Sony Corporation: Consolidated Financial Results for the Fiscal Year
PRNewswire-FirstCall
TOKYO
04/27/2004
Sony Corporation (NYSE: SNE) today announced its consolidated results for the fiscal year ended March 31, 2004 (April 1, 2003 to March 31, 2004).
(Billions of yen, millions of U.S. dollars,
except per share amounts)
Year ended March 31
2003 2004 Change 2004*
Sales and operating
revenue Y7,473.6 Y7,496.4 +0.3% $72,081
Operating income 185.4 98.9 -46.7 951
Income before income
taxes 247.6 144.1 -41.8 1,385
Net income 115.5 88.5 -23.4 851
Net income per share
of common stock
- Basic Y125.74 Y95.97 -23.7% $0.92
- Diluted 118.21 90.88 -23.1 0.87
* U.S. dollar amounts have been translated from yen, for convenience only,
at the rate of Y104=U.S.$1, the approximate Tokyo foreign exchange
market rate as of March 31, 2004.
Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Consolidated Results for the Fiscal Year ended March 31, 2004
Sales increased 0.3% year on year; on a local currency basis, sales grew 3%. (For all references herein to results on a local currency basis, see Note I.) In the Electronics segment, sales to outside customers increased, while overall sales declined slightly due to a decrease in sales between consolidated companies resulting from the outsourcing of PlayStation 2 ("PS 2") production to third parties in China. With respect to major products in the Electronics segment, despite a decrease in sales of CRT televisions and portable audio, sales of cellular phones (sold mainly to Sony Ericsson Mobile Communications ("Sony Ericsson")), digital still cameras, and flat panel televisions increased. Sales declined in the Game segment due to lower sales of both hardware and software. In the Pictures segment, although sales on a U.S. dollar basis increased due to the contribution of television revenues, sales decreased due to foreign exchange rate fluctuations. Sales in the Music segment also decreased primarily due to foreign exchange rate fluctuations. At the same time, Financial Services revenue increased mainly due to improvements in valuation gains and losses from investments at Sony Life Insurance Co., Ltd. ("Sony Life").
Operating income decreased 46.7% (47% decrease on a local currency basis) compared with the previous fiscal year mainly due to an increase in restructuring expenses. The Electronics segment recorded an operating loss owing mainly to an increase in restructuring expenses, principally from severance related expenses. In the Game segment, operating income declined due to the decrease in sales and an increase in research and development expenses for future businesses. In the Pictures segment, despite the contribution from higher television revenues, operating income decreased compared with the previous year, which had benefited from the profits generated by Spider-Man. By contrast, improvements in valuation gains and losses from investments in the general account at Sony Life resulted in an increase in operating income in the Financial Services segment. In the Music segment, operating income was recorded, compared with an operating loss recorded in the prior year, due to the benefits of restructuring, a reduction in advertising and promotion expenses and a decrease in restructuring expenses.
Restructuring expenses for the fiscal year amounted to Y168.1 billion ($1,616 million) compared to Y106.3 billion in the previous fiscal year. In the Electronics segment, restructuring expenses were Y143.3 billion ($1,378 million) compared to Y72.5 billion in the previous fiscal year.
Income before income taxes decreased 41.8% compared with the previous fiscal year. Although royalty income and net foreign exchange gain increased compared to the previous fiscal year, other income declined in this fiscal year due to the gain on the sale in the previous year 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.
Net income decreased 23.4% compared with the previous fiscal year. Equity in net income of affiliated companies consisted of an equity gain, primarily due to profits recorded at Sony Ericsson (the profit Sony recorded from its equity holding was Y6.4 billion ($62 million)) as compared with equity losses recorded in the previous fiscal year. The effective tax rate for the fiscal year of 36.6% was lower than the statutory rate in Japan due to a decrease in deferred tax liabilities on undistributed earnings of foreign subsidiaries and because U.S. income was taxed at a lower rate due to utilization of tax loss and foreign tax credit carryforwards. However, this rate was higher than the effective tax rate of 32.6% in the prior fiscal year, which benefited from a reversal in valuation allowances on deferred tax assets held by Aiwa Co., Ltd.
Remarks by Nobuyuki Idei, Chairman and Group CEO of Sony Corporation
During the fiscal year ended March 31, 2004, we worked to enhance the competitiveness of our products, especially in the Electronics segment, through the aggressive introduction of new models in such categories as digital still cameras, flat panel televisions and DVD recorders. The result was a strong contribution to sales by these products in the year-end and new- year selling season. In the area of restructuring, we worked to concentrate management resources in focused business areas and reduce fixed costs, including via headcount reduction, on a more accelerated basis than originally planned. In the Financial Services segment, in April 2004, we established a holding company to integrate financial functions and provide a higher level of customer service.
