UNITED STATES SECURITIES AND EXCHANGE COMMISSION
2007
7-35, KITASHINAGAWA 6-CHOME, SHINAGAWA-KU,
American Depositary Shares* New York Stock Exchange Pacific Stock ExchangeChicago Stock ExchangeCommon Stock** New York Stock Exchange Pacific Stock ExchangeChicago Stock Exchange
* | American Depositary Shares evidenced by American Depositary Receipts. Each American Depositary Share represents one share of Common Stock. |
** | No par value per share. Not for trading, but only in connection with the listing of American Depositary Shares pursuant to the requirements of the New York Stock Exchange. |
Outstanding as of March 30, 2007 March 29, 2007 March 31, 2004March 30, 2004Title of Class Common Stock 926,418,280Subsidiary Tracking Stock3,072,0001,002,062,405 American Depositary Shares 115,546,136176,704,973
Non-Accelerated Filer o |
In this document, Sony Corporation and its consolidated subsidiaries are together referred to as “Sony.” In addition, sales and operating revenue is referred to as “sales” in the narrative description except in the Consolidated Financial Statements. Item 18 þ Item 17 oItem 18. þ21, 200420, 2007 was 108.57123.60 yen = 1 U.S. dollar.2004,2007, Sony Corporation had 1,048960 consolidated subsidiaries (including variable interest entities). It has applied the equity accounting method inwith respect to its 6662 affiliated companies.
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EX-15.1(b) CONSENT OF INDEPENDENT ACCOUNTANTS |
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ITEM 1. | Identity of Directors, Senior Management and Advisers |
ITEM 2. | Offer Statistics and Expected Timetable |
Item 3. Key Information
ITEM 3. | Key Information |
Year Ended March 31 | ||||||||||||||||||||||
2000 | 2001 | 2002 | 2003 | 2004 | ||||||||||||||||||
(Yen in millions, Yen per share amounts) | ||||||||||||||||||||||
Income Statement Data: | ||||||||||||||||||||||
Sales and operating revenue | 6,686,661 | 7,314,824 | 7,578,258 | 7,473,633 | 7,496,391 | |||||||||||||||||
Operating income | 223,204 | 225,346 | 134,631 | 185,440 | 98,902 | |||||||||||||||||
Income before income taxes | 264,310 | 265,868 | 92,775 | 247,621 | 144,067 | |||||||||||||||||
Income taxes | 94,644 | 115,534 | 65,211 | 80,831 | 52,774 | |||||||||||||||||
Income before cumulative effect of accounting changes | 121,835 | 121,227 | 9,332 | 115,519 | 90,628 | |||||||||||||||||
Net income | 121,835 | 16,754 | 15,310 | 115,519 | 88,511 | |||||||||||||||||
Per Share Data of Common Stock*: | ||||||||||||||||||||||
Income before cumulative effect of accounting changes | ||||||||||||||||||||||
— Basic | 144.58 | 132.64 | 10.21 | 125.74 | 98.26 | |||||||||||||||||
— Diluted | 131.70 | 124.36 | 10.18 | 118.21 | 93.00 | |||||||||||||||||
Net income | ||||||||||||||||||||||
— Basic | 144.58 | 18.33 | 16.72 | 125.74 | 95.97 | |||||||||||||||||
— Diluted | 131.70 | 19.28 | 16.67 | 118.21 | 90.88 | |||||||||||||||||
Cash dividends declared | ||||||||||||||||||||||
Interim | 12.50 | 12.50 | 12.50 | 12.50 | 12.50 | |||||||||||||||||
(12.01 cents | ) | (11.15 cents | ) | (10.07 cents | ) | (10.50 cents | ) | (11.37 cents | ) | |||||||||||||
Year-end | 12.50 | 12.50 | 12.50 | 12.50 | 12.50 | |||||||||||||||||
(11.58 cents | ) | (10.01 cents | ) | (9.78 cents | ) | (10.53 cents | ) | (11.26 cents | ) | |||||||||||||
Depreciation and amortization**: | 306,505 | 348,268 | 354,135 | 351,925 | 366,269 | |||||||||||||||||
Capital expenditures (additions to fixed assets): | 435,887 | 465,209 | 326,734 | 261,241 | 378,264 | |||||||||||||||||
Research and development costs: | 394,479 | 416,708 | 433,214 | 443,128 | 514,483 |
Fiscal Year Ended March 31 | ||||||||||||||||||||
2003 | 2004 | 2005 | 2006 | 2007 | ||||||||||||||||
(Yen in millions, Yen per share amounts) | ||||||||||||||||||||
Income Statement Data: | ||||||||||||||||||||
Sales and operating revenue | 7,506,008 | 7,530,635 | 7,191,325 | 7,510,597 | 8,295,695 | |||||||||||||||
Operating income | 217,815 | 133,146 | 145,628 | 226,416 | 71,750 | |||||||||||||||
Income before income taxes | 247,621 | 144,067 | 157,207 | 286,329 | 102,037 | |||||||||||||||
Income taxes | 80,831 | 52,774 | 16,044 | 176,515 | 53,888 | |||||||||||||||
Income before cumulative effect of accounting changes | 115,519 | 90,628 | 168,551 | 123,616 | 126,328 | |||||||||||||||
Net income | 115,519 | 88,511 | 163,838 | 123,616 | 126,328 | |||||||||||||||
Data per Share of Common Stock: | ||||||||||||||||||||
Income before cumulative effect of accounting changes | ||||||||||||||||||||
— Basic | 125.74 | 98.26 | 180.96 | 122.58 | 126.15 | |||||||||||||||
— Diluted | 118.21 | 89.03 | 162.59 | 116.88 | 120.29 | |||||||||||||||
Net income | ||||||||||||||||||||
— Basic | 125.74 | 95.97 | 175.90 | 122.58 | 126.15 | |||||||||||||||
— Diluted | 118.21 | 87.00 | 158.07 | 116.88 | 120.29 | |||||||||||||||
Cash dividends declared | ||||||||||||||||||||
Interim | 12.50 | 12.50 | 12.50 | 12.50 | 12.50 | |||||||||||||||
(10.50 cents | ) | (11.37 cents | ) | (12.12 cents | ) | (10.36 cents | ) | (10.78 cents | ) | |||||||||||
Fiscal year-end | 12.50 | 12.50 | 12.50 | 12.50 | 12.50 | |||||||||||||||
(10.53 cents | ) | (11.26 cents | ) | (11.29 cents | ) | (11.04 cents | ) | (10.24 cents | ) | |||||||||||
Depreciation and amortization* | 351,925 | 366,269 | 372,865 | 381,843 | 400,009 | |||||||||||||||
Capital expenditures (additions to fixed assets) | 261,241 | 378,264 | 356,818 | 384,347 | 414,138 | |||||||||||||||
Research and development costs | 443,128 | 514,483 | 502,008 | 531,795 | 543,937 |
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Year Ended March 31 | |||||||||||||||||||||
2000 | 2001 | 2002 | 2003 | 2004 | |||||||||||||||||
(Yen in millions, Yen per share amounts) | |||||||||||||||||||||
Balance Sheet Data: | |||||||||||||||||||||
Net working capital | 861,674 | 830,734 | 778,716 | 719,166 | 381,140 | ||||||||||||||||
Long-term debt | 813,828 | 843,687 | 838,617 | 807,439 | 777,649 | ||||||||||||||||
Stockholders’ equity | 2,182,906 | 2,315,453 | 2,370,410 | 2,280,895 | 2,378,002 | ||||||||||||||||
Total assets | 6,807,197 | 7,827,966 | 8,185,795 | 8,370,545 | 9,090,662 | ||||||||||||||||
Number of shares issued at year-end (thousands of shares of common stock) | 453,639 | 919,617 | 919,744 | 922,385 | 926,418 | ||||||||||||||||
Stockholders’ equity per share of common stock*: | 2,409.36 | 2,521.19 | 2,570.31 | 2,466.81 | 2,563.67 |
Average*** | High | Low | Period-End | |||||||||||||||
(Yen) | ||||||||||||||||||
Yen Exchange Rates per U.S. Dollar: | ||||||||||||||||||
Year ended March 31 | ||||||||||||||||||
2000 | 110.02 | 101.53 | 124.45 | 102.73 | ||||||||||||||
2001 | 111.65 | 104.19 | 125.54 | 125.54 | ||||||||||||||
2002 | 125.64 | 115.89 | 134.77 | 132.70 | ||||||||||||||
2003 | 121.10 | 115.71 | 133.40 | 118.07 | ||||||||||||||
2004 | 113.07 | 120.55 | 104.18 | 104.18 | ||||||||||||||
2003 | ||||||||||||||||||
December | 109.6 | 106.9 | 107.1 | |||||||||||||||
2004 | ||||||||||||||||||
January | 107.2 | 105.5 | 105.8 | |||||||||||||||
February | 109.6 | 105.4 | 109.3 | |||||||||||||||
March | 112.1 | 104.2 | 104.2 | |||||||||||||||
April | 110.4 | 103.7 | 110.4 | |||||||||||||||
May | 114.3 | 108.5 | 110.2 | |||||||||||||||
June (through June 21) | 111.3 | 108.6 | 108.6 |
Fiscal Year Ended March 31 | ||||||||||||||||||||
2003 | 2004 | 2005 | 2006 | 2007 | ||||||||||||||||
(Yen in millions, Yen per share amounts) | ||||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||
Net working capital | 719,166 | 381,140 | 746,803 | 569,296 | 994,871 | |||||||||||||||
Long-term debt | 807,439 | 777,649 | 678,992 | 764,898 | 1,001,005 | |||||||||||||||
Stockholders’ equity | 2,280,895 | 2,378,002 | 2,870,338 | 3,203,852 | 3,370,704 | |||||||||||||||
Total assets | 8,370,545 | 9,090,662 | 9,499,100 | 10,607,753 | 11,716,362 | |||||||||||||||
Number of shares issued at | ||||||||||||||||||||
fiscal year-end (thousands of shares of common stock) | 922,385 | 926,418 | 997,211 | 1,001,680 | 1,002,897 | |||||||||||||||
Stockholders’ equity per share of common stock | 2,466.81 | 2,563.67 | 2,872.21 | 3,200.85 | 3,363.77 |
Average* | High | Low | Period-End | |||||||||||||
(Yen) | ||||||||||||||||
Yen Exchange Rates per U.S. Dollar: | ||||||||||||||||
Fiscal year ended March 31 2003 | 121.94 | 115.71 | 133.40 | 118.07 | ||||||||||||
2004 | 113.07 | 120.55 | 104.18 | 104.18 | ||||||||||||
2005 | 107.49 | 114.30 | 102.26 | 107.22 | ||||||||||||
2006 | 113.15 | 120.93 | 104.41 | 117.78 | ||||||||||||
2007 | 116.92 | 121.81 | 110.07 | 117.56 | ||||||||||||
2007 | ||||||||||||||||
January | — | 121.81 | 118.49 | 121.02 | ||||||||||||
February | — | 121.77 | 118.33 | 118.33 | ||||||||||||
March | — | 118.15 | 116.01 | 117.56 | ||||||||||||
April | — | 119.84 | 117.69 | 119.44 | ||||||||||||
May | — | 121.79 | 119.77 | 121.76 | ||||||||||||
June (through June 20) | — | 123.67 | 121.08 | 123.60 |
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U.S.dollar.
1. | In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation (“FIN”) No. 46, “Consolidation of Variable Interest Entities — an Interpretation of |
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in December 2003. The adoption of FIN No. 46R did not have an impact on Sony’s results of operations and financial position or |
2. | In |
3. | In July 2004, the Emerging Issues Task Force (“EITF”) issued EITF IssueNo. 04-8, “The Effect of Contingently Convertible Instruments on Diluted Earnings per Share.” In accordance with Statement of Financial Accounting Standards (“FAS”) No. 128, “Earnings per Share”, Sony had not previously included in the computation of diluted earnings per share (“EPS”) the number of potential common stock issuable upon the conversion of contingently convertible debt instruments (“Co-Cos”) that had not met the conditions to exercise the stock acquisition rights. EITF IssueNo. 04-8 requires that the maximum number of common stock that could be issued upon the conversion of Co-Cos be included in diluted EPS computations from the date of issuance regardless of whether the conditions to exercise the stock acquisition rights have been met. Sony adopted EITF IssueNo. 04-8 during the quarter ended December 31, 2004. As a result of the adoption of EITF IssueNo. 04-8, Sony’s diluted EPS of income before cumulative effect of an accounting change and net income for the fiscal year ended March 31, 2004 were restated. Sony’s diluted EPS of income before cumulative effect of an accounting change and net income for the fiscal year ended March 31, 2005 decreased by 7.26 yen and 7.06 yen, respectively, as a result of adopting EITF IssueNo. 04-8. |
4. | Effective April 1, 2006, Sony adopted FAS No. 123 (revised 2004), “Share-Based Payment” (“FAS No. 123(R)”). This statement requires the use of the fair value based method of accounting for employee stock-based compensation and eliminates the alternative to use the intrinsic value method prescribed by Accounting Principle Board Opinion (“APB”) No. 25. With limited exceptions, FAS No. 123(R) requires that the grant-date fair value of share-based payments to employees be expensed over the period the service is received. Sony had accounted for its employee stock-based compensation in accordance with the provisions prescribed by APB No. 25 and its related interpretations and had disclosed the net effect on net income and net income per share (“EPS”) allocated to the common stock as if Sony had applied the fair value recognition provisions of FAS No. 123 to stock-based compensation as described in Note 2 to the Consolidated Financial Statements, “Significant accounting policies — Stock-based compensation.” Sony has elected the modified prospective method of transition prescribed in FAS No. 123(R), which requires that compensation expense be recorded for all unvested stock acquisition rights as the requisite service is rendered beginning with the first period of adoption. As a result of the adoption of FAS No. 123(R), Sony’s operating income decreased by 3,670 million yen for the fiscal year ended March 31, 2007. |
5. | In February 2006, the FASB issued FAS No. 155, “Accounting for Certain Hybrid Financial Instruments,” an amendment of FAS No. 133 and FAS No. 140. This statement permits an entity to elect fair value remeasurement for any hybrid financial instrument if the hybrid instrument contains an embedded derivative that would otherwise be required to be bifurcated and accounted for separately under FAS No. 133. The election to measure the hybrid instrument at fair value is made on aninstrument-by-instrument basis and is irreversible. The statement is effective for all financial instruments acquired, issued, or subject to a remeasurement event occurring after the beginning of an entity’s fiscal year beginning after September 15, 2006, with earlier adoption permitted as of the beginning of the fiscal year, provided that financial statements for any interim period of that fiscal year have not been issued. Sony early adopted FAS No. 155 on April 1, 2006. As a result of the adoption of FAS No. 155, Sony’s operating income increased by 3,828 million yen for the fiscal year ended March 31, 2007. Additionally, on April 1, 2006, Sony recognized a net charge of 3,785 million yen (net of income taxes of 2,148 million yen) as a cumulative-effect adjustment to beginning retained earnings, which consisted of 1,754 million yen (net of income taxes of 996 million yen) of gross gains and 5,539 million yen (net of income taxes of 3,144 million yen) of gross losses. |
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Effective April 1, 2006, Sony reclassified royalty income as a component of sales and operating revenue, rather than as a component of other income as previously recorded. In |
Sony must overcome increasingly intense pricing competition, especially in the |
Sony’s Electronics and Game segments producesegments.
