year (7% decrease on a local currency basis).
* Although hardware sales decreased, software sales increased, year on
year.
* Strategic price reductions of PlayStation 2 hardware in all major
regions contributed to a year on year decrease in hardware sales
revenue in the U.S. and Japan, although sales revenue increased in
Europe mainly due to the positive impact of the depreciation of the
yen against the euro. Hardware unit sales of PlayStation 2
decreased in Japan, but increased in the U.S. and Europe.
* Unit sales of PlayStation 2 software significantly increased in
Japan, the U.S. and Europe. Sales revenue increased in the U.S. and
Europe, but decreased in Japan due to a decrease in unit sales of
in-house developed software.
* Worldwide hardware production shipments:*
-- PS 2: 22.52 million units (an increase of 4.45 million units)
-- PS one: 6.78 million units (a decrease of 0.62 million units)
* Worldwide software production shipments:*
-- PS 2: 189.90 million units (an increase of 68.10 million units)
-- PlayStation: 61.00 million units (a decrease of 30.00 million units)
* Production shipment units of hardware and software are counted upon
shipment of the products from manufacturing bases. Sales of such
products are recognized when the products are delivered to customers.
Operating income was Yen 112.7 billion ($939 million), an increase of Yen 29.7 billion, or 35.9%, year on year (12% increase on a local currency basis).
* Although hardware sales decreased primarily due to strategic price
reductions in all major regions, the positive impact of the depreciation
of the yen against the euro, in addition to the continued reduction of
manufacturing costs, led to an increase in operating income.
* Strong software sales mainly in the U.S. and Europe also contributed to
an overall increase in operating income.
Inventory on March 31, 2003 was Yen 143.4 billion ($1,195 million), a Yen 24.4 billion, or 20.5%, increase compared with the level on March 31, 2002.
Music
(Billions of yen, millions of U.S. dollars)
Year ended March 31
2002 2003 Change 2003
Sales and operating
revenue Y642.8 Y636.3 - 1.0% $5,303
Operating income (loss) 20.2 (8.7) -- (72)
The amounts presented above are the sum of the yen-translated results of
Sony Music Entertainment Inc. ("SMEI"), a U.S. based operation, which
aggregates the results of its worldwide subsidiaries on a U.S. dollar
basis, and the results of Sony Music Entertainment (Japan) Inc. ("SMEJ"),
a Japan based operation which aggregates results in yen. Management
analyzes the results of SMEI in U.S. dollars, so discussion of certain
portions of its results are specified as being on "a U.S. dollar basis."
Sales were Yen 636.3 billion ($5,303 million), a decrease of 1.0% year on year (1% increase on a local currency basis). Of the Music segment's sales, 72% were generated by SMEI, and 28% were generated by SMEJ.
* SMEI's sales (on a U.S. dollar basis) increased 6%.
* Sales increased due to an increase in manufacturing sales of DVD
software to the Pictures and Game segments.
* Partially offsetting the increase in sales was a decline in album
sales in many regions worldwide due to the continued contraction of
the global music industry brought on by digital piracy combined with
competition from other entertainment sectors and economic uncertainty
impacting consumer spending.
* Titles contributing the most to sales:
-- Dixie Chicks' Home, Shakira's Laundry Service, Jennifer Lopez's
This is Me ... Then, and Celine Dion's One Heart.
* SMEJ's sales decreased 10%.
* Sales decreased because of the continued contraction of the music
industry.
* Titles contributing the most to sales:
-- Chemistry's Second to None, Mika Nakashima's TRUE, Chitose Hajime's
Hainumikaze, and Ken Hirai's Life is ...
In terms of profitability, an operating loss of Yen 8.7 billion ($72 million) was recorded compared with operating income of Yen 20.2 billion in the previous year, a deterioration of Yen 28.8 billion year on year.
* SMEI incurred an operating loss (on a U.S. dollar basis) compared to
operating income in the prior year.
* Reasons for the decline in profit performance:
-- An increase year on year in restructuring charges of approximately
$120 million.
~ During the fiscal year, restructuring charges of approximately
$190 million were recorded for initiatives including the closure
of a manufacturing facility in the U.S., the consolidation of
several distribution facilities outside of the U.S., and the
further consolidation of various support functions across labels
and operating units.
~ The restructuring activities undertaken resulted in a reduction
during the fiscal year of over 1,400 employees worldwide.
~ These continuing aggressive restructuring activities are being
taken to counteract the effect of the decrease in album sales.
-- A decrease in album sales and an increase in talent-related
expenses.
* Factors partially offsetting the decline in profit performance:
-- A decrease in advertising and promotion expenses.
-- Savings realized from SMEI's previously implemented restructuring
initiatives.
-- Higher income generated by the increased DVD software manufacturing
activity.
* SMEJ's operating income decreased 81% year on year due to the drop in
sales and an increase in severance related expenses incurred from
restructuring.
Pictures
(Billions of yen, millions of U.S. dollars)
Year ended March 31
2002 2003 Change 2003
Sales and operating
revenue Y635.8 Y802.8 + 26.3% $6,690
Operating income 31.3 59.0 +88.6 491
The results presented above are a yen-translation of the results of Sony
Pictures Entertainment ("SPE"), a U.S. based operation, which aggregates
the results of its worldwide subsidiaries on a U.S. dollar basis.
Management analyzes the results of SPE in U.S. dollars, so discussion of
certain portions of its results are specified as being on "a U.S. dollar
basis."
Sales were Yen 802.8 billion ($6,690 million), an increase of 26.3% year on year (30% increase on a U.S. dollar basis). This represented the highest sales ever recorded by SPE.
* The reasons for the significant increase in sales (on a U.S. dollar
basis) were:
* The strong worldwide performance, both theatrically and in home
entertainment, of current year releases including Spider-Man, Men in
Black II, xXx, and Mr. Deeds.
-- Spider-Man, the highest grossing film in SPE's history, exceeded
$800 million in worldwide box office.
-- The increased worldwide popularity of DVDs, together with the
successful film slate, contributed to the higher home entertainment
revenues.
Operating income was Yen 59.0 billion ($491 million), an increase of Yen 27.7 billion, or 88.6%, year on year (92% increase on a U.S. dollar basis). This also represented the highest operating income ever achieved by SPE.
* The reasons for the increase in profitability were:
* Substantially higher theatrical and home entertainment revenues, as
noted above, driven by SPE's successful summer theatrical release
slate.
* Higher television operating income due to the recording of
restructuring expenses in the previous fiscal year.
* Lower losses on and a reduction in the number of new network
television shows and pilots as a result of that restructuring.
* Increased revenues from the game show, Wheel of Fortune.
* Partially offsetting the increase in profitability were:
* Disappointing performance from several films including I Spy and
Stuart Little 2.
* A provision with respect to previously recorded revenue and adjustments to ultimate film income from KirchMedia.