In the fiscal year ending March 31, 2005, we will work to concentrate management resources on growing businesses through initiatives such as proactive investment in key devices, including next generation broadband microprocessors, and we will strive to bring value into the Sony Group and differentiate our products. Through the release of enticing products such as the PSP handheld entertainment system, the online distribution of music, and other initiatives, we will venture into new businesses. Moreover, we will continue to enhance our management structure through restructuring and promote greater efficiencies in product development and design.
Through these actions, the entire Sony Group will endeavor to strengthen a foundation designed to achieve mid- to long-term growth and improved profitability.
Operating Performance Highlights by Business Segment
Electronics
(Billions of yen, millions of U.S. dollars)
Year ended March 31
2003 2004 Change 2004
Sales and operating revenue Y4,940.5 Y4,897.4 -0.9% $47,090
Operating income (loss) 41.4 (35.3) - (339)
Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Sales decreased 0.9% (1% increase on a local currency basis) due to a significant decline in intersegment sales to the Game segment primarily owing to outsourcing of PS 2 game console production to third parties in China. On the other hand, sales to outside customers increased 4.7% compared to the previous year. Although market conditions had a negative effect on sales of such products as CRT televisions and portable audio, this was more than offset by an increase in sales of cellular phones (sold mainly to Sony Ericsson), which benefited from increased demand for camera-equipped models in Japan and Europe; Cybershot digital still cameras, which saw continued market growth and an increase in the number of units sold; and flat panel televisions, which exhibited significantly increased sales in all geographic regions.
Operating loss of Y35.3 billion was recorded, a deterioration of Y76.7 billion compared to the profit recorded in the previous year. Although sales to outside customers increased, the operating loss primarily resulted from a Y70.8 billion increase in restructuring expenses (mainly severance related expenses) and a decline in prices. Operating performance of CRT televisions, CLIE personal digital assistants, and optical pickups deteriorated, mainly due to price declines. On the other hand, operating performance of VAIO PCs improved because emphasis was placed on high value-added models. Operating performance of CCDs also improved due to an increase in sales mainly for digital still cameras.
Inventory as of March 31, 2004 was Y490.5 billion ($4,716 million), a Y58.1 billion, or 13.4%, increase compared with the level as of March 31, 2003 and a Y43.5 billion, or 8.1%, decrease compared with the level as of December 31, 2003.
Game
(Billions of yen, millions of U.S. dollars)
Year ended March 31
2003 2004 Change 2004
Sales and operating revenue Y955.0 Y780.2 -18.3% $7,502
Operating income 112.7 67.6 -40.0 650
Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Sales decreased 18.3% compared with the previous year (18% decrease on a local currency basis) as sales of hardware and software decreased.
Hardware: Although PS 2 unit sales in Europe and Japan increased compared with the previous year, unit sales in the U.S. decreased, contributing to an overall unit sales decline. This overall unit sales decline, combined with strategic price reductions on the PS 2 undertaken in Japan, the U.S. and Europe during the fiscal year, caused a decrease in sales.
Software: Although PS 2 software unit sales and revenue increased, PlayStation software unit sales and revenue decreased, resulting in an overall decrease in software sales. Revenue increased in Europe but decreased in Japan and the U.S.
Operating income decreased by Y45.1 billion, or 40.0%, due to an increase in research and development expenses for future businesses and the decrease in hardware sales. Profit from software was nearly unchanged compared with the previous fiscal year.
Worldwide hardware production shipments*:
-- PS 2: 20.10 million units (a decrease of 2.42 million units)
-- PS one: 3.31 million units (a decrease of 3.47 million units)
Worldwide software production shipments*:
-- PS 2: 222 million units (an increase of 32 million units)
-- PlayStation: 32 million units (a decrease of 29 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.
Inventory on March 31, 2004 was Y130.9 billion ($1,259 million), a Y12.6 billion, or 8.7%, decrease compared with the level on March 31, 2003 and a Y2.3 billion, or 1.8%, increase compared with the level on December 31, 2003.
Music
(Billions of yen, millions of U.S. dollars)
Year ended March 31
2003 2004 Change 2004
Sales and operating revenue Y597.5 Y559.9 - 6.3% $5,384
Operating income (loss) (7.9) 19.0 - 182
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 decreased 6.3% compared with the previous year (flat on a local currency basis). Of the Music segment's sales, 74% were generated by SMEI, and 26% were generated by SMEJ.