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A consumer’s decisionand rapid technological innovation. In order to purchase productsbe profitable in such as those offeredmarkets, Sony is continuing to invest heavily in research and development and semiconductor fabrication equipment. Recent examples of such expenditures include research and development investment in 65 nanometer semiconductor process technology and related capital expenditures with IBM Corporation and Toshiba Corporation for production of the Cell Broadband EngineTM (“Cell/B.E.”) within the Electronics segment for sale primarily to the Game segment, and an investment in a joint venture, S-LCD Corporation (“S-LCD”), with Samsung Electronics Co., Ltd. (“Samsung”) to produce 7th generation amorphous thin film transistor (“TFT”) liquid crystal display (“LCD”) panels. In addition, by Sony’s Electronics, Game, Music and Pictures segments is to a very significant extent discretionary. Accordingly, weakening economic conditions or outlook can reduce consumption in anythe end of Sony’s major markets, causing material declines in Sony’s sales and operating income. In the fiscal year ending March 31, 2008, Sony and Samsung are scheduled to complete the investment in S-LCD regarding the manufacture of 8th generation TFT LCD panels at S-LCD. The total amount of the investment for the 8th generation panels is expected to be approximately 200 billion yen (approximately 50 percent of which will be contributed by Sony). Sony may not be able to recover these investments, in part or in full, or the recovery of these investments may take longer than expected. As a result, the carrying value of the related assets may be subject to an impairment charge, which could adversely affect Sony’s mid-term profitability. (Refer to “Trend Information” in “Item 5.Operating and Financial Review and Prospects.”)
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market rate during each financial period.currency exchange rate. Sony’s consolidated balance sheets are prepared using local currency-denominated assets and liabilities and stockholders’ equity of each of Sony Corporation’s subsidiaries around the world, which are translated into yen at the market exchange rate at the end of each financial period. A large proportion of Sony’s consolidated financial results, assets liabilities and stockholders’ equityliabilities is accounted for in currencies other than the Japanese yen. For example, only 29.625.6 percent of Sony’s sales and operating revenue in the fiscal year ended March 31, 20042007 were originally recorded in Japan. Accordingly, Sony’s consolidated financial results, assets liabilities and stockholders’ equityliabilities in Sony’s businesses that operate internationally, principally in its Electronics, Game Music and Pictures segments, may be materially affected by changes in the exchange rates of foreign currencies when translating into Japanese yen. In the fiscal yearsyear ended March 31, 2001 and 2003,2007, for example, Sony’s consolidated operating income prepared on the basis of Generally Accepted Accounting Principlesgenerally accepted accounting principles in the U.S. (“U.S. GAAP”) in yen increaseddecreased from the preceding fiscal year by 1.068.3 percent and 37.7 percent, respectively; however,to 71.8 billion yen. However, if Sony’s consolidated operating income had been prepared on a local currency basis, it would have increased by 48 percent and decreased 5 percent in those two fiscal years, respectively (refer to Operating Results in Item 5.Operating and Financial Review and Prospects).been an operating loss of 20.3 billion yen. Operating results on a local currency basis described herein reflect sales and operating revenue and operating income obtained by applying the yen’s monthly 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. Foreign exchange rate fluctuations may have a negative impact on Sony’s results in the future, especially if the yen strengthens significantly against the U.S. dollar or euro.the Euro.Foreign exchange fluctuations can affect Sony’s results of operations due to sales and expenses in different currencies.
Sony’s businesses, particularly the Electronics and Game segments, compete in markets characterized by ever-shortening product life cycles caused by changing consumer preferences and rapid technological innovation. In order to be profitable in such markets, Sony must continually develop a wide rangeefficiently manage its procurement of new technologies and invest in production capacity to create new products. Examples of such new technologies include a new microprocessor and other system LSIs forparts, the next generation computer entertainment system and for digital consumer electronics and technologies for organic electro-luminescent displays and liquid crystal displays (“LCDs”). However, Sony may not be able to recover its development costs or
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Moreover, through the implementation of Transformation 60 (see below), Sony plans to continue to expend significant sums on research and development and semiconductor fabrication equipment. Recent examples of such expenditures include an investment for research and development into 65 nanometer semiconductor process technology along with IBM Corporation and Toshiba Corporation and an investment in a joint venture with Samsung Electronics Co., Ltd. (“Samsung”) to produce 7th generation amorphous thin film transistor (“TFT”) LCD panels. Sony may not be able to recover these investments, in part or in full, and its mid-term profitability could be adversely affected as a result.
Sony has engaged in significant reorganization efforts in the past in an effort to allocate managerial resources into core areas and improve operating efficiency and profitability. These efforts have included the concentration of resources into profitable businesses by withdrawing from or downsizing selected businesses. Other efforts have been made to reduce fixed costs including a reduction in the number of Sony’s employees around the world.
Since the fiscal year ended March 31, 2004, Sony has been implementing Transformation 60, a three-year program scheduled to end March 31, 2006 that consists of a series of fundamental reforms including strengthening core businesses, increasing investments in research and development and undertaking restructuring initiatives such as a reduction in personnel, withdrawal from selected businesses and implementation of other programs to reduce fixed costs.
Restructuring charges recorded on a consolidated basis for the fiscal years ended March 31, 2002, 2003 and 2004 were 107.0 billion yen, 106.3 billion yen and 168.1 billion yen, respectively. The 168.1 billion yen recorded in the fiscal year ended March 31, 2004 included charges incurred from restructuring activities that were started (but not completed) in previous fiscal years. Sony expects to incur restructuring charges totaling approximately 335 billion yen through the implementation of Transformation 60, including the 168.1 billion yen of restructuring charges incurred in the fiscal year ended March 31, 2004. The details of the restructuring plans for the remaining two fiscal years have yet to be determined in full.
Restructuring charges are recorded in cost of sales, selling, general, and administrative expense and loss on sale, disposal or impairment of assets, net and thus decrease Sony’s consolidated net income. Moreover, due to internal or external factors, the improved efficiencies and cost savings projected may not be realized as scheduled or at all and, even if those benefits are realized, Sony may not be able to achieve the level of profitability expected due to a worsening of market conditions beyond expectations. Such possible internal factors include a decision to implement restructuring initiatives in addition to those already planned or a decision to increase researchfor which are volatile, and development outlays or other investments beyond currently projected levelscontrol its inventory of products and parts, the demand for which could increase total costs of the program, while possible external factors include regional labor regulations and union contracts that could prevent Sony from executing restructuring initiatives as planned. Therefore such reorganizations may not result in reductions in expenses, improved efficiency, increased ability to respond to market changes or reallocation of resources to more profitable activities. The inability to fully and successfully implement the restructuring programs may cause Sony to have insufficient financial resources to carry out its research and development plans and to invest in targeted growth business areas.is volatile.
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Game and the Electronics segments. For example, in the fiscal year ended March 31, 2007, the introduction of the PS3 in Europe was delayed from the scheduled date of November 2006 to March 2007 because of a delay in improvements in the mass production yield of the blue-violet laser diode, a key device for the Blu-ray disc drive equipped in the PS3, which was designed, developed and manufactured internally at Sony. Also, a supply shortage of the PS3 arose during the 2006 year-end holiday season in Japan and North America.
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Sony’s Musicthe Game segment, the penetration of gaming platforms is a significant factor for sales and Pictures segments, technological developments have created new risks with respect to Sony’sprofitability, which may be affected by the ability to protect its intellectual property. Advances in technology that enable the transfer and downloading of digital music and AV files from the Internet without authorization from the owners of rights to such content have threatened the conventional copyright-based business modelprovide customers with sufficient softwareline-ups, including software published by making it easier to create and redistribute unauthorized music and AV files. Such unauthorized distribution has adversely affectedthird parties. Softwareline-ups affect not only software sales and operating results withinprofitability, as in many other content businesses, but also affect the Music segment and threatens to adverselypenetration of gaming platforms, which can affect hardware sales and operating income inprofitability.segment. These technological advances include new digital devices such as hard disk drive video and audio recorders, CD and DVD recorders and peer-to-peer digital distribution services. As a result, Sony has incurred and will continue to incur expenses to develop new services for the authorized digital distribution of music, moviessegment’s motion picture and television programsproductions can materially fluctuate depending primarily upon the cost of such productions and acceptance of such productions by the public, which are difficult to combat unauthorized digital distributionpredict. In addition, the commercial success of its intellectual property. These initiatives will increase Sony’s near-term expensesthe Pictures segment’s motion picture and may not achieve their intended result.television productions depend upon the acceptance of other competing productions by the public, and the availability of alternative forms of entertainment and leisure activities.Sony’s Music segment is dependent on establishing new artists, and Sony’s Music and Pictures segments are subject to increasing prices for talent.
Sony’s MusicPictures segment is highly dependent on establishing artists that appealsubject to customers, and the competition with other entertainment companies for such talent is intense. Therefore, if the Music segment is unable to find and establish new talented artists, this segment’s sales and operating income may be adversely affected. In addition, with respect to both the Music and Pictures segments, Sony has experienced and may continue to experience significant increases in talent-related spending.labor interruption.
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Sony’s Financial Services segment facesoperates in a highly regulated environment and new regulations and regulatory initiatives could adversely affect the flexibility of its business operation.
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• | |
• | the availability of sufficient reliable data and the insurance businesses’ ability to correctly analyze the data; |
• | the insurance businesses’ selection and application of appropriate rating and pricing techniques; and |
• | changes in legal standards, claim settlement practices, medical care expenses and automobile repair costs. |
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Sony’s physical facilities and information systems are subject to damage as a result of disasters, outages, malfeasance or similar events. Sony’s |
Sony headquarters, some of Sony’s major data centers and many of Sony’s most advanced device manufacturing facilities, including those for semiconductors, are located in Japan, where the possibility of disaster or damage from earthquakeearthquakes is generally higher than in other parts of the world. In addition, Sony’s offices and facilities, including those used for research and development, material procurement, manufacturing, motion picture and television production, logistics, sales and services are located throughout the world and are subject to possible
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vendors. Judging from the experience of other similarly situated companies, it is possible that Sony could be exposed to significant monetary liability if such risks were to materialize, and it is also possible that such events could harm Sony’s reputation and credibility. Considering the increasing social awareness concerning the importance of personal information and relevant legislation (Refer to “Government Regulations” in “Item 4.Information on the Company”), such risks are increasing particularly for businesses that handle a large amount of customer and consumer data. Although Sony continues to take precautions against such unforeseen risks, such as by maintaining backup and other redundancies for major data centers and undertaking efforts to educate operators and administrators who have access to databases about appropriate ways to protect such information, these measures may be inadequate,insufficient, and Sony may be unable to avoid or prevent such events. If such an event weresituations.
In the first half of the fiscal year ended March 31, 2002, Sony recalled products in the mobile phone handset business for quality reasons, which resulted in increased after-sales service expenses of 18.6 billion yen. Sony’s efforts to manage the rapid advancements in technologies and increased demand, as well as to control product quality, may not be successful, and if they are not, Sony may incur expenses such as thosein connection with, for example, product recalls, service and lawsuits, and Sony’s brand image and reputation for qualityas a producer of high-quality products may suffer. These issues are not only relevant to the final Sony products that are sold directly to customers but also to the final products of other companies that are equipped with Sony’s components, such as the semiconductors mentioned above. An example of these issues is the recording of a 51.2 billion yen provision during the fiscal year ended March 31, 2007 that related to the recalls by Dell Inc., Apple Inc. and Lenovo, Inc. of notebook computer battery packs that use lithium-ion battery cells manufactured by Sony as well as the subsequent global replacement program initiated by Sony for certain notebook computer battery packs used by Sony and several other notebook computer manufacturers that use lithium-ion battery cells manufactured by Sony (refer to “Performance by Product Category” for “Electronics” within “Operating Results for the Fiscal Year Ended March 31, 2007” in “Item 5.Operating and Financial Review and Prospects”).Sony may be adversely affected by its employee benefit obligations.
Sony may be adversely affected by its employee benefit obligations.
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Changes in Sony’s tax rates or exposure to additional tax liabilities could adversely affect its earnings and financial condition.
Increased reliance on external suppliers may increase financial, reputational and other risks to Sony.
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Sony is subject to environmental and occupational health and safety regulations that can increase the costs of operations or limit its activities.
A substantial portion
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However, internationalInternational operations bring challenges. Production in China and other Asian countries of Electronicselectronics products increases the time necessary to supply products to Europe and the U.S., which can make it more difficult to meet changing customer demand and preferences. Concentration of the production of personal computerPC components in China and Taiwan could lead to production interruptions if anothera catastrophe or widespread contagion, similar to the spread of Severe Acute Respiratory Syndrome (“SARS”), occurs in the region. Further, Sony may encounter difficulty in planning and managing operations due to unfavorable political or economic factors, such as instability in the Middle East resulting from the Iraq War, the suspension of trading of the peso and resulting disorder in Argentina, cultural and religious conflicts, foreign exchange controls, or unexpected legal or regulatory changes such as import or export controls, nationalization of assets or restrictions on the repatriation of returns from foreign investments.