-- KirchMedia is an insolvent licensee in Germany of SPE's feature
film and television products.
In April 2002, SPE sold its entire equity interest in Telemundo. Cash proceeds of Yen 88.4 billion* were received upon the closing and a gain of Yen 66.5 billion* was recorded on this sale in "gain on sales of securities investments, net" (in other income).
(*The dollar amount of the cash proceeds and gain recorded on the sale of Telemundo were $679 million and $511 million, respectively.)
Financial Services
(Billions of yen, millions of U.S. dollars)
Year ended March 31
2002 2003 Change 2003
Financial Service
revenue Y512.2 Y540.5 + 5.5% $4,504
Operating income 22.1 23.3 +5.4 194
Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Financial Service revenue was Yen 540.5 billion ($4,504 million), an increase of 5.5% year on year.
* Revenue increased primarily due to an increase in revenue at Sony Life
Insurance Co., Ltd. ("Sony Life").
* Insurance revenue rose due to an increase in insurance-in-force.
* Valuation gains and losses from investments in the general account
improved because, even though a slight loss was recorded due to the
devaluation of Argentine government bonds held in that account, the
amount of that loss decreased significantly compared with the loss
recorded in the previous year.
* Sony Life's revenue gains were partially offset by a deterioration of
valuation gains and losses from investments in the separate account,
which resulted from the stock market downturn.
-- Valuation gains and losses from investments in the separate account
accrue directly to the account of policyholders and, therefore, do
not affect operating income.
* In addition, the following factors affected Financial Services business
segment revenue:
* An increase in revenue at Sony Assurance Inc. due to higher insurance
revenue brought about by an expansion in insurance-in-force.
* A decrease in revenue at Sony Finance International, Inc. ("Sony
Finance") brought about by a decrease in revenues from rent, despite
an increase in leasing and other revenue.
Operating income increased Yen 1.2 billion or 5.4% year on year to Yen 23.3 billion ($194 million).
* Operating income at Sony Life increased due to an increase in
insurance revenue and the improvement in valuation gains and losses
from investments in the general account.
* In addition, the following factors affected Financial Services
business operating income:
-- Fewer losses at Sony Assurance Inc. due to an increase in insurance
revenue, a decrease in the proportion of insurance payouts relative
to the number of policy holders, and an improvement in the ratio of
sales to sales to operating expenses.
-- A recording of a loss at Sony Finance due to a deterioration of
profitability brought on by an increase in operating expenses in
connection with the credit card business.
-- Continuing losses at Sony Bank, which began operations in June
2001.
Other
(Billions of yen, millions of U.S. dollars)
Year ended March 31
2002 2003 Change 2003
Sales and operating
revenue Y203.8 Y250.3 +22.8% $2,086
Operating income (loss) (16.6) (32.0) -- (266)
Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Sales were Yen 250.3 billion ($2,086 million), an increase of 22.8% year on year. (Of sales in the Other segment, 48% were sales to outside customers.)
* Sales increased due to increased sales of NACS-related businesses (see
Note II on page 10), due primarily to increased sales at an in-house
oriented information system service business, and increased sales at an
advertising agency business subsidiary in Japan.
In terms of profitability, an operating loss of Yen 32.0 billion ($266 million) was recorded compared with an operating loss of Yen 16.6 billion in the previous year, a deterioration of Yen 15.3 billion.
* An increase in aggregate losses at NACS-related businesses was the
principal cause of the deterioration:
* There was an increase in expenses incurred in connection with the
creation of a platform business, such as expenses for the development
of network technology.
* Impairments of professional-use software were recorded.
* Offsetting the increase in operating losses for the segment was the
recording of operating income at Sony Communication Network
Corporation.
Cash Flow
(Billions of yen, millions of U.S. dollars)
Year ended March 31
2002 2003 Difference 2003
Cash flow
- From operating
activities Y737.6 Y853.8 Y + 116.2 $7,115
- From investing
activities (767.1) (706.4) + 60.7 (5,887)
- From financing
activities 85.0 (93.1) - 178.2 (776)
Cash and cash
equivalents as
of March 31 683.8 713.1 + 29.3 5,942
Cash provided by operating activities during the fiscal year ended March 31, 2003 was Yen 853.8 billion ($7,115 million), an increase of Yen 116.2 billion compared with the previous fiscal year.
* While cash was used to increase deferred insurance acquisition costs and
decrease notes and accounts payable during the fiscal year, the
contribution to profit of the Game, Pictures and Electronics businesses,
an increase in future insurance policy benefits and other in accordance
with an increase in insurance-in-force, and a decrease in notes and
accounts receivable caused cash generated from operating activities to
exceed expenditures.
* Although there was a smaller decrease in inventories and a smaller
increase in future insurance policy benefits and other benefits, the
increase in the operating income of the Electronics, Game and Pictures
businesses, a smaller decrease in notes and accounts payable, and a
larger decrease in notes and accounts receivable contributed to the net
increase in cash provided by operating activities compared with the
previous year.
Cash used in investing activities for the fiscal year was Yen 706.4 billion ($5,887 million), a decrease of Yen 60.7 billion year on year.
-- The use of cash derived primarily from the fact that investments and
advances of Yen 1,026.4 billion ($8,553 million) exceeded sales and
maturities of securities investments and collections of advances of
Yen 542.5 billion ($4,521 million) in the Financial Services business,
reflecting an increase in assets under management in the financial
services businesses.
-- In addition, Yen 275.3 billion ($2,294 million) was used to purchase
fixed assets, primarily in the Electronics business but, as a result of
the reduction in capital expenditures, the figure decreased by
Yen 113.2 billion compared with the previous fiscal year. Cash
proceeds of Yen 135.8 billion ($1,132 million) were also generated from
the sales of securities investments and collections of advances,
including Yen 88.4 billion* from the sale of equity in Telemundo.
(*The U.S. dollar amount of the cash proceeds recorded on the sale of
Telemundo was $679 million.)
Cash used in financing activities for the fiscal year was Yen 93.1 billion ($776 million) compared to Yen 85.0 billion of cash provided by financing activities in the previous fiscal year.
* Although cash was provided by a Yen 142.0 billion ($1,184 million)
increase in deposits from customers in the banking business, cash was
used during the year for repayments of Yen 238.1 billion ($1,985
million) of long-term debt including $1.5 billion of U.S. dollar notes
redeemed on March 4, 2003, and the payment of Yen 22.9 billion ($191
million) in dividends. This caused cash used in financing activities to
exceed cash generated by financing activities.
Consolidated Results for the Fourth Quarter ended March 31, 2003
Sales were Yen 1,654.4 billion ($13.8 billion), a decrease of 12.2% compared with the fourth quarter of the previous year (8% decrease on a local currency basis).
* Sales in the Electronics business decreased significantly due to a
decrease in sales of CRT televisions and VAIO PCs, brought on by
increased price competition and market contraction. On a geographic
basis, sales decreased significantly in Japan and the U.S.