SMEI: Sales on a U.S. dollar basis were flat compared with the previous year. Appreciation of European currencies contributed to higher sales outside of the U.S. which were offset by lower sales in the U.S. Album sales decreased worldwide due to the continued contraction of the global music industry brought on by piracy (i.e. unauthorized file sharing and CD burning) and competition from other entertainment sectors. Best selling albums during the year included Beyonce's Dangerously in Love and Evanescence's Fallen.
SMEJ: Sales were flat compared with the previous year. Best selling albums during the year were Mika Nakashima's LOVE and Chemistry's Between the Lines.
Operating income of Y19.0 billion was recorded compared with an operating loss of Y7.9 billion in the prior year, an improvement of Y26.9 billion year on year, as operating performance at both SMEI and SMEJ improved.
SMEI: Operating income was recorded this year, compared with an operating loss recorded in the prior year, as SMEI realized benefits from the worldwide restructuring activities implemented over the past two years. These activities included the rationalization of manufacturing, distribution and support functions including record label shared services. Also contributing to the improved operating results were lower advertising and promotion expenses. In addition, restructuring expenses decreased compared with the prior year.
SMEJ: Operating income increased compared with the prior year due to a reduction in selling, general and administrative expenses, primarily advertising and promotion expenses, and strong sales of Japanese artists' recordings.
In December 2003, Sony and Bertelsmann AG announced that they had signed a binding agreement to combine their recorded music businesses in a joint venture. The newly formed company, which will be known as Sony BMG, will be 50% owned by each parent company. It will not include SMEI's music publishing, physical distribution and disc manufacturing business or SMEJ. The merger is subject to regulatory approvals in the United States and the European Union.
Pictures
(Billions of yen, millions of U.S. dollars)
Year ended March 31
2003 2004 Change 2004
Sales and operating revenue Y802.8 Y756.4 - 5.8% $7,273
Operating income 59.0 35.2 - 40.3 339
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 decreased 5.8% compared with the prior year (2% increase on a U.S. dollar basis). The U.S. dollar revenues represented a new record for SPE, led by higher television performance in the fiscal year. Television revenues increased significantly due to initial syndication sales of The King of Queens and third cycle syndication sales of Seinfeld, as well as the extension of a licensing agreement for Wheel of Fortune. Notable film releases during the year included Bad Boys 2, S.W.A.T., Anger Management and Something's Gotta Give.
Operating income decreased by Y23.7 billion, or 40.3%, from the prior year (30% decrease on a U.S. dollar basis). The higher television revenues noted above contributed significantly to operating income in the year. However, the primary reason for the decline was the absence of profits contributed by the breakaway performance of Spider-Man in the prior year. Results for the year were negatively impacted by the disappointing performances of Gigli, Hollywood Homicide, The Missing and Charlie's Angels: Full Throttle.
Financial Services
(Billions of yen, millions of U.S. dollars)
Year ended March 31
2003 2004 Change 2004
Financial Services revenue Y537.3 Y593.5 +10.5% $5,707
Operating income 22.8 55.2 +142.4 530
Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Financial Services revenue increased 10.5% compared with the previous fiscal year mainly due to an increase in revenue at Sony Life. Regarding Sony Life, the method of recognizing insurance premiums received on certain products was changed from being recorded as revenues to being offset against the related provision for future insurance policy benefits since the third quarter beginning October 1, 2003. Although revenue was reduced by Y30.8 billion as a result of this change, revenue at Sony Life increased by Y46.4 billion or 9.9% to Y513.0 billion ($4,933 million) due to improvements in valuation gains and losses from investments compared with the previous year.*
Operating income increased by Y32.4 billion, or 142.4%, compared with the previous year due to improvements in valuation gains and losses from investments in the general account at Sony Life. Operating income at Sony Life increased by Y33.6 billion or 113.3% to Y63.2 billion ($608 million).* The above mentioned change in revenue recognition method did not have a material effect on operating income at Sony Life.
* The Financial Services revenue and operating income at Sony Life are
calculated on a U.S. GAAP basis. Therefore, they differ from the results
that Sony Life discloses on a Japanese statutory basis. The above
mentioned change in revenue recognition method did not have an impact on
results on a Japanese statutory basis.