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Item 4. Information on the Company
Item 4. | Information on the Company |
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+81-3-6748-2111.
2002, 20032005, 2006 and 2004,2007, Sony’s capital expenditures (additions to fixed assets on the balance sheets) were 326.7356.8 billion yen, 261.2384.3 billion yen and 378.3414.1 billion yen, respectively. RegardingSony’s capital expenditures are expected to be 440 billion yen during the fiscal year ending March 31, 2008. For a breakdown of principal capital expenditures and divestitures (including interests in other companies), refer to “Item 5.Operating and Financial Review and ProspectsProspects.”. Sony invested 175approximately 150 billion yen in the semiconductor business during the fiscal year ended March 31, 2004. 1902007. Sony plans to invest approximately 130 billion yen will be invested in the semiconductor business in the fiscal year ending March 31, 2005. To finance2008. Sony issued an 80 billion yen syndicated loan in June 2006, and a 130 billion yen syndicated loan in December 2006 and has raised additional funds generated internally to be used for general corporate purposes, including capital expenditures for the development and manufacturing of semiconductors such as Cell, a highly-advanced processor that will be embedded in a broad range of next-generation digital consumer electronics products, andrelated to key devices including display devices, Sony raised 250 billion yen through the issuance of euro yen zero coupon convertible bonds in December 2003.and debt redemption. Refer to “Property, Plant and Equipment” below for a geographic distribution of these investments.
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name as a private company headquartered in Los Angeles. As part of the acquisition, SCA invested 257 million U.S. dollars in exchange for 20 percent of the total equity capital. However, based on the percentage of common stock owned, Sony records 45 percent of MGM’s net income (loss) as equity in net income of affiliated companies. With respect to equity in net income of affiliated companies, MGM is expected to have no effect on equity in net income during the fiscal year ending March 31, 2008, due to the fact that Sony no longer has any book basis in MGM as of March 31, 2007.Business OverviewOrganizational Structure2006 was 31.7 billion yen and 35.4 billion yen, respectively. These amounts were recorded primarily within the Electronics segment.following table sets forthtransaction was renotified, in accordance with applicable EU merger control rules, on January 31, 2007, and an in-depth investigation was opened on March 1, 2007. While the significant subsidiaries owned, directly or indirectly, byCommission completes its reexamination, Sony Corporation. Country of(As of March 31, 2004)Name of companyincorporationPercentage ownedSony EMCS CorporationMain Product JapanPrevious Product Category New Product Category 100.0 Sony Marketing (Japan) Inc. Low-temperature polysilicon thin film transistor LCD Japan“Semiconductors” 100.0Sony Computer Entertainment Inc. Japan99.7*Sony Life Insurance Co., Ltd. Japan100.0Sony Americas Holding Inc. U.S.A.100.0Sony Corporation of AmericaU.S.A.100.0Sony Electronics Inc. U.S.A.100.0Sony Computer Entertainment America Inc. U.S.A.99.7*Sony Music Entertainment Inc. U.S.A.100.0Sony Pictures Entertainment Inc. U.S.A.100.0Sony Europe Holding B.V. Holland100.0Sony Europe G.m.b.H. Germany100.0Sony Computer Entertainment Europe Ltd. U.K.99.7*Sony Global Treasury Services PlcU.K.100.0Sony Holding (Asia) B.V. Holland100.0Sony Electronics Asia Pacific Pte. Ltd. Singapore100.0
“Components” | ||||||
“Other” | “Components” |
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Fiscal Year Ended March 31 | ||||||||||||||||||||||||
2005 | 2006 | 2007 | ||||||||||||||||||||||
(Yen in millions) | ||||||||||||||||||||||||
Electronics | 4,827,663 | (67.1 | ) | 4,782,173 | (63.7 | ) | 5,421,384 | (65.4 | ) | |||||||||||||||
Game | 702,524 | (9.8 | ) | 918,252 | (12.2 | ) | 974,218 | (11.7 | ) | |||||||||||||||
Pictures | 733,677 | (10.2 | ) | 745,859 | (9.9 | ) | 966,260 | (11.7 | ) | |||||||||||||||
Financial Services | 537,715 | (7.5 | ) | 720,566 | (9.6 | ) | 624,282 | (7.5 | ) | |||||||||||||||
All Other | 389,746 | (5.4 | ) | 343,747 | (4.6 | ) | 309,551 | (3.7 | ) | |||||||||||||||
Sales and operating revenue | 7,191,325 | (100.0 | ) | 7,510,597 | (100.0 | ) | 8,295,695 | (100.0 | ) | |||||||||||||||
Fiscal Year Ended March 31 | ||||||||||||||||||||||||
2005 | 2006 | 2007 | ||||||||||||||||||||||
(Yen in millions) | ||||||||||||||||||||||||
Audio | 571,864 | (11.8 | ) | 536,187 | (11.2 | ) | 522,879 | (9.7 | ) | |||||||||||||||
Video | 1,036,328 | (21.5 | ) | 1,021,325 | (21.4 | ) | 1,143,120 | (21.1 | ) | |||||||||||||||
Televisions | 921,195 | (19.1 | ) | 927,769 | (19.4 | ) | 1,226,971 | (22.6 | ) | |||||||||||||||
Information and Communications | 816,150 | (16.9 | ) | 842,537 | (17.6 | ) | 950,461 | (17.5 | ) | |||||||||||||||
Semiconductors | 184,235 | (3.8 | ) | 172,249 | (3.6 | ) | 205,757 | (3.8 | ) | |||||||||||||||
Components | 751,097 | (15.6 | ) | 800,716 | (16.7 | ) | 852,981 | (15.7 | ) | |||||||||||||||
Other | 546,794 | (11.3 | ) | 481,390 | (10.1 | ) | 519,215 | (9.6 | ) | |||||||||||||||
Electronics Total | 4,827,663 | (100.0 | ) | 4,782,173 | (100.0 | ) | 5,421,384 | (100.0 | ) | |||||||||||||||
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In
In the Music segment, Sony is engaged in the development, production, manufacture, marketing and distribution of recorded music and music videos in a variety of commercial and electronic formats and across all musical genres, for the world outside of Japan through SMEI and in Japan through SMEJ.
In the Pictures segment, Sony is engaged in the development, production, marketing, distribution, and broadcasting of image-based software, including film, video, television, and new digital entertainment technologies, principally through SPE.
In the Financial Services segment, Sony conducts insurance operations primarily through Sony Life, a Japanese life insurance subsidiary, and Sony Assurance Inc. (“Sony Assurance”), a Japanese non-life insurance subsidiary. Sony is engaged in a leasing and credit financing business in Japan through Sony Finance International Inc. (“Sony Finance”). Sony also conducts an Internet-based banking business in Japan through Sony Bank Inc. (“Sony Bank”), which is an 80 percent directly owned subsidiary of SFH. On April 1, 2004, Sony established SFH by separating a part of Sony Corporation. SFH, which is a
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In the Other segment, Sony is engaged in an in-house oriented information system service business in Japan, an advertising agency business in Japan, an Internet-related service business mainly in Japan, and an Integrated Circuit (“IC”) card business in Japan.
At the beginning of the fiscal year ended March 31, 2004, Sony partly realigned its business segment configuration. In the Other segment, 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 the Music segment, certain non-core businesses of SMEJ such as media, animation, character and cosmetics, were transferred to the newly-established Sony Culture Entertainment, Inc. (“SCU”) and SCU was classified in the Other segment. In accordance with these realignments, results for the previous fiscal years have been reclassified to conform to the presentation for the fiscal year ended March 31, 2004.
At the beginning of the fiscal year ended March 31, 2004, Sony partly realigned its product category configuration in the Electronics segment. Accordingly, results of the previous years have been reclassified. The primary changes are as follows:
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The following table sets forth Sony’s sales and operating revenue by operating segments and product categories. Figures in parentheses indicate percentage of sales and operating revenue.
Year Ended March 31 | |||||||||||||
2002 | 2003 | 2004 | |||||||||||
(Yen in millions) | |||||||||||||
Electronics | |||||||||||||
Audio | 747,469 | 682,517 | 623,582 | ||||||||||
(9.9 | ) | (9.1 | ) | (8.3 | ) | ||||||||
Video | 847,311 | 851,064 | 948,111 | ||||||||||
(11.2 | ) | (11.4 | ) | (12.6 | ) | ||||||||
Televisions | 984,290 | 950,166 | 917,207 | ||||||||||
(13.0 | ) | (12.7 | ) | (12.2 | ) | ||||||||
Information and Communications | 998,773 | 836,724 | 834,757 | ||||||||||
(13.2 | ) | (11.2 | ) | (11.1 | ) | ||||||||
Semiconductors | 182,276 | 204,710 | 253,237 | ||||||||||
(2.4 | ) | (2.7 | ) | (3.4 | ) | ||||||||
Components | 511,579 | 527,782 | 623,799 | ||||||||||
(6.8 | ) | (7.1 | ) | (8.3 | ) | ||||||||
Other | 500,852 | 490,350 | 557,707 | ||||||||||
(6.6 | ) | (6.6 | ) | (7.4 | ) | ||||||||
Segment Total | 4,772,550 | 4,543,313 | 4,758,400 | ||||||||||
(63.0 | ) | (60.8 | ) | (63.5 | ) | ||||||||
Game | 986,529 | 936,274 | 753,732 | ||||||||||
(13.0 | ) | (12.5 | ) | (10.1 | ) | ||||||||
Music | 541,418 | 512,908 | 487,457 | ||||||||||
(7.1 | ) | (6.9 | ) | (6.5 | ) | ||||||||
Pictures | 635,841 | 802,770 | 756,370 | ||||||||||
(8.4 | ) | (10.7 | ) | (10.1 | ) | ||||||||
Financial Services | 480,190 | 509,398 | 565,752 | ||||||||||
(6.3 | ) | (6.8 | ) | (7.5 | ) | ||||||||
Other | 161,730 | 168,970 | 174,680 | ||||||||||
(2.1 | ) | (2.3 | ) | (2.3 | ) | ||||||||
Sales and operating revenue | 7,578,258 | 7,473,633 | 7,496,391 | ||||||||||
Notes:
Sony manages the Electronics segment as a single operating segment. However, Sony believes that the product category information in the Electronics segment is useful to investors in understanding the sales contributions of the products in this business segment.
In the third quarter beginning October 1, 2003, regarding Sony Life, the recognition method of 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, reducing revenue in the Financial Services segment in the fiscal year ended March 31, 2004, by 30.8 billion yen. This change did not have a material effect on operating income.
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SCEI develops, produces, manufactures, markets and distributes PlayStation, PS one and PlayStation 2 hardware and related software in Japan, and is developing the next-generation entertainment system. SCEA and SCEE market and distribute PlayStation, PS one, PS2, PSP and PlayStation 2PS3 hardware, and develop, produce, manufacture, market and distribute related software in the U.S. and Europe. SCEI, SCEA and SCEE enter into licenses with third-party software developers.
SMEI and SMEJ produce recorded music and music videos through contracts with many artists worldwide in all musical genres. SMEI and SMEJ produce, manufacture, market and distribute CDs, MDs, DVDs, Super Audio CDs, and pre-recorded audio and video cassettes and produce and manufacture CD-ROMs and DVD-ROMs.
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The Music segment has an extensive and geographically diversified software manufacturing capacity, with plants in the U.S., Austria, Japan, Brazil, Australia, India, China, Canada, Hong Kong, Chile and Mexico. Software is manufactured for the Music segment, the Game segment, the Pictures segment and third parties. In addition, the Music segment distributes digital music product through online music services and other emerging digital formats.
facility.
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market.
Animation.
TheFinancial Services
All Other All Other |
The Other segment is mainly comprised of an in-house oriented information system serviceSMEJ, a Japanese domestic recorded music business that produces recorded music and music videos through contracts with many artists in Japan, an advertising agencyall musical genres; SMEI’s music publishing business, in Japan,which owns and acquires rights to musical compositions, exploits and markets these compositions and receives royalties or fees for their use;So-net, an Internet-related service business subsidiary operating mainly in Japan, a retail seller of imported general merchandise in Japan,Japan; an in-house facilities management business in JapanJapan; a contactless IC card business; and an IC card business.
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revenue. Year Ended March 31 2002 2003 2004 (Yen in millions) Japan 2,248,115 2,093,880 2,220,747 (29.7 ) (28.0 ) (29.6 ) United States 2,461,523 2,403,946 2,121,110 (32.5 ) (32.2 ) (28.3 ) Europe 1,609,111 1,665,976 1,765,053 (21.2 ) (22.3 ) (23.6 ) Other Areas 1,259,509 1,309,831 1,389,481 (16.6 ) (17.5 ) (18.5 ) Sales and operating revenue 7,578,258 7,473,633 7,496,391 Electronics Fiscal Year Ended March 31 2005 2006 2007 (Yen in millions) Japan 2,132,462 (29.7 ) 2,203,812 (29.3 ) 2,127,841 (25.6 ) United States 1,977,310 (27.5 ) 1,957,644 (26.1 ) 2,232,453 (26.9 ) Europe 1,612,576 (22.4 ) 1,715,775 (22.8 ) 2,037,658 (24.6 ) Other Areas 1,468,977 (20.4 ) 1,633,366 (21.8 ) 1,897,743 (22.9 ) Sales and operating revenue 7,191,325 (100.0 ) 7,510,597 (100.0 ) 8,295,695 (100.0 )
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SMEI and SMEJ produce, manufacture, market, and distribute CDs, MDs, DVDs, Super Audio CDs, and pre-recorded audio and video software.
SMEI and its affiliates conduct business in countries other than Japan under“Columbia Records Group”,“Epic Records Group”,“Sony Classical”,“Legacy Recordings” and other labels.Pictures
SMEJ conducts business in Japan under“Sony Records”,“Epic Records”,“Ki/oon Records”,“SMEJ Associated Records”,“Defstar Records”, and other labels.
In May 2004, Sony officially launched the Connect music store, a digital music downloading service. The Connect music store offers consumers music product from SMEI as well as other major and independent labels and independent artists.