* Sales in the Game business decreased due to a decrease in hardware
revenue caused, in part, by strategic price reductions.
An operating loss of Yen 116.5 billion ($971 million) was recorded compared with an operating loss of Yen 23.6 billion in the fourth quarter of the previous year, a deterioration of Yen 92.9 billion.
* Losses in the Electronics business increased significantly due to a
decrease in sales, an increase in selling, general and administrative
expenses associated with an increase in patent related expenses, and an
increase in expenses resulting from adjustments in production that were
undertaken to lower inventory to an appropriate level.
* Losses in the Music business also increased dramatically because
restructuring charges of approximately $100 million were recorded for
such initiatives as the closure of a manufacturing facility in the U.S.
and the further consolidation of various support functions across labels
and operating units worldwide.
In terms of income (loss) before income taxes, a loss of Yen 119.7 billion ($998 million) was recorded compared with a loss of Yen 12.8 billion in the fourth quarter of the previous year, a deterioration of Yen 106.9 billion.
* In addition to the increase in operating loss, other income decreased
Yen 12.4 billion, primarily due to a decrease in royalty income in the
Electronics business.
In terms of net income (loss), a loss of Yen 111.1 billion ($926 million) was recorded compared with a loss of Yen 5.5 billion in the fourth quarter of the previous year, a deterioration of Yen 105.7 billion year on year.
* In addition to the increased loss before income tax, income tax benefits
increased Yen 14.5 billion and equity in net losses of affiliated
companies increased Yen 6.7 billion.
* Income tax benefits increased due to a significant increase in loss
before income taxes.
* Equity in net losses of affiliated companies increased due to an
increase in losses at SEMC and ST-LCD.
SEMC performance for the fourth quarter ended March 31, 2003
Shipments of mobile handsets: 5.40 million. Year on year
decrease: 400,000.
Net sales: 806 million euro. Year on year
decrease: 317 million euro.
Losses before tax: 113 million euro. Nominal income
recorded in prior year.
Net loss: 104 million euro. Nominal income
recorded in prior year.
Sony's equity in net
loss of affiliate: Yen 6.5 billion ($54 million).
Nominal income recorded in prior
year.
Reasons for performance decline: Increased pricing pressure.
Expenses due to the phase-in of new
products in the GSM and Japanese
markets.
The same quarter of the prior year
benefited from two successful
high-end models in the Japanese and
European markets, and operating
income was recorded.
Notes
Note I: During the fiscal year ended March 31, 2003, the average value of the yen was Yen 120.9 against the U.S. dollar and Yen 119.5 against the euro, which was 2.6% higher against the U.S. dollar and 8.8% lower against the euro, compared with the average rate for the previous fiscal year. Operating results on a local currency basis described herein reflect sales and operating revenue ("sales") and operating income obtained by applying the yen's average exchange rate in the previous fiscal year to local currency-denominated monthly sales, cost of sales, and selling, general and administrative expenses in the current fiscal year. Local currency basis results are not reflected in Sony's financial statements and are not measures conforming with Generally Accepted Accounting Principles in the U.S. ("U.S. GAAP"). In addition, Sony does not believe that these measures are a substitute for U.S. GAAP measures. However, Sony believes that local currency basis results provide additional useful analytical information to investors regarding operating performance.
Note II: Commencing with the first quarter ended June 30, 2002, Sony partly realigned its business segment configuration and Electronics segment product category configuration. In accordance with this realignment, results of the previous fiscal year have been reclassified to conform to the presentation for the current fiscal year. Sales of 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 Communication Network Corporation, which was originally contained in the "Other" segment, NACS-related businesses include an in-house oriented information system service business and an IC card business formerly contained in the "Other" category of the Electronics segment.
Note III: "Sales and operating revenue" in each business segment represents sales and operating revenue recorded before intersegment transactions are eliminated. "Operating income" in each business segment represents operating income recorded before intersegment transactions and unallocated corporate expenses are eliminated. "Sales on a product category basis" in the Electronics segment represents only sales of products to external customers, i.e. those sales recorded after intersegment and intercategory transactions have been eliminated.
Note IV: During the fourth quarter ended March 31, 2003, the average value of the yen was Yen 117.9 against the U.S. dollar and Yen 126.2 against the euro, which was 11.5% higher against the U.S. dollar and 9.2% lower against the euro, compared with the fourth quarter of the previous fiscal year.
Other Matters
In November 2002, Sony Corporation of America, a subsidiary of Sony Corporation, together with other investors, executed a definitive agreement to acquire all of the outstanding common stock of InterTrust Technologies Corporation ("InterTrust") for approximately $453 million. In January 2003, the acquisition of InterTrust by Sony Corporation of America, Koninklijke Philips Electronics N.V. of Holland, and another investor was successfully completed. InterTrust is a leading holder of intellectual property in digital rights management. This transaction fits with Sony's network strategy which is to enable wide access to secure digital content through networks.
In April 2003, Sony Computer Entertainment Inc. (SCEI) and Sony Corporation announced that together they will invest a total of approximately Yen 200 billion during the three fiscal years beginning with the fiscal year ending March 31, 2003, including Yen 73 billion in the first fiscal year, for the installation of a semiconductor fabrication line to build chips with 65 nanometer line width on 300 mm wafers. With this investment, SCEI will be able to manufacture a new microprocessor for the broadband era, as well as other system LSI for the broadband era, which will be used in a next generation computer entertainment system. This investment serves an important role in developing future broadband network businesses, not only for SCEI, but also for Sony Group.
Rewarding Shareholders
A year-end cash dividend of Yen 12.5 ($1.04) per share of Sony Corporation common stock will be proposed for approval at the ordinary general meeting of shareholders, which will be held on June 20, 2003. Sony Corporation has already paid an interim dividend of Yen 12.5 per share to each shareholder; accordingly the total annual cash dividend per share will be Yen 25.0.
Sony believes that by continuously increasing corporate value, its shareholders can be rewarded. Accordingly, Sony plans to utilize retained earnings to carry out various investments that are indispensable for ensuring future growth and strengthening competitiveness.
Regarding shares of subsidiary tracking stock in Japan issued by Sony Corporation, Sony Communication Network Corporation ("SCN") has been working to manage its operations so as to expand cash flow, fully solidify its financial base, and utilize retained earnings to aggressively expand its business to strengthen its foundation and respond to the quickly expanding Internet market. For these reasons, SCN does not plan to distribute earnings to SCN shareholders for the time being. As such, Sony Corporation will continue to not pay dividends to shareholders of the subsidiary tracking stock.
Numbers of Employees
As a result of its continuing restructuring activities, Sony reduced the number of employees, primarily in the Electronics and Music businesses. As a result, the number of employees at the end of March 2003 was approximately 161,100, a decrease of approximately 6,900 from the end of March 2002.