Other
(Billions of yen, millions of U.S. dollars)
Year ended March 31
2003 2004 Change 2004
Sales and operating revenue Y306.3 Y330.4 +7.9% $3,177
Operating loss (25.0) (10.0) - (96)
Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Sales increased 7.9% compared with the previous year due to an increase in sales of a business which provides information system services to other businesses within the Sony Group and of an IC card business. Of the sales in the Other segment, 53% were sales to outside customers.
Operating loss was reduced because a Network Application and Contents Service Sector ("NACS") -related business operated by a U.S. subsidiary recorded a one-time gain on the sale of rights related to a portion of the Sony Credit Card portfolio.
Cash Flow
The following charts show Sony's unaudited condensed statements of cash flow on a consolidated basis for all segments excluding the Financial Services segment and for the Financial Services segment alone. These separate condensed presentations are not required under U.S. GAAP, which is used in Sony's consolidated financial statements. However, because the Financial Services segment is different in nature from Sony's other segments, Sony believes that these presentations may be useful in understanding and analyzing Sony's consolidated financial statements.
Cash Flow - Consolidated (excluding Financial Services segment)
(Billions of yen, millions of U.S. dollars)
Year ended March 31
Cash flow 2003 2004 Change 2004
- From operating activities Y544.1 Y401.1 Y -143.0 $3,856
- From investing activities (185.9) (352.5) -166.6 (3,389)
- From financing activities (251.2) 153.8 +405.0 1,478
Cash and cash equivalents at
beginning of the fiscal year 356.6 438.5 +82.0 4,216
Cash and cash equivalents at
end of the fiscal year 438.5 592.9 +154.4 5,700
Operating Activities: During the fiscal year, cash increased primarily due to profit contributions from the Game, Pictures and Music segments and an increase in notes and accounts payable, trade, while cash decreased primarily due to an increase in inventory and notes and accounts receivable, trade in the Electronics segment. Compared with the previous fiscal year, although there was an increase in the growth in notes and accounts payable, trade, cash flow from operating activities declined due to factors such as an increase in the growth in notes and accounts receivable, trade, the increase in inventory in the Electronics segment, the recording of an operating loss in the Electronics segment, and a decrease in profits in the Game and Pictures segments.
Investing Activities: During the fiscal year, proactive capital expenditures were made, primarily in the Electronics and Game segments, for semiconductor manufacturing and other equipment. Compared with the previous fiscal year, net cash used in investing activities increased because, in the previous fiscal year, proceeds were received from the sale of Sony's equity interest in Telemundo (Y88.4 billion) and because, during this fiscal year, capital expenditures increased, as noted above.
As a result, cash flow from operating activities exceeded cash flow from investing activities by Y48.6 billion in the fiscal year.
Financing Activities: In the fiscal year, repayments of short-term debt, such as commercial paper, were made while long-term financing was received through the issuance of Y250 billion of convertible bonds (bonds with stock acquisition rights). Proceeds from the issuance are expected to be applied towards investment in semiconductors and key devices.
Cash and Cash Equivalents: The total balance of cash and cash equivalents, accounting for the effect of exchange rate fluctuations, increased Y154.4 billion to Y592.9 billion as of March 31, 2004 compared to March 31, 2003.
Cash Flow - Financial Services segment
(Billions of yen, millions of U.S. dollars)
Year ended March 31
Cash flow 2003 2004 Change 2004
- From operating activities Y314.8 Y241.6 Y -73.1 $2,323
- From investing activities (516.7) (401.6) +115.1 (3,860)
- From financing activities 149.2 141.7 -7.5 1,362
Cash and cash equivalents at
beginning of the fiscal year 327.2 274.5 -52.7 2,640
Cash and cash equivalents at
end of the fiscal year 274.5 256.3 -18.2 2,465
Operating Activities: Operating activities generated more cash than was used due to an increase in future insurance policy benefits and other in the fiscal year, reflecting an increase in insurance-in-force.
Investing Activities: In the fiscal year, payments for investments and advances exceeded proceeds from sales of securities investments, maturities of marketable securities and collections of advances, reflecting an increase in assets under management in the Financial Services businesses.
Financing Activities: Deposits from customers in the banking business increased in the fiscal year due to factors including an increase in the number of accounts.
Cash and Cash Equivalents: Cash and cash equivalents decreased Y18.2 billion to Y256.3 billion as of March 31, 2004 compared to March 31, 2003.