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As part of its plan to expand its sales of individual annuity products, in January 2007 Sony Life announced its intention to establish a new Japanese joint venture with AEGON N.V. The new joint venture is expected to commence operations in 2008, subject to regulatory approval.
Sony Finance conducts a leasing business for corporations, and a consumer financing business including “My Sony Card”, a credit card for individual customers, through Sony’s electronic retailers and other affiliated partners. Sales staff are posted at ten main branch offices and three customer centers in Japan.
service offerings.
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Sony has pursued a long-term strategy of actively expanding its production capabilities in each region following a general policy of seeking to manufacture its products in the
In order to be less susceptible to the impact of foreign exchange rate fluctuations and to reduce inventory and cost, Sony seeks to localize its overseas production, research and development, design, materials and parts procurement, and management.
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PlayStation 2PS2 and PS3 hardware, are substantially dependent upon certain patents licensed by MPEG LA LLC, Dolby Laboratories Licensing Corporation and Nissim Corp., which cover These patents relate to technologies essential to DVD specification. Sony’s Digital TV products are substantially dependent upon certain patents licensed by Thomson Licensing Inc. Sony considers its overall license position beneficial to its operations. While Sony believes that its various proprietary intellectual property rights are important to its success, it believes that neither its business as a whole nor any business segment is materially dependent on any particular patent or license, or any particular group of patents or licenses, except as set forth above.
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SCEI’s platforms..Sony’sSCEI’s competitive position is affected by changing technology and product introductions, limited platform life cycles, popularity of software titles, seasonality, consumer spending and other economic trends. To be successful in the game industry, it is important to win customer acceptance of Sony’s format. Success in the Music segment is dependent to a large extent upon the artistic and creative abilities of employees and outside talent and is subject to the vagaries of public taste. Sony’s future competitive position depends on its continuing ability to attract and develop talent that can achieve a high degree of public acceptance. In terms of music distribution, it is important to make appropriate investments in new technologies for high-quality and secure music distribution while maintaining customer convenience.companies, to attract the attention of the movie-going public worldwide and to obtain exhibition outlets and optimal release dates for its products.companies. SPE must also compete to obtain story rights and talent, including writers, actors, directors and producers, which are essential to the success of SPE’s products. SPE also competes with alternative forms of entertainment to attract the attention of audiences worldwide and to obtain exhibition and distribution outlets and optimal release dates for its products. Competition in television production, distribution, and syndication is also intense because available broadcast time is limited and the audience is increasingly25critical for Sony Life, Sony Assurance and Sony Bankimportant to maintain customer confidence because somea strong and healthy financial institutions in Japan have become insolvent in recent years. To be credible and competitive infoundation for the financial services market, it is important to offer attractive rates of return on customer investments. In addition, in orderbusiness as well as to meet diversifying customer demand, it is critical to provide attractive services to customers through unique marketing channels, such as Lifeplanner financial consultants atneeds. Sony Life and direct communications by telephone and overhas maintained a high solvency margin ratio, relative to Japanese domestic criteria that require the Internet atmaintenance of a minimum solvency margin ratio. Sony Assurance also has maintained a high solvency margin ratio relative to the aforementioned Japanese domestic criteria. Sony Bank has strengthened its financial base and Sony Bank.has maintained an adequate capital adequacy ratio relative to the Japanese domestic criteria concerning this ratio.securedsecure payment systems on the Internet by utilizing new technology.InOther segment, SCNartistic and creative abilities of employees and outside talent and is subject to the vagaries of public taste. SMEJ’s future competitive position depends on its continuing ability to attract and develop artists who can achieve a high degree of public acceptance.So-net faces competition in Japan from many existing large companies, andas well as from new entrants to the market. TelecommunicationTelecommunications companies that possess a large Internet-ready infrastructure and other entrants that compete solely with respect toon the basis of price have created a market in which competitive price reductions are the norm. Rapid technological advancement has created many new opportunities but it has also increased the rate at which new and more efficient services must be brought to market to earn customer approval. Customer price elasticity is high, and
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Corporation.import and export regulationstrade affairs including customs and export control, competition and antitrust, intellectual property, consumer and business taxation, foreign exchange controls, personal information protection, product safety, occupational health, and environmental and recycling requirements.Agency.Agency under the Insurance Business Law and the Banking Law, respectively. In addition, satellite broadcasting andthe telecommunication businesses are subject to approvals from the Ministry of Public Management, HomeInternal Affairs Posts and Telecommunications. Sony is also subject to environmental and occupational health and safety regulations in the jurisdictions in which it operates, particularly those in which it has manufacturing, research, or similar operations in its Electronics and Game businesses. ReferCommunications.InformationInformation.”. In October 2001, SCEE temporarily halted shipments of PS one game consoles destined forEuropean market after Dutch authorities determined levels of cadmium were above the limits allowed under Dutch regulations. PS one shipments were resumed after confirming that there was no health risk to users during use andsignificant subsidiaries owned, directly or indirectly, by Sony worked closely with Dutch authorities to replace non-compliant components to meet their standards. Sony further addressed this issue in PS one game consoles by initiating its own program to inspect all Sony products and thereby discovered a limited number of other occurrences of potentially harmful substances. In order to prevent problems occurring with cadmium and similar chemical substances in the future, Sony initiated a comprehensive program that included revisions to specific Sony policies and standards such as its “Management Regulations for the Environment-related Substances to be Controlled which are included in Parts and Materials”, and tightening its management and control systems including the “Green Partner Environmental Quality Approval Program”, which identifies specific requirements applicable to Sony’s suppliers. On a consolidated basis, Sony recorded a total of approximately 10 billion yen in expenses, including costs of rework and other, investments in equipment, costs of revising and managing policies and programs including the above mentioned policy and program, for the two fiscal years ended March 31, 2002 and March 31, 2003.26Country of (As of March 31, 2007) incorporation Percentage owned Sony EMCS Corporation Japan 100.0 Sony Semiconductor Kyushu Corporation Japan 100.0 Sony Marketing (Japan) Inc. Japan 100.0 Sony Computer Entertainment Inc. Japan 100.0 Sony Financial Holdings Inc. Japan 100.0 Sony Life Insurance Co., Ltd. Japan 100.0 Sony Music Entertainment (Japan) Inc. Japan 100.0 Sony Americas Holding Inc. U.S.A. 100.0 Sony Corporation of America U.S.A. 100.0 Sony Electronics Inc. U.S.A. 100.0 Sony DADC US Inc. U.S.A. 100.0 Sony Computer Entertainment America Inc. U.S.A. 100.0 Sony Pictures Entertainment Inc. U.S.A. 100.0 Sony Europe Holding B.V. Netherlands 100.0 Sony Europe G.m.b.H. Germany 100.0 Sony United Kingdom Ltd. U.K. 100.0 Sony Computer Entertainment Europe Ltd. U.K. 100.0 Sony Global Treasury Services Plc U.K. 100.0 Sony Holding (Asia) B.V. Netherlands 100.0 Sony Overseas S.A. Switzerland 100.0 Sony Electronics Asia Pacific Pte. Ltd. Singapore 100.0
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Approximate | |||||||
Location | floor space | Principal products manufactured | |||||
(square feet) | |||||||
In Japan: | |||||||
Nagasaki (Sony Semiconductor Kyushu Corporation — Nagasaki TEC) | 2,232,000 | CMOS image sensors and other semiconductors | |||||
(Sony Semiconductor Kyushu Corporation — Kumamoto TEC) | 2,104,000 | LCDs, CCDs, CMOS image sensors and other semiconductors | |||||
Kagoshima (Sony Semiconductor Kyushu Corporation — | |||||||
Kohda, Aichi (Sony EMCS Corporation — Kohda TEC) | Video cameras, digital | ||||||
Inazawa, Aichi (Sony EMCS Corporation — Inazawa TEC) | |||||||
Kanuma, Tochigi (Sony Chemicals & Information Device Corporation) | Magnetic tapes, adhesives, and electronic components | ||||||
Tochigi, Tochigi (Sony | 609,000 | Magnetic and optical storage media and batteries | |||||
Koriyama, Fukushima (Sony | Batteries | ||||||
Kosai, Shizuoka (Sony EMCS Corporation — Kosai TEC) | Broadcast- and professional-use video equipment | ||||||
Minokamo, Gifu (Sony EMCS Corporation — Minokamo TEC) | Video cameras, digital |
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Kisarazu, Chiba (Sony EMCS Corporation — Kisarazu TEC) | 502,000 | DVD-Video Recorders | |||||
Pittsburgh, Pennsylvania, U.S.A. (Sony Electronics Inc.) | 2,820,000 | ||||||
Huizhou, China (Sony Precision Devices (Huizhou) Co., Ltd.) | 1,329,000 | Optical pickups |
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Approximate | |||||||
Location | floor space | Principal products manufactured | |||||
(square feet) | |||||||
(Sony | |||||||
Wuxi, China (Sony Electronics (Wuxi) Co., Ltd., Sony Digital Products (Wuxi) Co., Ltd. and Sony (China) Ltd.) | 1,202,000 | Batteries, LCD televisions, PCs, and digital cameras | |||||
Penang, Malaysia (Sony EMCS (Malaysia) Sdn. Bhd. — PG TEC) | 988,000 | Audio equipment and data | |||||
Tijuana, Mexico (Sony de Tijuana Este, S.A. de C.V.) | 935,000 | LCD televisions, rear projection televisions, TV tuners, and audio equipment | |||||
Dothan, Alabama, U.S.A. (Sony | 809,000 | Magnetic tape products | |||||
Bangi, Malaysia (Sony EMCS (Malaysia) Sdn. Bhd. — KL TEC) | 797,000 | ||||||
(Sony Display Device (Singapore)) | |||||||
San Diego, California, U.S.A. (Sony Electronics Inc.) | 658,000 | PCs | |||||
Nuevo Laredo, Mexico (Sony Electronics Inc.) | Magnetic storage media and batteries | ||||||
(Sony Music Entertainment Inc.) | 568,000 | CDs, CD-ROMs, DVDs, and DVD-ROMs | |||||
Viladecavallas, Spain (Sony Espana, S.A.) | 566,000 | ||||||
Although doing so will not require expansion of the floor space at the Nagasaki facility owned by Sony Semiconductor Kyushu Corporation and SCEI, Sony plans to increase its semiconductor manufacturing capacity at this facility. This capacity increase constitutes a portion of Sony’s 120 billion yen planned investment during the fiscal year ending March 31, 2005, in semiconductor fabrication
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The following table sets forth information as of March 31, 2004 with respect to principal plants for the manufacturing of software for the Music, Pictures and Game segments with floor space of more than 500,000 square feet:
In addition to the above, SMEI and its affiliates have several plants in various parts of the world and lease their corporate headquarters located in New York City from Sony Corporation of America (“SCA”). Most of SMEJ’s offices, including leased premises, are located in Tokyo, Japan.
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Europe.
Item 5. | Operating and Financial Review and Prospects |
Although the global economy showed some signs of growth in the fiscal year ended March 31, 2004, the political situation, especially in Iraq, and concern about potential terrorist attacks led to a continued sense of uncertainty regarding the economy. In Japan, although the stock market showed signs of recovery, questions remained about the sustainability of economic growth and the strength of the recovery in consumer spending.
Despite these market conditions and the impact of the translation of financial results into yen, in accordance with Generally Accepted Accounting Principles in the U.S. (“U.S. GAAP”), the currency in which Sony’s financial statements are prepared,
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the remaining amount was recorded in “Corporate.” Operating income decreased 46.7 percent compared withrelated to an additional gain on sale for the previous fiscal year. This decrease was mainly dueremaining portion of the site under contract, which is expected to the increase in restructuring chargesbe recognized in the Electronics segment, the decrease in sales and increase in research and development costs in the Game segment, and the absence of profits contributed by the breakaway performance ofSpider-Manin the previous fiscal year ending March 31, 2008 is estimated to be approximately 59.0 billion yen, and this entire amount will be recorded in the Pictures segment. Partially offsetting the decrease in operating“Corporate.”
On a local currency basis (regarding references to results of operations expressed on a local currency basis, refer to “Foreign Exchange Fluctuations and Risk Hedging” below), Sony’s sales for the fiscal year ended March 31, 2004 increased approximately 3 percent, and operating income decreased approximately 47 percent compared2007 was negatively affected by the recording of certain provisions for outstanding legal proceedings including the European Commission’s investigation in connection with professional videotape claims, partially offset by the previous fiscal year.
reversal of a portion of provisions related to the resolution of certain patent claims recorded in prior periods.
For more detailed information about restructuring, please refer to Note 16 of Notes to the Consolidated Financial Statements. In addition, refer to “Trend Information” below for more information on planned restructuring efforts.
segment.
In the year ended March 31, 2004, Sony made a decision to shut down certain TV display CRT manufacturing operations in Japan to rationalize production facilities and downsize its business, due to a contraction in the market and ademand shift in demand from CRT televisions to LCD and plasma and liquid crystal display (“LCD”) panel televisions. Restructuring charges associated with the shut down totaled 8.5 billion yen, and consisted of 3.1 billion yen in personnel related costs and 5.3 billion yen in non-cash equipment impairment, disposal and other costs. Of the 8.5 billion yen in restructuring charges, 0.2 billion yen was recorded in cost of sales; 3.1 billion yen was included in selling, general and administrative expense, and 5.2 billion yen was included in loss on sale, disposal or impairment of assets, net.
In addition to the above restructuring effort, during the year ended March 31, 2004, the Electronics segment accelerated the implementation of headcount reduction through early retirement programs resulting in personnel related costs of 114.0 billion yen, an increase of 96.4 billion yen compared to the previous year. Of the 9,000 people who left the company on a consolidated basis, the majority came from the Electronics segment. Headcount of relatively high-paid white collar employees in Japan, the U.S. and Western Europe was reduced through early retirement programs while headcount increased at manufacturing facilities in East Asia, particularly in China.
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Due to the continued contraction of the worldwide music market due to slow worldwide economic growth, the saturation of the CD market, the effects of piracy and other illegal duplication, parallel imports, pricing pressures and the diversification of customer preferences,televisions, Sony has been actively repositioning the Music segment for the future by lookingimplementing a worldwide plan to create a more effectiverationalize CRT and profitableCRT television production facilities and has been downsizing its business model.over several years. As a result, the Music segment has undergone a worldwidepart of this restructuring program, since the year ended March 31, 2001 to reduce staffing and other costs through the consolidation and rationalization of facilities worldwide.