Remarks on Upcoming Initiatives by Nobuyuki Idei, Chairman and CEO of Sony Corporation
In 2006, Sony will celebrate its 60th anniversary. In the next three years up until this landmark date, we will invest a total of Yen 1.3 trillion in the following initiatives as we create a new profit model and accelerate our transformation into a knowledge and capital-intensive company.
1) We will strengthen our semiconductor business with investments of
approximately Yen 500 billion over the next three years. The
investments will drive the development and manufacture of key devices
such as imaging devices, a market for which we foresee significant
growth, and semiconductors, which make use of the latest process
technology, to help form the foundation of our competitive strength
in the broadband network era.
2) We will increase investment in R&D to enhance the competitiveness of
products and create a new laboratory to further stimulate content
distribution. Investment in R&D over the next three years will total
Yen 500 billion.
3) In order to transform Sony into a highly profitable company, we will
record, over the next three years, approximately Yen 300 billion in
restructuring costs for a variety of initiatives, including the
further pursuit of downsizing and withdrawal from selected businesses
and the continued implementation of fixed cost reductions.
In addition, Sony will continue to strengthen its potential for growth, competitiveness, and earnings capacity in the middle to long term through strategic alliances and other endeavors.
Outlook for the Fiscal Year ending March 31, 2004
Change from
previous year
Sales and operating revenue Y7,400 billion - 1%
Operating income 130 billion - 30
Income before income taxes 130 billion - 48
Net income 50 billion -57
Capital expenditures
(additions to fixed assets) Y310 billion +19%
Depreciation and amortization* 390 billion +11
(Depreciation expenses for
tangible assets) (270 billion) (- 3)
* Including amortization of intangible assets and amortization of deferred
insurance acquisition costs.
Assumed exchange rates: approximately Yen 115 to the dollar, approximately Yen 125 to the euro.
Because we expect the uncertain economic environment to continue in the fiscal year ending March 31 2004, with personal consumption declining and price competition intensifying, we have decided to implement a restructuring program, primarily in the Electronics business, which will be even more aggressive than the one we implemented in the fiscal year just ended. As a result, we expect to record restructuring charges of approximately Yen 140 billion across the Sony Group, which will result in a decrease in our consolidated operating income.
Income before income taxes will decrease primarily because a gain of Yen 66.5 billion was recorded in the fiscal year ending March 31, 2003, due to the sale of Sony's equity interest in Telemundo.
The forecast for each business segment is as follows: Electronics
Although sales from plasma televisions, LCD televisions, digital still cameras, CLIEs, CCDs, and other products are expected to increase, we expect segment sales to decrease due to a decrease in intersegment sales to the Game business and the net effect of foreign exchange rates. Operating income is also expected to decrease due to increased restructuring expenses.
Game
Although strong sales of software for the PS2 will continue, we expect segment sales to decrease. We have set a cautious forecast of 20 million units for PS2 hardware production shipments due to our concern that the global economy will contract, and we expect PS one units to decrease year on year. Regarding operating income, although growth in PS2 software sales and other factors will positively influence profitability, the effect of the aforementioned decrease in sales, combined with the start, in earnest, of investments in next generation hardware (including research and development expenses), leads us to anticipate a drop in operating income.
Music
We expect sales to decrease due to the expected continued contraction in the music industry and a reduction in the unit price of DVDs in the manufacturing division. However, a decrease in restructuring expenses, the benefits of restructuring activities already carried out, and a decrease in talent-related expenses are projected to return the segment to profitability.
Pictures
We forecast that sales and operating income will decrease compared with the fiscal year ended March 31, 2003 because record sales and operating income were recorded in the fiscal year ended March 31, 2003 due to the success of box office hits such as Spider-Man.
Financial Services
Although increased revenue is anticipated in the life and automobile insurance businesses, due to the planned expansion of these businesses, increased expenses resulting from the planned expansion of Sony Finance and other factors are expected to lead to a decrease in operating income.
Capital expenditures
We are planning to invest approximately Yen 200 billion over 3 years in semiconductor production facilities for next-generation broadband processors. We expect approximately Yen 73 billion of this investment to take place in the fiscal year ending March 31, 2004. Across the Sony Group, we expect capital expenditures for the fiscal year ending March 31, 2004 to amount to approximately Yen 310 billion.
Cautionary Statement
Statements made in this release with respect to Sony's current plans, estimates, strategies and beliefs and other statements that are not historical facts are forward-looking statements about the future performance of Sony. Forward-looking statements include but are not limited to those using words such as "believe," "expect," "plans," "strategy," "prospects," "forecast," "estimate," "project," "anticipate," "may" or "might" and words of similar meaning in connection with a discussion of future operations or financial performance. From time to time, oral or written forward-looking statements may also be included in other materials released to the public. These statements are based on management's assumptions and beliefs in light of the information currently available to it. Sony cautions you that a number of important risks and uncertainties could cause actual results to differ materially from those discussed in the forward-looking statements, and therefore you should not place undue reliance on them. You also should not rely on any obligation of Sony to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Sony disclaims any such obligation. Risks and uncertainties that might affect Sony include, but are not limited to (i) the global economic environment in which Sony operates, as well as the economic conditions in Sony's markets, particularly levels of consumer spending; (ii) exchange rates, particularly between the yen and the U.S. dollar, euro, and other currencies in which Sony makes significant sales or in which Sony's assets and liabilities are denominated; (iii) Sony's ability to continue to design and develop and win acceptance of its products and services, which are offered in highly competitive markets characterized by continual new product introductions, rapid development in technology (particularly in the Electronics business), and subjective and changing consumer preferences (particularly in the Game, Music, and Pictures businesses); (iv) Sony's ability to implement successfully the restructuring initiatives in its Electronics, Music and Pictures businesses and its network strategy for its Electronics, Music, Pictures, and Game businesses; (v) Sony's ability to compete and develop and implement successful sales and distribution strategies in light of Internet and other technological developments in its Music and Pictures businesses; (vi) Sony's continued ability to devote sufficient resources to research and development and, with respect to capital expenditures, to prioritize investments (particularly in the Electronics business); (vii) the success of Sony's joint ventures and alliances; and (viii) the outcome of contingencies. Risks and uncertainties also include the impact of any future events with material unforeseen impacts.