Consolidated Results for the Fourth Quarter ended March 31, 2004
Sales were Y1,772.2 billion ($17.0 billion), an increase of 7.1% compared to the same quarter of the prior year (12% increase on a local currency basis). In the Electronics segment, sales to outside customers (excludes sales between consolidated companies) increased 10.9%. Sales of digital still cameras and flat panel televisions, which benefited from growing demand, and sales of cellular phones (sold mainly to Sony Ericsson) increased, while sales of CRT televisions continued to decline. In the Pictures segment, sales increased significantly due to a television syndication sale and a licensing agreement extension. In the Financial Services segment, despite a decrease in sales as a result of a change in the method of recognizing insurance premiums received, sales increased because of improvements in valuation gains and losses from investments at Sony Life. However, a decline in the sales of both software and hardware resulted in a decrease in sales in the Game segment. As a result of foreign exchange rate fluctuations, sales in the Music segment decreased.
Operating loss was Y109.8 billion ($1.1 billion), an improvement of Y6.7 billion compared with the same quarter of the previous year. The operating loss of the Electronics segment increased due to an increase in restructuring expenses, principally from severance related expenses. The Game segment recorded an operating loss compared to a profit in the same quarter of the previous year due to an increase in research and development expenses for future businesses. In contrast, operating income of the Pictures segment increased significantly due to the syndication sale and the licensing agreement extension noted above. Improvements in valuation gains and losses from investments in the general account at Sony Life resulted in a substantial increase in operating income in the Financial Services segment. The operating loss of the Music segment decreased due to lower restructuring expenses compared with the same quarter of the previous year.
Restructuring expenses for the quarter amounted to Y96.8 billion ($931 million) compared to Y48.7 billion in the fourth quarter of the previous year. In the Electronics segment, restructuring expenses were Y86.9 billion ($836 million) compared to Y32.9 billion in the same quarter of the previous year.
Loss before income taxes was Y93.6 billion ($900 million), an improvement of Y26.2 billion compared with the previous year's same quarter. A net foreign exchange gain was recorded in other income while a net foreign exchange loss was recorded in the same quarter of the prior year.
Net loss was Y38.2 billion ($367 million), an improvement of Y73.0 billion compared with the same quarter of the previous year. Income tax benefit increased due to the utilization of tax loss and foreign and other tax credit carryforwards. In addition, equity in net income of affiliated companies was recorded during the quarter compared to equity in net losses in the same quarter of the previous year. The change from loss to income from equity affiliates was primarily due to the contribution of Sony Ericsson (the profit Sony recorded from its equity holding was Y5.4 billion ($52 million)).
Notes
Note I: During the fiscal year ended March 31, 2004, the average value of the yen was Y112.1 against the U.S. dollar and Y131.1 against the euro, which was 7.3% higher against the U.S. dollar and 9.7% lower against the euro, compared with the average rates 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 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: "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.
Note III: Commencing with the first quarter ended June 30, 2003, Sony has partly realigned its business segment configuration. Also, in the Network Application and Content Service Sector ("NACS"), expenses incurred in connection with the creation of a network platform business have been transferred out of the Other segment and reclassified as unallocated corporate expenses, because the expected future benefits of this business will be spread across the Sony Group. In accordance with this realignment, results for the previous fiscal year have been reclassified to conform to the presentation of the current fiscal year.
Note IV: During the fourth quarter ended March 31, 2004, the average value of the yen was Y106.3 against the U.S. dollar and Y132.6 against the euro, which was 9.8% higher against the U.S. dollar and 5.1% lower against the euro, compared with the average rates for the same quarter of the previous fiscal year.
Rewarding Shareholders
Sony believes that continuously increasing corporate value and providing dividends are essential to rewarding shareholders. It is Sony's policy to utilize retained earnings, after ensuring the perpetuation of stable dividends, to carry out various investments that contribute to an increase in corporate value such as those that ensure future growth and strengthen competitiveness.
A year-end cash dividend of Y12.5 ($0.12) per share of Sony Corporation common stock was approved at the Board of Directors meeting held on April 26, 2004 and will be payable on June 1, 2004. Sony Corporation has already paid an interim dividend of Y12.5 per share to each shareholder; accordingly, the total annual cash dividend per share is Y25.0.
Regarding shares of subsidiary tracking stock issued in Japan 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 increase its 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 its policy of not paying dividends to shareholders of the subsidiary tracking stock.
Numbers of Employees
Although employees were reduced through restructuring activities, due to an increase at manufacturing facilities in Asia, primarily in China, the number of employees at the end of March 2004 was approximately 162,000, an increase of approximately 900 from the end of March 2003. Approximately 3,600 employees in Japan who left Sony on March 31, 2004, through the early retirement program and other means, are counted as a part of this total.