During the year ended March 31, 2004, Sony broadened the scope of its worldwide restructuring of the Music segment, which resulted in restructuring charges totaling 10.7 billion yen, compared to 22.4 billion yen in the fiscal year ended March 31, 2003. Restructuring activities included the shutdown2007 Sony recorded a non-cash impairment charge of a CD1.7 billion yen for CRT television manufacturing facilityfacilities located in the U.S. as wellThe impairment charge was calculated as the restructuringdifference between the carrying value of the music label operations and further rationalization of overhead functions through staff reductions. The restructuring charges consisted of personnel related costs of 5.1 billion yen, lease abandonment costs of 1.3 billion yen and other related costs of 4.2 billion yen including non-cash asset impairments and disposals. Most of these charges were recorded in selling, general and administrative expense. Employees were eliminated across various employee levels, business functions, operating units, and geographic regions during this phase of the worldwide restructuring program.
Restructuring charges in the Pictures segment for the fiscal year ended March 31, 2004 were 4.6 billion yen, compared to 0.5 billion yen in the previous fiscal year. A variety of initiatives were undertaken in the segment in an effort to reduce fixed costs including the reduction of staffing levels and the disposalpresent value of certain long-lived assets. Restructuring charges consisted of 1.0 billion yen of personnel related costs, 1.7 billion yen of non-cash asset impairment and disposal costs and 1.9 billion yen of other restructuring costs. Among these charges, 1.5 billion yen was recorded in cost of sales, 1.3 billion yen was recorded in selling, general and administrative expenses, and 1.7 billion yenestimated future cash flows. The charge was recorded in loss on sale, disposal or impairment of assets, net.
The table below summarizes major restructuring activitiesnet in the consolidated statements of income. While continuing to manufacture and sell CRT televisions in countries and territories where demand remains, Sony is actively shifting its focus in those areas to LCD televisions. As a result, Sony plans to cease manufacturing CRTs by March 2008, after it has stockpiled a sufficient quantity for whichfuture use.
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Year Ended | ||||||||||||
March 31 | ||||||||||||
2003 | 2004 | Percent change | ||||||||||
(Yen in billions) | ||||||||||||
Sales and operating revenue | 7,473.6 | 7,496.4 | +0.3 | % | ||||||||
Operating income | 185.4 | 98.9 | -46.7 | |||||||||
Income before income taxes | 247.6 | 144.1 | -41.8 | |||||||||
Net income | 115.5 | 88.5 | -23.4 |
|
Sales
(
In the Electronics segment, the benefit of restructuring undertaken in previous years was offset primarily by an increase in research and development costs during the fiscal year. In the Game segment, the effect of increased PlayStation 2 software sales was offset by increased research and development costs. The cost of sales ratio in the Music segment decreasedyear due to the benefits from restructuring activities implemented over the pastrecording of production expenses associated with several fiscal years. However, the cost of sales rationew network television shows in the Pictures segment increased due totelevision business in the current fiscal year and the absence of the higher margins generated by revenues froma licensing agreement extension forSpider-ManWheel of Fortune, which was recognized in the priorprevious fiscal year.
Personnel related
Electronics segment.
7.8 percent in the previous fiscal year.
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Of theratio of selling, general and administrative expenses personnel relatedto sales decreased from 36.0 percent to 35.2 percent in the Pictures segment.
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Operating Income
In the consolidated results for
The decrease in other expenses was primarily due to a 6.7 billion yen, or 29.0 percent, decrease to 16.5 billion yen in loss on devaluation of securities investments compared with the previous year. During the fiscal year ended March 31, 2004, the valuation losses Sony recorded included 10.3 billion yen recorded in regards to securities issued by a privately held Japanese company engaged in cable broadcasting and other businesses which Sony accounted for under the cost method. Compared to the previous fiscal year, interest paid increased 0.5 billion yen, or 2.0 percent, to 27.8 billion yen.
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In January 2004, FeliCa Networks Inc. (“FeliCa Networks”) issued 11.5 billion yen in shares (115,000 shares at 100,000 yen per share) in a private offering. FeliCa Networks engages in the development and licensing of an Integrated Circuit (“IC”) chip for cellular phones based on the contactless IC card technology “FeliCa”, which was developed by Sony. It also operates a platform, based on FeliCa-ready cellular phones, for use by service providers. Sony recorded a gain of 3.4 billion yen and also recorded deferred taxes on this gain. This issuance reduced Sony’s ownership interest from 100 percent to 60 percent. In June 2004, FeliCa Networks allocated new shares to a third party; Sony’s ownership interest is now approximately 57 percent.
In addition to the above transaction, for the year ended March 31, 2004, Sony recognized 1.5 billion yen of other gains on issuances of stock by subsidiaries and equity investees resulting in total gains of 4.9 billion yen. These transactions were not part of a broader corporate reorganization and the reacquisition of such shares was not contemplated at the time of issuance.
Income before Income Taxes
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Income taxes forTaxes
Results of Affiliated Companies Accounted for under the Equity Method
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Operating Performance by Business Segment
Year Ended | |||||||||||||
March 31 | |||||||||||||
2003 | 2004 | Percent change | |||||||||||
(Yen in billions) | |||||||||||||
Sales and Operating revenue | |||||||||||||
Electronics | 4,940.5 | 4,897.4 | -0.9 | % | |||||||||
Game | 955.0 | 780.2 | -18.3 | ||||||||||
Music | 597.5 | 559.9 | -6.3 | ||||||||||
Pictures | 802.8 | 756.4 | -5.8 | ||||||||||
Financial Services | 537.3 | 593.5 | +10.5 | ||||||||||
Other | 306.3 | 330.4 | +7.9 | ||||||||||
Elimination | (665.7 | ) | (421.4 | ) | — | ||||||||
Consolidated | 7,473.6 | 7,496.4 | +0.3 | ||||||||||
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Year Ended | |||||||||||||
March 31 | |||||||||||||
2003 | 2004 | Percent change | |||||||||||
(Yen in billions) | |||||||||||||
Operating income (loss) | |||||||||||||
Electronics | 41.4 | (35.3 | ) | — | |||||||||
Game | 112.7 | 67.6 | -40.0 | % | |||||||||
Music | (7.9 | ) | 19.0 | — | |||||||||
Pictures | 59.0 | 35.2 | -40.3 | ||||||||||
Financial Services | 22.8 | 55.2 | +142.4 | ||||||||||
Other | (25.0 | ) | (10.0 | ) | — | ||||||||
Elimination and unallocated corporate expenses | (17.5 | ) | (32.7 | ) | — | ||||||||
Consolidated | 185.4 | 98.9 | -46.7 | ||||||||||
At the beginning of the fiscal year ended March 31, 2004, Sony partly realigned its business segment configuration. Expenses incurred in connection with the creation of a network platform business have been transferred out of the Other segment
Fiscal Year Ended | ||||||||||||
March 31 | ||||||||||||
2006 | 2007 | Percent change | ||||||||||
(Yen in billions) | ||||||||||||
Sales and operating revenue | ||||||||||||
Electronics | 5,176.4 | 6,050.5 | +16.9 | % | ||||||||
Game. | 958.6 | 1,016.8 | +6.1 | |||||||||
Pictures | 745.9 | 966.3 | +29.5 | |||||||||
Financial Services | 743.2 | 649.3 | −12.6 | |||||||||
All Other | 426.0 | 377.6 | −11.4 | |||||||||
Elimination | (539.5 | ) | (764.8 | ) | — | |||||||
Consolidated | 7,510.6 | 8,295.7 | +10.5 | |||||||||
Fiscal Year Ended | ||||||||||||
March 31 | ||||||||||||
2006 | 2007 | Percent change | ||||||||||
(Yen in billions) | ||||||||||||
Operating income (loss) | ||||||||||||
Electronics | 6.9 | 156.7 | +2,167.4 | % | ||||||||
Game | 8.7 | (232.3 | ) | — | ||||||||
Pictures | 27.4 | 42.7 | +55.7 | |||||||||
Financial Services | 188.3 | 84.1 | −55.3 | |||||||||
All Other | 20.5 | 32.4 | +57.9 | |||||||||
Sub-Total | 251.9 | 83.7 | −66.8 | |||||||||
Elimination and unallocated corporate expenses | (25.5 | ) | (11.9 | ) | — | |||||||
Consolidated | 226.4 | 71.8 | −68.3 | |||||||||
Electronics
Sales for the fiscal year ended March 31, 2004 decreased by 43.12007 increased 874.1 billion yen, or 0.916.9 percent, to 4,897.46,050.5 billion yen compared with the previous fiscal year. An operating loss of 35.3Operating income increased by 149.8 billion yen, was recorded comparedor 2,167.4 percent, to operating income of 41.4156.7 billion yen incompared with the previous fiscal year.
The year on year decrease inand the operating income to sales was dueratio increased from 0.1 percent to a significant decrease in intersegment sales to the Game segment as a result of the outsourcing of PlayStation 2 game console production to third parties in China.2.6 percent. Sales to outside customers on a yen basis increased 4.713.5 percent compared withto the previous fiscal year.
Regarding sales to outside customers by geographicgeographical area, sales on a yen basis increased by 7 percent in Japan, by 119 percent in the U.S., by 24 percent in Europe, and by 1014 percent and in non-Japan Asia and other geographic areas (“Other Areas”) by 8 percent. Sales on.
In Japan, mainly due to the strong sales of mobile phones, principally to Sony Ericsson, and LCD televisions, while sales decreased for DVD-Video recorders, personal computers (“PCs”) and CRT televisions. In the U.S., sales of cellularLCD televisions significantly increased, while sales decreased for rear projection and CRT televisions. In Europe, sales increased for LCD televisions and PCs, while sales declined for CRT televisions and home-use video cameras. In Other Areas, sales of LCD televisions and digital cameras increased, while sales of mobile phones, primarily to Sony Ericsson, increased significantly. In addition, sales of charge coupled devices (“CCDs”), which benefited from an expansion in demand mainly from digital still cameras, DVD recorders (including PSX), plasma and LCD flat panel televisions, and broadcast- and professional-use equipment increased. On the other hand, sales of PCs and CRT televisions decreased. In Europe,The decrease in sales of digital still cameras, flat panel televisions, cellularmobile phones and PCs increased significantly. Sales of CRT televisions, portable audio, Aiwa products, and home audio, however, decreased. In Other Areas, sales of CD-R/ RW and DVD+/-R/ RW drives, digital still cameras, PCs, and video cameras increased while sales of CRT televisions decreased. In the U.S., a significant decrease in the sales of CRT televisions combined with decreased sales of Aiwa products, computer displays, set-top boxes, and personal digital assistants to cause a decline in sales, but sales of flat panel televisions, projection televisions, digital still cameras and PCs increased.
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“Audio”
“Video” sales increased by 97.0 billion yen, or 11.4 percent, to 948.1 billion yen. In addition to a significant increase in the sales of digital still cameras outside of Japan, sales of DVD recorders (including PSX) increased significantly primarily in Japan. Worldwide shipments of digital still cameras increased by approximately 4.4 million units to approximately 10 million units. Worldwide shipments of DVD recorders were approximately 20,000 units in the previous fiscal year but increased to approximately 650,000 units in the fiscal year ended March 31, 2004. Regarding home-use video cameras, worldwide shipments of combined analogEurope and digital devices increased by approximately 850,000 units to approximately 6.6 million units, but overall sales increased only slightly, as sales in JapanOther Areas, and the U.S. decreased due to increased price competition. DVD-Video player sales decreased due to pricing pressure, although unit shipments increased.
“Televisions” sales decreased by 33.0 billion yen, or 3.5 percent, to 917.2 billion yen. Sales of CRT televisions decreased significantly due to a contraction of the market and declining prices, resulting primarily from a shift in demand to flat panel televisions. Worldwide shipments of CRT televisions decreased approximately 600,000 units to approximately 9.4 million units compared with the previous fiscal year. Sales of computer displays also decreased worldwide. On the other hand, sales of plasma and LCD flat panel televisions increased significantly worldwide and sales of projection televisions in the U.S. increased. Worldwide shipments of flat panel televisions increased approximately 480,000 units to approximately 640,000 units.
“Information and Communications” sales decreased by 2.0 billion yen, or 0.2 percent, to 834.8 billion yen. Despite a decrease in sales in Japan, due to price declines in the notebook PC market, overall sales of PCs increased as sales in all regions outside of Japan increased. Worldwide unit shipments of PCs increased approximately 100,000300,000 units to approximately 3.24.0 million units. Sales of personal digital assistants decreased due to a contraction of the market and the effects of price declines. Sales of broadcast- and professional-use products were almost unchanged year on yearincreased as a result of favorable sales in Japan increased due to the sale of equipment installed in two new broadcasting stations, while many broadcasters in the U.S. and other countries outside of Japan reduced their capital expenditures.
“Semiconductors”high-definition related products.
“Components”CMOS image sensors.
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“Other” sales increased by 67.4 billion yen, or 13.7 percent, to 557.7 billion yen. The increase resulted from a significant increase in sales to Sony Ericsson of mobile phone handsets, reflecting an increase in the sales of Sony Ericsson’s handsets.power tools, and Memory Sticks. On the other hand, sales of Aiwa products decreasedCD-R/RW drives and optical pickups declined, primarily as a result of significant unit price declines. Sales of DVD+/-R/RW drives increased, despite a deterioration in all regions.
unit selling prices, as a result of a significant growth in units sold in association with the expansion of the market.
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18.2 percent.
Regarding profit performance
On the other hand, operating income of CRT televisions decreased significantly while operating income of optical pickups decreased due to a sharp decline in prices. Furthermore, personal digital assistants recorded an operating loss compared with operating income recorded in the previous year.segment.
Approximately
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In the Electronics segment, the negative effect of the appreciation of the yen against the U.S. dollar slightly exceeded the positive effect of the appreciation of the euro against the yen.