Business Segment Information
(Millions of yen, millions of U.S. dollars)
Year ended March 31
Sales and operating
revenue 2002 2003 Change 2003
Electronics
Customers Y 4,772,550 Y 4,543,313 -4.8% $37,861
Intersegment 513,631 397,137 3,309
Total 5,286,181 4,940,450 -6.5 41,170
Game
Customers 986,529 936,274 -5.1 7,802
Intersegment 17,185 18,757 156
Total 1,003,714 955,031 -4.9 7,958
Music
Customers 588,191 559,042 -5.0 4,659
Intersegment 54,649 77,256 644
Total 642,840 636,298 -1.0 5,303
Pictures
Customers 635,841 802,770 +26.3 6,690
Intersegment 0 0 0
Total 635,841 802,770 +26.3 6,690
Financial Services
Customers 483,313 512,641 +6.1 4,272
Intersegment 28,932 27,878 232
Total 512,245 540,519 +5.5 4,504
Other
Customers 111,834 119,593 +6.9 996
Intersegment 91,977 130,721 1,090
Total 203,811 250,314 +22.8 2,086
Elimination (706,374) (651,749) -- (5,431)
Consolidated
total Y 7,578,258 Y 7,473,633 -1.4% $62,280
Electronics intersegment amounts primarily consist of transactions with
the Game business.
Music intersegment amounts primarily consist of transactions with Game
and Pictures businesses.
Other intersegment amounts primarily consist of transactions with the
Electronics business.
Operating income (loss) 2002 2003 Change 2003
Electronics Y (1,158) Y 41,380 --% $345
Game 82,915 112,653 +35.9 939
Music 20,175 (8,661) -- (72)
Pictures 31,266 58,971 +88.6 491
Financial Services 22,134 23,338 +5.4 194
Other (16,604) (31,950) -- (266)
Total 138,728 195,731 +41.1 1,631
Corporate and
elimination (4,097) (10,291) -- (86)
Consolidated
total Y 134,631 Y 185,440 +37.7% $1,545
(Millions of yen, millions of U.S. dollars)
Three months ended March 31 (Unaudited)
Sales and operating
revenue 2002 2003 Change 2003
Electronics
Customers Y 1,160,751 Y 995,663 -14.2% $8,297
Intersegment 91,505 29,632 247
Total 1,252,256 1,025,295 -18.1 8,544
Game
Customers 217,740 163,715 -24.8 1,364
Intersegment 5,079 3,623 30
Total 222,819 167,338 -24.9 1,394
Music
Customers 140,496 136,444 -2.9 1,137
Intersegment 13,189 15,966 133
Total 153,685 152,410 -0.8 1,270
Pictures
Customers 194,776 187,240 -3.9 1,560
Intersegment 0 0 0
Total 194,776 187,240 -3.9 1,560
Financial Services
Customers 141,134 141,148 +0.0 1,176
Intersegment 7,647 7,258 60
Total 148,781 148,406 -0.3 1,236
Other
Customers 29,654 30,154 +1.7 252
Intersegment 24,380 39,112 326
Total 54,034 69,266 +28.2 578
Elimination (141,800) (95,591) -- (796)
Consolidated
total Y 1,884,551 Y 1,654,364 -12.2% $13,786
Electronics intersegment amounts primarily consist of transactions with
the Game business.
Music intersegment amounts primarily consist of transactions with Game
and Pictures businesses.
Other intersegment amounts primarily consist of transactions with the
Electronics business.
Operating income (loss) 2002 2003 Change 2003
Electronics Y (51,346) Y (116,144) --% $(968)
Game 15,558 13,631 -12.4 114
Music (2,057) (13,688) -- (114)
Pictures 11,606 8,089 -30.3 67
Financial Services 10,788 3,024 -72.0 25
Other (5,186) (10,681) -- (89)
Total (20,637) (115,769) -- (965)
Corporate and
elimination (2,955) (698) -- (6)
Consolidated
total Y (23,592) Y (116,467) --% $(971)
Electronics Sales and Operating Revenue to Customers by Product Category
(Millions of yen, millions of U.S. dollars)
Year ended March 31
Sales and operating
revenue 2002 2003 Change 2003
Audio Y 747,469 Y 682,517 -8.7% $5,688
Video 806,401 823,354 +2.1 6,861
Televisions 842,388 846,139 +0.4 7,051
Information and
Communications 1,167,328 958,556 -17.9 7,988
Semiconductors 182,276 204,710 +12.3 1,706
Components 525,568 537,358 +2.2 4,478
Other 501,120 490,679 -2.1 4,089
Total Y 4,772,550 Y 4,543,313 -4.8% $37,861
Three months ended March 31 (Unaudited)
Sales and operating
revenue 2002 2003 Change 2003
Audio Y 148,396 Y 133,555 -10.0% $1,113
Video 157,428 146,892 -6.7 1,224
Televisions 219,375 179,456 -18.2 1,496
Information and
Communications 312,721 242,815 -22.4 2,023
Semiconductors 45,309 52,453 +15.8 437
Components 141,441 132,946 -6.0 1,108
Other 136,081 107,546 -21.0 896
Total Y 1,160,751 Y 995,663 -14.2% $8,297
The above table is a breakdown of Electronics sales and operating revenue
to customers in the Business Segment Information on page F-1 and F-2.The
Electronics business is managed as a single operating segment by Sony's
management. However, Sony believes that the information in this table is
useful to investors in understanding the sales contributions of the
products in this business segment. In addition, commencing with the first
quarter ended June 30, 2002, Sony has partly realigned its product
category configuration in the Electronics business. In accordance with
this change, results of the previous year have been reclassified to
conform to the presentations for the current year.
Sales of mobile phones are no longer recorded in the "Information and
Communications" category as of the third quarter ended December 31, 2001.
From the third quarter of the previous year, sales of mobile phones
manufactured for Sony Ericsson Mobile Communications, AB are recorded in
the "Other" product category.
Geographic Segment Information
(Millions of yen, millions of U.S. dollars)
Year ended March 31
Sales and operating 2002 2003 Change 2003
revenue
Japan Y 2,248,115 Y 2,093,880 -6.9% $17,449
United States 2,461,523 2,403,946 -2.3 20,033
Europe 1,609,111 1,665,976 +3.5 13,883
Other Areas 1,259,509 1,309,831 +4.0 10,915
Total Y 7,578,258 Y 7,473,633 -1.4% $62,280
Three months ended March 31 (Unaudited)
Sales and operating 2002 2003 Change 2003
revenue
Japan Y 586,037 Y 517,933 -11.6% $4,316
United States 575,407 481,747 -16.3 4,014
Europe 408,507 363,360 -11.1 3,028
Other Areas 314,600 291,324 -7.4 2,428
Total Y 1,884,551 Y 1,654,364 -12.2% $13,786
Classification of Geographic Segment Information shows sales and
operating revenue recognized by location of customers.