Outlook for the Fiscal Year ending March 31, 2005
Change from
previous year
Sales and operating revenue Y7,550 billion +1%
Operating income 160 billion +62
Income before income taxes 160 billion +11
Net income 100 billion +13
Capital expenditures (additions to
fixed assets) Y410 billion +8%
Depreciation and amortization* 370 billion +1
(Depreciation expenses for tangible
assets) (290 billion) (+1)
* Including amortization of intangible assets and amortization of deferred insurance acquisition costs.
Research and development expenses 550 billion +7%
Assumed exchange rates: approximately Y105 to the U.S. dollar, approximately Y125 to the euro.
During the fiscal year, primarily in the Electronics segment, restructuring expenses of approximately Y130 billion are expected to be incurred across the Sony Group (Y168.1 billion in restructuring expenses were recorded in the fiscal year ended March 31, 2004).
During the fiscal year, approximately $100 million is expected to be recorded as equity in net income from InterTrust Technologies Corporation, an equity affiliate of Sony. This equity in net income includes the proceeds from the settlement of a patent-related suit against another company and is included in the above net income forecast.
The forecast for each business segment is as follows: Electronics
Sales of products such as digital still cameras, flat panel televisions and DVD recorders are expected to continue to increase, resulting in an anticipated increase in overall sales of the segment, despite an expected decrease in sales of CRT televisions. Operating income is expected to increase due to the increase in sales and the benefit of restructuring activities undertaken in the previous fiscal year, despite an anticipated appreciation of the yen and an expected increase in research and development expenses.
From the fiscal year ending March 31, 2005, research and development expenses associated with process technologies, including those technologies used in the Game segment, will be recorded in the Electronics segment, due to an integration of the semiconductor businesses in the Electronics and Game segments.
Game
Although software production shipments are expected to remain unchanged year on year, production shipments of PS one and PS 2 hardware are expected to decrease compared with the previous year, resulting in a decrease in sales for the segment. Although a portion of research and development expenses will be recorded in the Electronics segment, as described above, operating income is expected to decrease due to continued investment in products such as the PSP handheld entertainment system and the next generation computer entertainment system.
Music
Sales are expected to decrease due to an anticipated continued contraction of the market for music and a reduction in the unit price of DVDs in the manufacturing division. However, due to factors such as the benefits of restructuring activities already carried out, operating income is expected to increase.
Pictures
Sales are expected to decrease due to the absence of the significant television revenues in the fiscal year ended March 31, 2004. However, operating income is expected to remain unchanged primarily due to the contribution of films scheduled for release during the year, most notably Spider-Man 2.
Financial Services
Although an increase in insurance-in-force is expected at Sony Life, a decrease in insurance revenue is expected due to a change, at Sony Life, in the recognition method of insurance premiums received on certain products from being recorded as revenue to being offset against the related provision for future insurance policy benefits. A decrease in operating income is also expected because valuation gains from marketable securities are not included in the forecast.
Semiconductor capital expenditures
Capital expenditures on semiconductors (in the Electronics and Game segments) during the fiscal year are expected to amount to Y190 billion (actual amount in the fiscal year ended March 31, 2004 was Y175 billion). Of that amount, Y120 billion is expected to be spent for the installation of semiconductor production equipment designed for next generation broadband microprocessors (actual amount in the fiscal year ended March 31, 2004 was Y69 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 statements 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, financial performance, events or conditions. 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, and subjective and changing consumer preferences (particularly in the Electronics, Game, Music and Pictures segments); (iv) Sony's ability to implement successfully personnel reduction and other business reorganization activities in its Electronics and Music segments; (v) Sony's ability to implement successfully its network strategy for its Electronics, Music, Pictures and Other segments and to develop and implement successful sales and distribution strategies in its Music and Pictures segments in light of the Internet and other technological developments; (vi) Sony's continued ability to devote sufficient resources to research and development and, with respect to capital expenditures, to correctly prioritize investments (particularly in the Electronics segment); (vii) the success of Sony's joint ventures and alliances; and (viii) the risk of being able to obtain regulatory approval and successfully form a jointly owned recorded music company with BMG. Risks and uncertainties also include the impact of any future events with material unforeseen impacts.
FIRST ADD -- TABULAR MATERIAL -- TO FOLLOW
SOURCE: Sony Corporation
CONTACT: Investors, in Tokyo, Yukio Ozawa, +81-3-5448-2180, in New York,
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Shinji Tomita, +44-20-7444-9713, all of Sony Corporation