Regarding sales to outside customers by geographic area, sales on a yen basis increased in Japan by 11 percent, in Europe by 10 percent, and in Other Areas by 8 percent. Sales on a yen basis in the U.S decreased 7 percent. Sales on a local currency basis increased in every region, with sales in Japan increasing 11 percent, sales in Europe increasing 4 percent, sales in Other Areas increasing 14 percent and sales in the U.S. increasing 1 percent.
Game
Sales for the fiscal year ended March 31, 2004 decreased by 174.858.2 billion yen, or 18.36.1 percent, to 780.21,016.8 billion yen compared with the previous fiscal year. Operating income decreased by 45.1An operating loss of 232.3 billion yen or 40.0 percent,was recorded for the fiscal year ended March 31, 2007, which was a deterioration of 241.1 billion yen from the fiscal year ended March 31, 2006.
Sales in the Game segment onalso because of a local currency basis decreased 18 percent, approximately the same as on a yen basis. In regards to operating income, the positive impact of the depreciation of the yen against the euro exceeded the negative impact of the appreciation of the yen against the U.S. dollar, resulting in a 52 percent decrease in operating income on a local currency basis.
By region, sales decreased in Japan, the U.S. and Europe. In Japan, hardware sales declined due to a strategic price reduction of PlayStation 2 hardware,the PS2. On the other hand, overall software sales decreased as a result of lower PS2 software sales, despite higher unitan increase in PSP software sales, of PlayStation 2 hardware. Software sales in Japan also decreased due to lower unit sales. In the U.S., sales declined due to a decrease in unit sales of PlayStation 2 hardware, a strategic price reduction of PlayStation 2 hardware and a decrease in software unit sales. In Europe, although hardware unit sales increasedas well as the market penetration of PlayStation 2 hardware continued to expand, hardware sales declined due to a strategic price reduction of PlayStation 2 hardware. Software unit sales andcontribution from PS3 software sales, in Europe both increased.
compared to the previous fiscal year.
Year Ended | |||||||||||||
March 31 | |||||||||||||
Cumulative as of | |||||||||||||
2003 | 2004 | March 31, 2004 | |||||||||||
(Million units) | |||||||||||||
Total Production Shipments of Hardware | |||||||||||||
PlayStation + PS one | 6.78 | 3.31 | 99.72 | ||||||||||
PlayStation 2 | 22.52 | 20.10 | 71.30 | ||||||||||
Total Production Shipments of Software* | |||||||||||||
PlayStation | 61.00 | 32.00 | 949.00 | ||||||||||
PlayStation 2 | 189.90 | 222.00 | 572.00 |
14.20 million units (a decrease of 2.02 million units) | ||||
à PSP: | 8.36 million units (a decrease of 5.70 million units) | |||
à PS3: | 5.50 million units |
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In terms
à PS2: | 193 million units (a decrease of 30 million units) | |||
à PSP: | 54.1 million units (an increase of 12.5 million units) | |||
à PS3: | 13.2 million units |
Cost of sales in the Game segment decreased due to the decrease in hardware unit sales and reductions in the cost of producing hardware.
PS3 business.
On a local currency basis, sales in the Music segment were flat while the Music segment recorded operating income as compared to an operating loss in the previous fiscal year.
Sales at Sony Music Entertainment Inc. (“SMEI”), a U.S. based subsidiary, were flat on a U.S. dollar basis (refer to “Foreign Exchange Fluctuations and Risk Hedging” below). In terms of profitability, SMEI recorded operating income in the fiscal year as compared to an operating loss in the previous fiscal year. The appreciation of European currencies against the U.S. dollar contributed to higher sales outside of the U.S. which were offset by lower sales in the U.S. On a worldwide basis, total album sales at SMEI decreased due to the continued contraction of the global music industry and the lack of hit releases. Although unit sales in various markets such as the U.S. have begun to reverse their downward trend, the global music market has continued to experience an overall contraction primarily due to piracy (i.e. unauthorized file sharing and CD burning) and competition from other entertainment sectors.
The increase in profitability resulted in operating income at SMEI, compared to an operating loss recorded in the previous fiscal year. The improvement in profitability primarily resulted from the benefits realized from the worldwide restructuring activities implemented over the past two years to reduce costs in response to the downward trend of the market. These activities included the rationalization of manufacturing, distribution and support functions including record label shared services through elimination of redundancy. Operating income also benefited from lower restructuring charges as compared to the prior year. The total cost of restructuring for the fiscal year ended March 31, 2004 was 95 million U.S. dollars or 10.7 billion yen, a decrease of 95 million U.S. dollars from the prior year (refer to “Restructuring” above for details.) A third factor contributing to the improved operating results were lower advertising and promotion expenses. The above factors more than offset the negative effect of lower worldwide album sales. The savings realized from previously implemented restructuring initiatives, lower restructuring charges and the decrease in advertising and promotion expenses resulted in a decrease in selling, general and administrative expenses for the year and an improvement in the ratio of selling, general and administrative expenses to sales.
Regarding the results of Sony Music Entertainment (Japan) Inc. (“SMEJ”), sales were flat compared with the previous year, despite the continued contraction of the music industry. Operating income increased 69 percent 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.
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On a yen basis, 74 percent of the Music segment’s sales were generated by SMEI while 26 percent were generated by SMEJ.
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 U.S. and the European Union.
Pictures
Sales for the fiscal year ended March 31, 2004 decreased by 46.4 billion yen, or 5.8 percent, to 756.4 billion yen compared with the previous fiscal year. Operating income decreasedincreased by 23.815.3 billion yen, or 40.355.7 percent , to 35.242.7 billion yen and the operating income margin decreasedincreased from 7.33.7 percent to 4.74.4 percent. The results in the Pictures segment consist of the results of Sony Pictures Entertainment Inc. (“SPE”), a U.S. based subsidiary.
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home entertainment catalog product.
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previous fiscal year.
Sony Bank Inc. (“Sony Bank”),business which started businessresulted in June 2001, recorded a loss, as was also the casedecrease in the previous fiscal year, butoperating loss recorded for that business.
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All other segments | ||||||||||||||||||||||||
excluding | ||||||||||||||||||||||||
Financial Services | Financial Services | Consolidated | ||||||||||||||||||||||
Year Ended March 31 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | ||||||||||||||||||
(Yen in millions) | ||||||||||||||||||||||||
Financial Services revenue | 537,276 | 593,544 | — | — | 509,398 | 565,752 | ||||||||||||||||||
Net sales and operating revenue | — | — | 6,974,980 | 6,939,964 | 6,964,235 | 6,930,639 | ||||||||||||||||||
537,276 | 593,544 | 6,974,980 | 6,939,964 | 7,473,633 | 7,496,391 | |||||||||||||||||||
Costs and expenses | 514,518 | 538,383 | 6,811,292 | 6,896,377 | 7,288,193 | 7,397,489 | ||||||||||||||||||
Operating income | 22,758 | 55,161 | 163,688 | 43,587 | 185,440 | 98,902 | ||||||||||||||||||
Other income (expenses), net | (1,282 | ) | 1,958 | 67,846 | 52,746 | 62,181 | 45,165 | |||||||||||||||||
Income before income taxes | 21,476 | 57,119 | 231,534 | 96,333 | 247,621 | 144,067 | ||||||||||||||||||
Income taxes and other | 13,071 | 22,975 | 120,089 | 30,916 | 132,102 | 53,439 | ||||||||||||||||||
Cumulative effect of accounting changes | — | — | — | (2,117 | ) | — | (2,117 | ) | ||||||||||||||||
Net income | 8,405 | 34,144 | 111,445 | 63,300 | 115,519 | 88,511 | ||||||||||||||||||
Fiscal Year ended March 31 | ||||||||
Financial Services | 2006 | 2007 | ||||||
(Yen in millions) | ||||||||
Financial service revenue | 743,215 | 649,341 | ||||||
Financial service expenses | 554,892 | 565,199 | ||||||
Operating income | 188,323 | 84,142 | ||||||
Other income (expenses), net | 24,522 | 9,886 | ||||||
Income before income taxes | 212,845 | 94,028 | ||||||
Income taxes and other | 78,527 | 33,536 | ||||||
Net income | 134,318 | 60,492 | ||||||
Fiscal Year ended March 31 | ||||||||
Sony without Financial Services | 2006 | 2007 | ||||||
(Yen in millions) | ||||||||
Net sales and operating revenue | 6,799,068 | 7,680,578 | ||||||
Costs and expenses | 6,762,194 | 7,694,375 | ||||||
Operating income | 36,874 | (13,797 | ) | |||||
Other income (expenses), net | 36,610 | 27,917 | ||||||
Income before income taxes | 73,484 | 14,120 | ||||||
Income taxes and other | 84,186 | (57,991 | ) | |||||
Net income (loss) | (10,702 | ) | 72,111 |
Fiscal Year ended March 31 | ||||||||
Consolidated | 2006 | 2007 | ||||||
(Yen in millions) | ||||||||
Financial service revenue | 720,566 | 624,282 | ||||||
Net sales and operating revenue | 6,790,031 | 7,671,413 | ||||||
7,510,597 | 8,295,695 | |||||||
Costs and expenses | 7,284,181 | 8,223,945 | ||||||
Operating income | 226,416 | 71,750 | ||||||
Other income (expenses), net | 59,913 | 30,287 | ||||||
Income before income taxes | 286,329 | 102,037 | ||||||
Income taxes and other | 162,713 | (24,291 | ) | |||||
Net income | 123,616 | 126,328 | ||||||
41
In June 2006, Sony Corporation sold 51 percent of the stock of StylingLife Holdings Inc. (“StylingLife”), a holding company comprised of six retail businesses within Sony previously included within All Other, to a wholly-owned subsidiary of Nikko Principal Investments Japan Ltd. Sony Corporation sold additional shares of StylingLife in December 2006, and currently holds approximately 23 percent of the total outstanding stock in StylingLife.
During
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42
In 2001,
purposes except for certain derivatives in the Financial Services segment utilized for portfolio investments and Asset Liability Management (“ALM”).
Although the global economy showed some signs of growth in the fiscal year ended March 31, 2003, military action in Iraq contributed to increased economic uncertainty in the second half of the year, particularly in the U.S.,
44
Under such difficult market conditions and reflecting the impact of the translation of financial results into yen in accordance with U.S. GAAP, the currency in which Sony’s financial statements are prepared, Sony’s salesoperating revenue for the fiscal year ended March 31, 2003 decreased 1.42006 increased 4.4 percent compared with the previous fiscal year. This decrease was principallyincrease is mainly due to industry-wide declinesan increase in personal consumptionrevenues within the Financial Services segment, as a result of an improvement in gains and losses on investments at Sony Life due to favorable Japanese domestic equity market conditions, and increased sales within the Game segment, due to the contribution from the PSP. In the Electronics segment, and also increased price competitionalthough sales benefited from the depreciation of the yen as well as an increase in certain markets, including the PC, DVD-Video player and home-use video camera markets. However, operating income increased 37.7sales of LCD televisions, sales to outside customers decreased 0.9 percent compared with the previous fiscal yearyear. There was a decline in sales of CRT televisions, due to a continued shift in demand towards flat panel televisions, and in plasma televisions, where new product development has been terminated.
43
On a local currency basis (regarding references to results2006, Sony recorded restructuring charges of operations expressed on a local currency basis, refer to“Foreign Exchange Fluctuations and Risk Hedging” below), Sony’s sales for the fiscal year ended March 31, 2003 decreased approximately 2 percent and operating income decreased approximately 5 percent compared with the previous fiscal year.
Restructuring
Restructuring charges for the fiscal year ended March 31, 2003 amounted to 106.3138.7 billion yen, compared to 107.0an increase from the 90.0 billion yen recorded in the previous fiscal year. The primary restructuring activities were in the Electronics segment and Music segments.All Other.
In the year ended March 31, 2003, a decision was made to reduce production capacity of CRT computer display manufacturing facilities in Japanworldwide market shrinkage and Southeast Asia, in response to market contraction resulting from the demand shift from CRT computer displaystelevisions to flatplasma and LCD panel displays such as LCDs. Although thetelevisions, Sony has been implementing a worldwide market forplan to rationalize CRT computer displays inand CRT television production facilities and has been downsizing its business over several years. In the fiscal year ended March 31, 2002 was approximately 96.0 million units,2006, as part of this restructuring program, Sony recorded a non-cash impairment charge of 25.5 billion yen for CRT TV display manufacturing facilities located in the fiscal year ended March 31, 2003 it had fallen to approximately 81.0 million units. In order to restoreU.S. The impairment charge was calculated as the profitabilitydifference between the carrying value of the CRT computer display business, which, due toasset group and the decrease in demand, had been suffering from low utilization ratios at manufacturing facilities, higher ratiospresent value of fixed costs to sales and lower operating income margins, Sony decided to close under-utilized manufacturing facilities.estimated future cash flows. The resulting charges totaled 6.9 billion yen, of which 1.3 billion yen was recorded in cost of sales, 1.7 billion yen was recorded in selling, general and administrative expenses, and 4.0 billion yencharge was recorded in loss on sale, disposal or impairment of assets, net.
The restructuring program implementednet in the previous fiscal year was accelerated at Aiwa in response to a continued decline in operating performance, caused by further declines in the worldwide market for audio products, which form the majorityconsolidated statements of Aiwa’s sales. After further reductions in personnel and reductions in the number of unprofitable product lines which resulted in the closure of all of Aiwa’s manufacturing facilities, Aiwa’s operations were integrated with those of Sony. (Aiwa became a wholly-owned subsidiary of Sony Corporation in October 2002, and merged into Sony Corporation on December 1, 2002.) Charges resulting from the restructuring of Aiwa totaled 23.0 billion yen, of which 13.8 billion yen was recorded in cost of sales, 5.7 billion yen in selling, general and administrative expenses, and 3.5 billion yen in loss on sale, disposal or impairment of assets, net.
In the fourth quarter of the fiscal year ended March 31, 2003, Sony decided to close a semiconductor plant in the U.S. that produced semiconductor wafers for both internal use and the original equipment manufacturer (OEM) market. This closure was both a response to a significant decline in the business conditions of the semiconductor industry in the U.S., and the result of a shift in Sony’s semiconductor strategy. Sony’s semiconductor manufacturing for internal use is moving toward an emphasis on high-end,
45
income.