Consolidated Statements of Income
(Millions of yen, millions of U.S. dollars, except per share amounts)
Year ended March 31
2002 2003 Change 2003
%
Sales and operating
revenue:
Net sales Y 7,058,755 Y 6,916,042 $57,634
Financial service
revenue 483,313 512,641 4,272
Other operating
revenue 36,190 44,950 374
7,578,258 7,473,633 -1.4 62,280
Costs and expenses:
Cost of sales 5,239,592 4,979,421 41,495
Selling, general
and administrative 1,742,856 1,819,468 15,162
Financial service
expenses 461,179 489,304 4,078
7,443,627 7,288,193 60,735
Operating income 134,631 185,440 +37.7 1,545
Other income:
Interest and dividends 16,021 14,441 120
Royalty income 33,512 32,375 270
Foreign exchange gain,
net -- 1,928 16
Gain on sale of
securities
investments, net 1,398 72,552 605
Other 45,397 36,232 302
96,328 157,528 1,313
Other expenses:
Interest 36,436 27,314 228
Loss on devaluation
of securities
investments 18,458 23,198 193
Foreign exchange loss,
net 31,736 -- --
Other 51,554 44,835 373
138,184 95,347 794
Income before income
taxes 92,775 247,621 +166.9 2,064
Income taxes 65,211 80,831 674
Income before minority
interest, equity in net
losses of affiliated
companies and cumulative
effect of accounting
changes 27,564 166,790 +505.1 1,390
Minority interest
in income (loss) of
consolidated
subsidiaries (16,240) 6,581 55
Equity in net losses
of affiliated
companies 34,472 44,690 372
Income before cumulative
effect of accounting
changes 9,332 115,519 +1,137.9 963
Cumulative effect of
accounting changes
(2002: Net of
income taxes of
Y 2,975 million) 5,978 -- --
Net income Y 15,310 Y 115,519 +654.5 $963
Per share data:
Common stock
Income before cumulative
effect of accounting
changes
- Basic Y 10.21 Y 125.74 +1,131.5 $1.05
- Diluted 10.18 118.21 +1,061.2 0.99
Net income
- Basic 16.72 125.74 +652.0 1.05
- Diluted 16.67 118.21 +609.1 0.99
Subsidiary tracking
stock
Net income (loss)
- Basic (15.87) (41.98) -- (0.35)
Additional Paid-in Capital and Retained Earnings
The following information shows change in additional paid-in capital for the year ended March 31, 2003 and change in retained earnings for the year ended March 31, 2002 and 2003.
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.
(Millions of yen, millions of U.S. dollars)
Year ended March 31
2003 2003
Additional Paid-in Capital:
Balance, beginning of year 968,223 $8,069
Exchange offerings 15,791 132
Conversion of convertible bonds 172 1
Reissuance of treasury stock 10 0
Balance, end of year 984,196 8,202
(Millions of yen, millions of U.S. dollars)
Year ended March 31
2002 2003 2003
Retained Earnings:
Balance, beginning
of year Y 1,217,110 Y 1,209,262 $10,077
Net income 15,310 115,519 963
Cash dividends (22,992) (23,022) (192)
Common stock issue costs,
net of tax (166) (19) (0)
Balance, end of year 1,209,262 1,301,740 10,848
Consolidated Statements of Income (Unaudited)
(Millions of yen, millions of U.S. dollars, except per share amounts)
Three months ended March 31
2002 2003 Change 2003
Sales and operating %
revenue:
Net sales Y 1,733,679 Y 1,503,150 $12,526
Financial service
revenue 141,134 141,148 1,176
Other operating
revenue 9,738 10,066 84
1,884,551 1,654,364 -12.2 13,786
Costs and expenses:
Cost of sales 1,313,570 1,140,533 9,505
Selling, general
and administrative 464,227 492,173 4,101
Financial service
expenses 130,346 138,125 1,151
1,908,143 1,770,831 14,757
Operating income
(loss) (23,592) (116,467) -- (971)
Other income:
Interest and dividends 4,403 4,280 36
Royalty income 14,769 10,129 84
Gain on sale of
securities investments,
net 1,081 1,682 14
Other 19,750 11,560 96
40,003 27,651 230
Other expenses:
Interest 3,897 7,251 60
Loss on devaluation of
securities investments 4,843 5,273 44
Foreign exchange loss,
net 773 264 2
Other 19,695 18,138 151
29,208 30,926 257
Income (loss) before
income taxes (12,797) (119,742) -- (998)
Income taxes (8,908) (23,412) (195)
Income (loss) before
minority interest
and equity in net
losses of affiliated
companies (3,889) (96,330) -- (803)
Minority interest in
income (loss) of
consolidated
subsidiaries (6,605) (90) (1)
Equity in net losses of
affiliated companies 8,174 14,904 124
Net income (loss) Y (5,458) Y (111,144) -- $(926)
Per share data:
Common stock
Net income (loss)
- Basic Y (5.91) Y (120.47) -- $(1.00)
- Diluted (5.91) (120.47) -- (1.00)
Subsidiary tracking stock
Net income (loss)
- Basic (10.97) (69.86) -- (0.58)
Consolidated Balance Sheets
(Millions of yen, millions of U.S. dollars)
March 31
2002 2003 2003
ASSETS
Current assets:
Cash and cash equivalents Y 683,800 Y 713,058 $5,942
Time deposits 5,176 3,689 31
Marketable securities 162,147 241,520 2,013
Notes and accounts
receivable, trade 1,363,652 1,117,889 9,316
Allowance for doubtful
accounts and sales returns (120,826) (110,494) (921)
Inventories 673,437 625,727 5,214
Deferred income taxes 134,299 143,999 1,200
Prepaid expenses and other
current assets 435,527 418,826 3,490
3,337,212 3,154,214 26,285
Film costs 313,054 287,778 2,398
Investments and advances:
Affiliated companies 131,068 111,510 929
Securities investments and
other 1,566,739 1,882,613 15,689
1,697,807 1,994,123 16,618
Property, plant and equipment:
Land 195,292 188,365 1,570
Buildings 891,436 872,228 7,269
Machinery and equipment 2,216,347 2,054,219 17,118
Construction in progress 66,825 60,383 503
Less-Accumulated
depreciation (1,958,234) (1,896,845) (15,807)
1,411,666 1,278,350 10,653
Other assets:
Intangibles, net 245,639 258,624 2,155
Goodwill 317,240 290,127 2,418
Deferred insurance
acquisition costs 308,204 327,869 2,732
Other 554,973 779,460 6,496
1,426,056 1,656,080 13,801
Y 8,185,795 Y 8,370,545 $69,755
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings Y 113,277 Y 124,360 $1,036
Current portion of long-term
debt 240,786 34,385 287
Notes and accounts payable,
trade 767,625 697,385 5,812
Accounts payable, other and
accrued expenses 869,533 864,188 7,202
Accrued income and other taxes 105,470 109,199 910
Deposits from customers in the
banking business 106,472 248,721 2,073
Other 355,333 356,810 2,972
2,558,496 2,435,048 20,292
Long-term liabilities:
Long-term debt 838,617 807,439 6,729
Accrued pension and severance
costs 299,089 496,174 4,135
Deferred income taxes 159,573 159,079 1,326
Future insurance policy
benefits and other 1,680,418 1,914,410 15,953
Other 255,824 255,478 2,129
3,233,521 3,632,580 30,272
Minority interest in
consolidated subsidiaries 23,368 22,022 184
Stockholders' equity:
Capital stock 476,106 476,278 3,969
Additional paid-in capital 968,223 984,196 8,202
Retained earnings 1,209,262 1,301,740 10,848
Accumulated other
comprehensive income (275,593) (471,978) (3,934)
Treasury stock, at cost (7,588) (9,341) (78)
2,370,410 2,280,895 19,007
Y 8,185,795 Y 8,370,545 $69,755
Consolidated Statements of Cash Flows
(Millions of yen, millions of U.S. dollars)
Year ended March 31
2002 2003 2003
Cash flows from operating activities:
Net income Y 15,310 Y 115,519 $963
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization,
including amortization of
deferred insurance acquisition costs 354,135 351,925 2,933
Amortization of film costs 242,614 312,054 2,600
Accrual for pension and severance