2006 was an 8.5 billion yen asset impairment write-down associated with the sale of the Metreon, a U.S. entertainment complex.thesethe above restructuring activities,efforts, Sony has continued to reduceundertook several headcount through the implementation of several early retirementreduction programs in Japan to further reduce operating costs in the Electronics segment. The resulting charges totaled 10.9 billion yen, compared to 12.3 billion yen in the previous fiscal year. These charges were recorded in selling, general and administrative expenses.Music In response to the continued contraction of the worldwide music market due to slow worldwide economic growth, the saturation of the CD market, the effects of piracy and other illegal duplication, parallel imports, pricing pressures and the diversification of customer preferences brought on by increased competition from other entertainment sectors, Sony has been actively repositioning the Music segment for the future by looking to create a more effective and profitable business model. As a result the Music segment has undertaken a worldwide restructuring program since the fiscal year ended March 31, 2001 to reduce staffing and other costs through the consolidation and rationalization of facilities worldwide. Under this worldwide restructuring program, SMEI incurredthese programs, Sony recorded restructuring charges of 22.445.1 billion yen for the fiscal year ended March 31, 2003, compared to 8.62006, and these charges were included in selling, general and administrative expenses in the consolidated statements of income. These staff reductions were achieved worldwide mostly through the implementation of early retirement programs. The remaining liability balance as of March 31, 2006 was 19.4 billion yen and will be paid through the fiscal year ending March 31, 2007. Sony will continue to seek the appropriate headcount level to optimize the workforce in the previous fiscal year. This exceeded the estimate made in January 2003, as certain restructuring initiatives originally expected to be undertaken inElectronics segment.20042006 were accelerated as a result of a management change and the continued decline10.4 billion yen, compared to 5.3 billion yen recorded in the worldwide music market. Ofprevious fiscal year. The main component of the 22.4 billion yen in total charges at SMEI, 19.1 billion yen was recorded in selling, general and administrative expense and 3.3 billion yen was recorded in loss on sale, disposal or impairment of assets, net. Restructuring activities included the further consolidation of operations through the shutdown of a CD and cassette manufacturing and distribution center in Holland, the shutdown of a CD manufacturing facility in the U.S. (announced on April 2, 2003, although the decision to shut down the facility was made during the fiscal year ended March 31, 2003) as well as further staff reductions to consolidate various support functions across labels and operating units. These restructuring activities resulted in the termination of over 1,400 jobs during the fiscal year ended March 31, 2003, of which approximately 600 were in the U.S. Total restructuring charges in the Music segment, including SMEJ, were 23.9 billion yen.46The table below summarizes major restructuring activities for which charges of over 5 billion yen were recorded during the fiscal year ended March 31, 2003.Costs incurred inthe fiscal YearEndedSegmentNature of RestructuringMarch 31, 2003Additional InformationElectronicsReduction of CRT production capacity in Japan and SE Asia6.9 billion yenRemaining liability balance of 0.4 billion yen at March 31, 2003 was used during the fiscal year ended March 31, 2004.Personnel reductions and closure of all Aiwa’s facilities23.0 billion yenNo remaining liability balance at March 31, 2003.Closure of semiconductor plant in U.S.5.9 billion yenRemaining liability balance of 1.5 billion yen at March 31, 2003 was used during the fiscal year ended March 31, 2004.Early retirement program10.9 billion yenRemaining liability balance of 1.0 billion yen at March 31, 2003 was used during the fiscal year ended March 31, 2004.MusicClosure of CD and cassette manufacturing and distribution facility in Holland, CD manufacturing facility in U.S., and others23.9 billion yenRemaining reserve balance of 11.5 billion yen at March 31, 2003 to be used by March 31, 2006. Estimated total charges at SMEI, for years ended March 31, 2001 to March 31, 2006, are 43.4 billion yen with an estimated 4.5 billion yen of these charges expected to be incurred in the future. Year Ended March 31 2002 2003 Percent change (Yen in billions) Sales and operating revenue 7,578.3 7,473.6 -1.4 % Operating income 134.6 185.4 +37.7 Income before income taxes 92.8 247.6 +166.9 Net income 15.3 115.5 +654.5 Sales Fiscal Year Ended March 31 2005 2006 Percent change (Yen in billions) Sales and operating revenue 7,191.3 7,510.6 +4.4 % Operating income 145.6 226.4 +55.5 Income before income taxes 157.2 286.3 +82.1 Equity in net income of affiliated companies 29.0 13.2 −54.6 Net income 163.8 123.6 −24.5
44
(“
47
Although the cost of sales ratio decreased year on year, assisted byas a result of research and development costs associated with the positive effect ofPS3. In the appreciation of the euro against the yen on sales,Pictures segment, the cost of sales ratio in the fourth quarter of the fiscal year ended March 31, 2003also increased primarily due to declininglower worldwide theatrical and home entertainment revenues from feature films.
7.5 percent in the previous fiscal year.
Advertising and promotion expenses increased 40.8 billion yen mainly due to increased expenses inother hand, the Pictures segment, which contributed to increased box office and home entertainment revenue. Increased competition and the continued reduction in the time interval between theatrical and home entertainment release has resulted in a trend towards larger initial advertising expenditures. Personnel related costs increased 30.5 billion yen compared with the previous fiscal year, and have increased over each of the last three years. A major factor in this increase is the recording of increased severance related expenses, as Sony accelerates its restructuring activities. Severance-related charges in the fiscal year ended March 31, 2003 increased by 14.6 billion yen, or 23.3 percent, mainly in the Electronics and Music segments, to reach a total of 77.4 billion yen. Royalty expenses increased 16.9 billion yen.
The increase in selling, general and administrative expenses was partially offset by a 33.9 billion yen decrease in after-sales service expenses in the fiscal year ended March 31, 2003, caused mainly by the absence of non-recurring expenses recorded during the previous fiscal year due to mobile phone-related quality issues. The increase in selling, general and administrative expenses was also offset by a decrease of 10.0 billion yen in loss on the sale, disposal or impairment of assets, net. This was due to a 19.0 billion yen decrease in such losses in the Electronics segment, offset by a 6.4 billion yen increase in such losses in the Other segment.
The ratio of selling, general and administrative expenses to sales in the fourth quarter wasincreased from 32.5 percent an increase from 26.6to 36.0 percent in the fourth quarterPictures segment.
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Operating Income
45
The decrease in other expenses was primarily due to the absence of the net foreign exchange loss recorded in the previous fiscal year as noted above. Interest expense also decreased by 9.1 billion yen, or 25.0 percent, to 27.3 billion yen, primarily due to lower average balances of short-term borrowings and lower interest rates. As a result, the amount of income from interest and dividends less interest expense improved to a net expense of 12.9 billion yen, compared with a net expense of 20.4 billion yen in the previous fiscal year. Partially offsetting the decrease in other expenses was an increase of 4.7 billion yen, or 25.7 percent, to 23.2 billion yen, in losses on the devaluation of securities investments, including securities issued by companies in the U.S. and Europe with which Sony has strategic relationships for the purpose of developing and marketing new technologies. Such companies include Canal+ Technologies, a developer of middleware and conditional access technologies for digital broadcasting, TIVO Inc., a marketer of digital video recorders, and Transmeta Corporation, a chip manufacturer.
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consolidated subsidiaries.
Income before Income Taxes
The ratio of income taxes to income before income taxes (thean effective tax rate) decreased from 70.3rate of 10.2 percent in the previous fiscal year, the effective tax rate was 61.6 percent in the current fiscal year. This effective tax rate exceeded the Japanese statutory tax rate primarily due to 32.6 percent.the recording of additional valuation allowances against deferred tax assets by Sony Corporation and several of Sony’s Japanese domestic and overseas consolidated subsidiaries, mainly within the Electronics segment, due to continued losses recorded at these businesses and the recording of an additional tax provision for the undistributed earnings of certain foreign subsidiaries. The effective tax rate was significantly lower than the Japanese statutory rate in the previous fiscal year as a result of the reversal of valuation allowances at Sony’s U.S. subsidiaries associated with an improvement in operating performance.
46
During
In the first quarter of the fiscal year ended March 31, 2003, SPE and other non-Sony investors sold Telemundo to NBC, a media company owned by the General Electric Company. In the same quarter, SMEI and AOL Time Warner Inc.’s Warner Music Group each sold the majority of their holding in CHC to Blackstone Capital Partners, an affiliate of The Blackstone Group, an investment bank. The Chairman of the Blackstone Group was a director of Sony Corporation until June 2002.Consolidated Subsidiaries
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joint venture with Toyota Industries Corporation for the manufacture of low-temperature polysilicon thin film transistor liquid crystal display panels for mobile products.
The returnReturn on stockholders’ equity increaseddecreased from 0.76.2 percent to 5.04.1 percent. (This ratio is calculated by dividing net income by the simple average of stockholders’ equity at the end of the previous fiscal year and at the end of the fiscal year ended March 31, 2003.2006.)
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Operating Performance by Business Segment
Year Ended | |||||||||||||
March 31 | |||||||||||||
2002 | 2003 | Percent change | |||||||||||
(Yen in billions) | |||||||||||||
Sales and Operating revenue | |||||||||||||
Electronics | 5,286.2 | 4,940.5 | -6.5 | % | |||||||||
Game | 1,003.7 | 955.0 | -4.9 | ||||||||||
Music | 600.1 | 597.5 | -0.4 | ||||||||||
Pictures | 635.8 | 802.8 | +26.3 | ||||||||||
Financial Services | 509.1 | 537.3 | +5.5 | ||||||||||
Other | 261.5 | 306.3 | +17.1 | ||||||||||
Elimination | (718.1 | ) | (665.7 | ) | — | ||||||||
Consolidated | 7,578.3 | 7,473.6 | -1.4 | ||||||||||
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Year Ended | |||||||||||||
March 31 | |||||||||||||
2002 | 2003 | Percent change | |||||||||||
(Yen in billions) | |||||||||||||
Operating income (loss) | |||||||||||||
Electronics | (1.2 | ) | 41.4 | — | |||||||||
Game | 82.9 | 112.7 | +35.9 | % | |||||||||
Music | 22.1 | (7.9 | ) | — | |||||||||
Pictures | 31.3 | 59.0 | +88.6 | ||||||||||
Financial Services | 21.8 | 22.8 | +4.3 | ||||||||||
Other | (18.2 | ) | (25.0 | ) | — | ||||||||
Elimination and unallocated corporate expenses | (4.1 | ) | (17.5 | ) | — | ||||||||
Consolidated | 134.6 | 185.4 | +37.7 | ||||||||||
Commencing with
Fiscal Year Ended | ||||||||||||
March 31 | ||||||||||||
2005 | 2006 | Percent change | ||||||||||
(Yen in billions) | ||||||||||||
Sales and operating revenue | ||||||||||||
Electronics | 5,094.5 | 5,176.4 | +1.6 | % | ||||||||
Game | 729.8 | 958.6 | +31.4 | |||||||||
Pictures | 733.7 | 745.9 | +1.7 | |||||||||
Financial Services | 560.6 | 743.2 | +32.6 | |||||||||
All Other | 470.9 | 426.0 | −9.5 | |||||||||
Elimination | (398.1 | ) | (539.5 | ) | — | |||||||
Consolidated | 7,191.3 | 7,510.6 | +4.4 | |||||||||
Fiscal Year Ended | ||||||||||||
March 31 | ||||||||||||
2005 | 2006 | Percent change | ||||||||||
(Yen in billions) | ||||||||||||
Operating income (loss) | ||||||||||||
Electronics | 2.9 | 6.9 | +140.0 | % | ||||||||
Game | 43.2 | 8.7 | −79.7 | |||||||||
Pictures | 63.9 | 27.4 | −57.1 | |||||||||
Financial Services | 55.5 | 188.3 | +239.4 | |||||||||
All Other | 5.1 | 20.5 | +305.4 | |||||||||
Sub-Total | 170.5 | 251.9 | +47.8 | |||||||||
Elimination and unallocated corporate expenses | (24.9 | ) | (25.5 | ) | — | |||||||
Consolidated | 145.6 | 226.4 | +55.5 | |||||||||
The above reclassification also reflects2005 in the effect of Sony’s realignment of its business segment configuration and Electronics segment product category configuration from the first quarter ended June 30, 2002. From the first quarter ended June 30, 2002, sales of businesses devoted to the creation of a network platform business and of businesses devoted to the development of network and content technology and services have been restated to account for these reclassifications.
Electronics
Salesresults for the fiscal year ended March 31, 2003 decreased by 345.72005 have been reclassified to All Other for comparative purposes. Results for the fiscal year ended March 31, 2006 in All Other include the results of SMEI music publishing business and SMEJ, excluding Sony’s Japan-based disc manufacturing business which, as noted above,
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Regarding sales to outside customers by geographicgeographical area, sales decreased by 12 percent in the U.S. andJapan, by 93 percent in Japan, but sales increasedthe U.S., by 24 percent in Europe and increased by 12 percent in Other Areas, respectively. Sales decreasedAreas.
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The sales decrease during the fiscal year ended March 31, 2003, accelerated in the fourth quarter, as sales decreased by 227.0 billion yen, or 18.1 percent, to 1,025.3 billion yen compared to the fourth quarter of the previous fiscal year. This was principally due to declines in sales, in descending order of financial impact, of PCs,CD-R/RW drives and CRT televisions Aiwa products, computer displays, home-use video cameras and home audio.decreased.
“Audio”
“Video” sales increased by 3.8 billion yen, or 0.4 percent, to 851.1 billion yen. The increase was principally due to higherworldwide sales of digital still camerasCRT televisions, primarily as a result of both a decrease in all areas and digital home-use video cameras in Other Areas, particularly Asia, and Europe. Worldwideworldwide shipments of digital still cameras increasedCRT televisions, by approximately 2.22.7 million units to approximately 5.66.8 million units. Worldwide shipments of home-use video cameras, both analogunits and digital, increased by approximately 350,000 units to approximately 5.75 million units. However, analog home-use video camera sales decreased due to lower demand, particularly in the U.S. Overall sales of home-use video cameras decreased in Japan and the U.S. due to increased price competition. DVD-Video player sales decreased primarily in the U.S. where pricing pressure was severe, although the market expanded. Sales from set-top boxes decreased due to a declinefall in unit sales in the U.S. and Europe.