costs, less payments 14,995 37,858 316
Loss on sale, disposal or impairment
of long-lived assets, net 49,862 39,941 333
Gain on sales of securities investments,
net (1,398) (72,552) (605)
Deferred income taxes (49,719) (98,016) (817)
Equity in net losses of affiliated
companies, net of dividends 37,537 46,692 389
Cumulative effect of accounting changes (5,978) -- --
Changes in assets and liabilities:
Decrease in notes and
accounts receivable, trade 111,301 174,679 1,456
Decrease in inventories 290,872 36,039 300
Increase in film costs (236,072) (317,953) (2,650)
Decrease in notes and accounts
payable, trade (172,626) (58,384) (486)
Increase (decrease) in accrued
income and other taxes (39,589) 14,637 122
Increase in future insurance
policy benefits and other 314,405 233,992 1,950
Increase in deferred insurance
acquisition costs (71,522) (66,091) (551)
Increase in marketable securities held in
the insurance business for trading
purpose (55,661) -- --
Decrease in other current assets 5,543 29,095 242
Increase (decrease) in other
current liabilities (19,418) 26,205 218
Other (46,995) 48,148 402
Net cash provided by operating
activities 737,596 853,788 7,115
Cash flows from investing activities:
Payments for purchases of fixed assets (388,514) (275,285) (2,294)
Proceeds from sales of fixed assets 37,434 25,711 214
Payments for investments and advances
by financial service business (705,796) (1,026,361) (8,553)
Payments for investments and advances
(other than financial service business) (90,544) (109,987) (917)
Proceeds from sales of securities
investments, maturities of marketable
securities and collections of advances
by financial service business 345,112 542,539 4,521
Proceeds from sales of securities
investments, maturities of marketable
securities and collections of advance
(other than financial service business) 33,969 135,834 1,132
Decrease in time deposits 1,222 1,124 10
Net cash used in investing activities (767,117) (706,425) (5,887)
Cash flows from financing activities:
Proceeds from issuance of long-term debt 228,999 12,323 103
Payments of long-term debt (171,739) (238,144) (1,985)
Decrease in short-term borrowings (78,104) (7,970) (66)
Increase in deposits from customers
in the banking business 106,472 142,023 1,184
Proceeds from issuance of
subsidiary tracking stock 9,529 -- --
Dividends paid (22,951) (22,871) (191)
Other 12,834 21,505 179
Net cash provided by (used in)
financing activities 85,040 (93,134) (776)
Effect of exchange rate changes
on cash and cash equivalents 21,036 (24,971) (208)
Net increase in cash and cash equivalents 76,555 29,258 244
Cash and cash equivalents
at beginning of year 607,245 683,800 5,698
Cash and cash equivalents at end of year Y 683,800 Y 713,058 $ 5,942
(Notes)
1. U.S. dollar amounts have been translated from yen, for convenience
only, at the rate of Yen 120 = U.S.$1, the approximate Tokyo foreign
exchange market rate as of March 31, 2003.
2. As of March 31, 2003, Sony had 1,035 consolidated subsidiaries. It has
applied the equity accounting method in respect to 84 affiliated
companies.
3. Sony calculates and presents per share data separately for Sony's
Common stock and for the subsidiary tracking stock which is linked to
the economic value of Sony Communication Network Corporation, based on
Statement of Financial Accounting Standards ("FAS") No.128, "Earnings
per Share". The holders of the tracking stock have the right to
participate in earnings, together with Common stock holders.
Accordingly, Sony calculates per share data by the "two-class" method
based on FAS No.128. Under this method, basic net income per share for
each class of stock is calculated based on the earnings allocated to
each class of stock for the applicable period, divided by the
weighted-average number of outstanding shares in each class during the
applicable period. The earnings allocated to the subsidiary tracking
stock are determined based on the subsidiary tracking stock holders'
economic interest in the targeted subsidiary's earnings available for
dividends or change in accumulated losses. The earnings allocated to
Common stock are calculated by subtracting the earnings allocated to
the subsidiary tracking stock from Sony's net income for the period.
Weighted-average shares used for computation of earnings per share of
Common stock are shown in the chart below. The dilutive effect in the
weighted-average shares for the year ended March 31, 2002 and 2003
mainly resulted from convertible bonds. In accordance with FAS No.128,
the computation of diluted net income per share for the year ended
March 31, 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 the assumed conversion of
convertible bonds in diluted net income.
Weighted-average shares (Thousands of shares)
Year ended March 31
2002 2003
Income before cumulative effect
of accounting changes and net income
- Basic 918,462 919,706
- Diluted 921,234 998,591
Weighted-average shares (Thousands of shares)
Three months ended March 31
2002 2003
Net loss
- Basic 918,498 920,814
- Diluted 918,498 920,814
Weighted-average shares used for computation of earnings per share of
the subsidiary tracking stock for the year and three months ended
March 31, 2002 and 2003 are 3,072 thousand shares. There were no
potentially dilutive securities or options granted for EPS of the
subsidiary tracking stock outstanding at March 31, 2002 and 2003.
4. Sony's comprehensive income is comprised of net income and other
comprehensive income. Other comprehensive income includes changes in
unrealized gains or losses on securities, unrealized gains or losses on
derivative instruments, minimum pension liability adjustment and
foreign currency translation adjustments. Net income (loss), other
comprehensive income (loss) and comprehensive income (loss) for the
year and three months ended March 31, 2002 and 2003 were as follows;
(Millions of yen,
millions of U.S. dollars)
Year ended March 31 Three months ended March 31
2002 2003 2003 2002 2003 2003
Net income
(loss) Y15,310 Y115,519 $963 Y(5,458) Y(111,144) $(926)
Other
comprehensive
income (loss):
Unrealized gains
(losses) on
securities (21,519) (5,339) (45) 14,394 2,834 24
Unrealized gains
(losses) on
derivative
instruments (711) (4,082) (34) (3,532) (668) (6)
Minimum pension
liability
adjustment (22,228) (110,636) (922) (22,228) (110,636) (922)
Foreign currency
translation
adjustments 97,432 (76,328) (636) 9,561 25,387 211
52,974 (196,385) (1,637) (1,805) (83,083) (693)
Comprehensive
income (loss) Y68,284 Y(80,866) $(674) Y(7,263) Y(194,227) $(1,619)
5. In April 2001, Sony adopted FAS No.133, "Accounting for Derivative
Instruments and Hedging Activities" as amended by FAS No.138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities -- an Amendment of FASB statement No.133." As a result of
the adoption of the new standard, Sony recorded a one-time non-cash
after-tax unrealized gain of Yen 1,089 million in accumulated other
comprehensive income in the consolidated balance sheet, as well as an
after-tax gain of Yen 5,978 million in the cumulative effect of
accounting changes in the consolidated statement of income.
6. In July 2001, the Financial Accounting Standards Board ("FASB") issued
FAS No.142, "Goodwill and Other Intangible assets" which supersedes
Accounting Principles Board Opinion No.17, "Intangible Assets." Sony
elected early adoption of FAS No.142 retroactive to April 1, 2001.
7. In the fourth quarter of the year ended March 31, 2002, Sony adopted
Emerging Issues Task Force Issue No.01-09, "Accounting for
Consideration Given by a Vendor to a Customer or Reseller of the
Vendor's Products," retroactive to April 1, 2001.
8. Adoption of New Accounting Standards
Impairment or Disposal of Long-Lived Assets
In April 2002, Sony adopted FAS No.144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement establishes a single accounting model for long-lived assets to be disposed of by sale and modifies the accounting and disclosure rules for discontinued operations. The adoption of this statement did not have an impact on Sony's results of operations and financial position.
Rescission of FASB Statements No.4, 44 and 64, Amendment of FASB Statement No.13, and Technical Corrections
In April 2002, the FASB issued FAS No.145 "Rescission of FASB Statements No.4, 44 and 64, Amendment of FASB Statement No.13, and Technical Corrections." This statement rescinds certain authoritative pronouncements and amends, clarifies or describes the applicability of others, effective for fiscal years beginning or transactions occurring after May 15, 2002, with early adoption encouraged. Sony elected early adoption of this statement retroactive to April 1, 2002. The adoption of this statement did not have an impact on Sony's results of operations and financial position.
Accounting for Costs Associated with Exit or Disposal Activities
In July 2002, the FASB issued FAS No.146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement establishes accounting and disclosure rules for costs associated with exit or disposal activities that are initiated after December 31, 2002. The impact of the adoption of this statement on Sony's results of operations and financial position was immaterial.
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others
In November 2002, the FASB issued FASB Interpretation No.45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No.5, 57, and 107 and rescission of FASB Interpretation No.34." This interpretation addresses the accounting for guarantees issued or modified after December 31, 2002 and the disclosure requirements for all guarantees. The impact of the adoption of this interpretation on Sony's results of operations and financial position was immaterial.
Consolidation of Variable Interest Entities
In January 2003, the FASB issued FASB Interpretation No.46, "Consolidation of Variable Interest Entities - an interpretation of ARB No.51." This interpretation addresses consolidation by a primary beneficiary of variable interest entities. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 become effective for Sony during the second quarter of the fiscal year ending March 31, 2004. As no new variable interest entity created or acquired after January 31, 2003 exists, the adoption of this interpretation did not have an impact on Sony's results of operations and financial position for the year and three months ended March 31, 2003. Sony is now in the process of assessing the impact for variable interest entities created or acquired before February 1, 2003.
Other Consolidated Financial Data
(Millions of yen, millions of U.S. dollars)
Year ended March 31
2002 2003 Change 2003
Capital expenditures
(additions to fixed assets) Y 326,734 Y 261,241 -20.0% $2,177
Depreciation and
amortization expenses* 354,135 351,925 -0.6 2,933
(Depreciation expenses
for tangible assets) (297,581) (279,476) (-6.1) (2,329)
R&D expenses 433,214 443,128 2.3 3,693
Three months ended March 31
2002 2003 Change 2003
Capital expenditures
(additions to fixed assets) Y 72,140 Y 76,610 6.2% $638
Depreciation and
amortization expenses* 91,956 96,241 4.7 802
(Depreciation expenses
for tangible assets) (81,935) (74,340) (-9.3) (620)
R&D expenses 107,931 131,379 21.7 1,095
* Including amortization expenses for intangible assets and for deferred
insurance acquisition costs
Condensed Financial Services Balance Sheet (Unaudited)
The following schedule shows unaudited condensed balance sheets for Financial Services and for Sony without Financial Services. While this presentation is not required under U.S. GAAP used in Sony's consolidated financial statements, because the Financial Services is different in nature from Sony's Electronics, Game, Music, and Pictures segments, Sony believes that this type of comparative presentation helps the understanding and analysis of Sony's consolidated balance sheet.
(Millions of yen,
millions of U.S. dollars)
Sony without
Financial Services Financial Services
March 31 March 31
2002 2003 2003 2002 2003 2003
ASSETS
Cash and cash
equivalents Y327,262 Y274,928 $2,291 Y356,538 Y438,130 $3,651
Marketable
securities 157,363 236,621 1,972 4,784 4,899 41
Other current
assets 142,051 176,376 1,470 2,412,799 2,057,930 17,149
Investments and
advances 1,388,556 1,741,748 14,515 420,226 372,671 3,106
Investments in
Financial Services -- -- -- 170,189 170,189 1,418
Deferred insurance
acquisition
costs 308,204 327,869 2,732 -- -- --
Other long-lived
assets 172,616 152,892 1,274 2,702,352 2,771,946 23,100
Y2,496,052 Y2,910,434 $24,254 Y6,066,888 Y5,815,765 $48,465
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits from
customers in
the banking
business Y106,472 Y248,721 $2,073 Y -- Y -- $--
Future insurance
policy benefits
and other 1,680,418 1,914,410 15,953 -- -- --
Other liabilities
and minority
interest in
consolidated
subsidiaries 390,976 425,591 3,547 3,834,544 3,677,646 30,647
Total liabilities
and minority
interest in
consolidated
subsidiaries 2,177,866 2,588,722 21,573 3,834,544 3,677,646 30,647
Stockholders'
equity 318,186 321,712 2,681 2,232,344 2,138,119 17,818
Y2,496,052 Y2,910,434 $24,254 Y6,066,888 Y5,815,765 $48,465
SOURCE: Sony Corporation
CONTACT: Tokyo - Yukio Ozawa, +81-3-5448-2180, or New York - Yas
Hasegawa, +1-212-833-6820, Kumiko Koyama, +1-212-833-5011, or London - Chris
Hohman, +44-20-7444-9711, Shinji Tomita, +44-20-7444-9713, all of Sony
Corporation