“Televisions” sales decreased by 34.1 billion yen, or 3.5 percent, to 950.2 billion yen. One factor leading to the decrease was a substantial decline in CRT television sales in the U.S. and Japan, as a result of market contraction, although sales in Europe increased partlyprices due to the appreciation of the euro against the yen. Worldwide shipments of CRT televisions were approximately 10 million units, almost flat compared with the previous fiscal year. Another factor causing the decrease was a decline in sales of CRT computer displays in the U.S., Europe and Japan, resulting from thecontinued shift in demand towards flat panel computer displays. A third factor was a decrease in thetelevisions. In addition, sales of CRTs, reflecting the decline in the market for CRTplasma televisions, and CRT computer displays. Offsetting these decreases were higher sales of large-screen projection televisions, particularly in the U.S., and plasma and LCD flat panel televisions.
“Informationwhere new product development has been terminated, also decreased worldwide.
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“Semiconductors”
“Components” sales increased by 16.2 billion yen, or 3.2 percent, to 527.8 billion yen. The increase was primarily due to significant increases in sales of DVD drives, Memory Stick and batteries. DVD drive sales increased as the strong performance of Sony branded products, particularly in the U.S., allowed Sony to avoid unit price reductions. Memory Stick sales increased due to continued demand for digital still cameras, with worldwide shipments of Memory Stick increasing by approximately 8 million units to approximately 19 million units. At the end of the fiscal year ended March 31, 2003, Sony’s cumulative shipments of Memory Stick had reached 39 million units. Regarding batteries, the growing market for lithium-ion batteries, led to strong revenue growth despite declinesprimarily for use in the average selling price.PCs and power tools, and Memory Sticks. On the other hand, sales of CD-R/RW drives decreased due to severe price competition.
“Other” sales decreased by 10.5 billion yen, or 2.1 percent, to 490.4 billion yen,and optical pickups declined, primarily due to lower sales of Aiwa products in all geographic areas. This decrease was partially offset by the sales of mobile phone handsets which were transferred from “Information and Communications” to “Other” in October 2001, as a result of their becomingsignificant unit price declines. Sales of DVD+/-R/RW drives increased, despite a deterioration in unit selling prices, as a result of a significant growth in units sold in association with the expansion of the market.
80.6 percent compared to 80.7 percent in the previous fiscal year. Although there was an improvement in the cost of sales ratio for such products as video cameras and PCs, products that contributed to the deterioration in the cost of sales ratio included image sensors and CRT televisions, which experienced decreased sales. Restructuring charges recorded in cost of sales amounted to 23.8 billion yen, an increase of 14.2 billion yen compared with the 9.6 billion yen recorded in the previous fiscal year. Research and development costs decreased 15.2 billion yen, or 3.5 percent, from 433.3 billion yen in the previous fiscal year to 418.1 billion yen.
18.0 percent.
Regarding profit performance by product compared with the previous fiscal year, the largest gains in operating income were recorded in CRTs, portable audio, batteries, CRT televisions, recording media and digital still cameras. Increased demand for semiconductors resulted in a substantial decrease in the size of losses. On the other hand, losses increased in PCs and Aiwa products. Restructuring carried outnet in the previous fiscal year also led to improved profitability in several component businesses, including CRTs and recording media, as a resultwas 19.2 billion yen.
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Partially offsetting the increase in profitability were lossesprofit recorded in PCs, where sales declined due to increased competition from lower priced products. Large operating losses were also recorded by Aiwa in almost all geographic areas as a result of reduced sales because of a decline in the competitiveness of Aiwa’s mainstay products such as audio, restructuring charges including costs of headcount reductions, inventory write-downs brought about by the elimination of product lines, and the sale and disposal of production facilities. Sony Corporation absorbed Aiwa by merger on December 1, 2002.
In the past Sony has recorded losses in the fourth quarter, due to a seasonal decline in demandElectronics segment for electronics products. However, the loss in the fourth quarter of the fiscal year ended March 31, 20032006 increased substantially dueas a result of the net gain resulting from the transfer to in descending orderthe Japanese government of financialthe substitutional portion of Sony’s Employee Pension Fund, despite the recording of increased restructuring charges. Excluding the impact a decline in sales,of restructuring charges and the net gain resulting from the transfer to the Japanese government of the substitutional portion of Sony’s Employee Pension Fund, profit performance by product reflected an increase in selling, generaloperating losses recorded by CRT televisions and administrative expenses associated withLCD televisions and a decrease in operating income recorded by image sensors. On the other hand, there was a decrease in the operating loss recorded by DVD recorders (including PSXTM) as well as an increase in patent-relatedoperating income for video cameras and other expenses, and a deterioration in the costPCs.
Regarding the geographic breakdown ofsegment’s total annual production induring the Electronics segment (including the assembly of PlayStation 2 for the Game segment), and the final destination of such production, half of total production wasfiscal year ended March 31, 2006 took place in Japan, including the production of digital still cameras, video cameras, flat panel televisions, PCs, semiconductors personal digital assistants,and components (includingsuch as batteries and Memory Stick), and plasma televisions.Sticks. Approximately 5565 percent of the annual production in Japan was destined for other regions. Asia, here excluding Japan and China accounted for slightly more than 1510 percent of total annual production, more than 60approximately 70 percent of which was destined for other regions. Asia, excluding Japan the U.S.
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Results in the Electronics segment, on a yen basis, were positively impacted overall by the appreciation of the euro against the yen, although this impact was partially offset by the negative impact of the depreciation of the U.S. dollar against the yen. On a local currency basis, sales for the fiscal year ended March 31, 2003 decreased by approximately 7 percent compared with the previous fiscal year and operating income was recorded where an operating loss had been recorded in the previous fiscal year.
Due to the negative impact of the depreciation of the U.S. dollar against the yen, year on year increases in sales of products in the U.S. were generally smaller, and decreases generally larger, when stated in yen than when stated on a local currency basis. However, no products which recorded a sales increase on a local currency basis recorded a sales decrease on a yen basis.
Sales in Europe were positively affected by currency fluctuations, in particular the appreciation of the euro against the yen. Year on year increases in sales of products in Europe were generally larger, and decreases generally smaller, when stated in yen than when stated on a local currency basis. Regarding significant differences between results on a yen basis and results on a local currency basis, CRT televisions and home-use video cameras recorded an increase in sales on a yen basis but a decrease in sales on a local
55
The net effect of currency fluctuations on product sales in Other Areas was negative. Sales increases were generally smaller, and decreases larger, when stated in yen than when stated on a local currency basis. Regarding significant differences between results on a yen basis and results on a local currency basis, sales of CRT televisions were flat year on year on a local currency basis but showed a slight decrease on a yen basis. Sales trends for other products were not significantly different on a local currency basis or a yen basis.
Game
Sales
Regarding sales by geographic area, sales decreased Sales increased significantly, mainly in Japanthe U.S and the U.S. but increased in Europe. In Japan, hardware sales declined due to lower unit sales of PlayStation 2 hardware, brought on by a stagnation of the game industry,Europe, and a price reduction of PlayStation 2 hardware. Software sales decreased slightly due to lower unit sales of software published by SCE. As a result overall sales in Japan decreased. Inremained relatively unchanged compared to the U.S., unit sales of PlayStation 2 hardware increased mainlyprevious fiscal year, primarily due to strategic price reductions. Despite an increasea significant contribution to sales from the PSP, which experienced favorable growth in unitall geographic areas and the fact that PlayStation®2 (“PS2”) sales hardwarewere on a par with those in the previous fiscal year. In addition, although PS2 software sales decreased, due to the negative impact of the price reductions exceeding the positive impact of the increase in unit sales. Software sales increased due to an increase in unit sales brought on by an expansion of the software market as a result of the increase in hardware unit sales. As the decrease in hardwarecontribution to sales exceeded the increase infrom PSP software, software sales overall sales in Japan, the U.S. decreased. Inand Europe were relatively unchanged compared to the market penetration of PlayStation 2 hardware continued to expand as hardware unit sales increased mainly in Western Europe, primarily due to a strategic price reduction of PlayStation 2 hardware. As a result, software sales increased and overall sales in Europe increased. The depreciation of the yen against the euro also had a positive impact on sales in Europe.
previous fiscal year.
Year Ended | |||||||||||||
March 31 | |||||||||||||
Cumulative as of | |||||||||||||
2002 | 2003 | March 31, 2003 | |||||||||||
(Million units) | |||||||||||||
Total Production Shipments of Hardware | |||||||||||||
PlayStation + PS one | 7.40 | 6.78 | 96.41 | ||||||||||
PlayStation 2 | 18.07 | 22.52 | 51.20 | ||||||||||
Total Production Shipments of Software* | |||||||||||||
PlayStation | 91.00 | 61.00 | 917.00 | ||||||||||
PlayStation 2 | 121.80 | 189.90 | 350.00 |
In terms of total software unit sales, PlayStation 2 titles represented 76 percent of the software unit sales for the fiscal year ended March 31, 2003, an increase from 57 percent of software unit sales recorded in
In termsyear):*
à PS2: | 16.22 million units (an increase of 0.05 million units) | |||
à PSP: | 14.06 million units (an increase of 11.09 million units) |
à PS2: | 223 million units (a decrease of 29 million units) | |||
à PSP: | 41.6 million units (an increase of 35.9 million units) |
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On a local currency basis, sales in the Music segment increased by 1 percent while the Music segment incurred an operating loss as compared to operating income in the previous fiscal year.
Sales at SMEI increased approximately 6 percent on a U.S. dollar basis (refer to “Foreign Exchange Fluctuations and Risk Hedging” below). In terms of profitability, SMEI incurred an operating loss in the current year as compared to operating income in the previous fiscal year. The increase in sales was primarily due to an increase in sales of DVD software, manufactured in the Music segment, to the Pictures and Game segments. Sales to the Pictures segment increased as a result of the greater popularity of DVD media in the home entertainment market and sales to the Game segment increased due to higher unit sales of PlayStation 2 software titles, which are packaged on DVDs. Partially offsetting the increase in sales at SMEI was a decline in album sales in many regions worldwide. Album sales at SMEI have been declining due to the continued contraction of the global market for music. Industry-wide album unit sales in the U.S. decreased for 19 consecutive months up to and including March 2003. Such sales in the fiscal year ended March 31, 2003 were 10 percent lower than in the previous fiscal year. This contraction trend has been caused by slow economic growth, the saturation of the CD market, the effects of digital piracy and other illegal duplication, parallel imports, pricing pressures and a diversification of customer preferences brought on by increased competition from other entertainment sectors.
The decline in profitability resulting in an operating loss at SMEI primarily resulted from a 120 million U.S. dollar year on year increase in restructuring charges undertaken to reduce costs in response to the downward trend of the market. The total cost of restructuring for the fiscal year ended March 31, 2003 was 190 million U.S. dollars, or 22.4 billion yen (refer to “Restructuring” above for details) net of a reversal of an expense of 30.8 million U.S. dollars accrued in previous fiscal years as a result of reduced compensation expense. The second largest factor leading to the operating loss was a decrease in gross profit brought about by the decrease in album sales. A third factor leading to operating loss was an increase in talent-related expenses, primarily because the continued decline in album sales led to an increase in impairments of capitalized advances paid to artists. Partially offsetting the decline in operating profitability, in descending order of magnitude, were a decrease in advertising and promotion expenses, savings realized from previously implemented restructuring initiatives and higher income generated by the increase in DVD software manufacturing activity. Although restructuring charges increased significantly compared with the previous fiscal year, the decrease in advertising and promotion expenses and savings realized from previously implemented restructuring initiatives caused a decrease in selling, general and administrative expenses for the year and an improvement in the ratio of selling, general and administrative expenses to sales.
Regarding the results of SMEJ, sales decreased by 10 percent and operating income decreased 59 percent year on year. Sales decreased due to the continued contraction of the music industry. The decrease in operating income resulted from the decrease in sales and, to a lesser extent, an increase in severance-related expenses incurred from restructuring. Restructuring activity at SMEJ during the fiscal year centered on headcount reductions.
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On a yen basis, 76 percent of the Music segment’s sales were generated by SMEI while 24 percent were generated by SMEJ.
Pictures
Sales for the fiscal year ended March 31, 2003 increased by 167.0 billion yen, or 26.3 percent, to 802.8745.9 billion yen compared with the previous fiscal year. Operating income increaseddecreased by 27.736.5 billion yen, or 88.657.1 percent, to 59.027.4 billion yen and the operating income margin increaseddecreased from 4.98.7 percent to 7.33.7 percent. The results in the Pictures segment consist of the results of SPE.
SPE, aU.S.-based subsidiary.
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the same factors noted above for revenue.
compared with the 9.9 percent of the previous fiscal year.
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the increase in revenue.
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Sony Bank, which started business in June 2001, recorded a loss, as was also recorded in the previous fiscal year, primarily due to start-up expenses.
Fiscal Year ended March 31 | ||||||||
Financial Services | 2005 | 2006 | ||||||
(Yen in millions) | ||||||||
Financial service revenue | 560,557 | 743,215 | ||||||
Financial service expenses | 505,067 | 554,892 | ||||||
Operating income | 55,490 | 188,323 | ||||||
Other income (expenses), net | 9,177 | 24,522 | ||||||
Income before income taxes | 64,667 | 212,845 | ||||||
Income taxes and other | 23,634 | 78,527 | ||||||
Income before cumulative effect of an accounting change | 41,033 | 134,318 | ||||||
Cumulative effect of an accounting change | (4,713 | ) | — | |||||
Net income | 36,320 | 134,318 | ||||||
Fiscal Year ended March 31 | ||||||||
Sony without Financial Services | 2005 | 2006 | ||||||
(Yen in millions) | ||||||||
Net sales and operating revenue | 6,664,437 | 6,799,068 | ||||||
Costs and expenses | 6,575,354 | 6,762,194 | ||||||
Operating income | 89,083 | 36,874 | ||||||
Other income (expenses), net | 9,957 | 36,610 | ||||||
Income before income taxes | 99,040 | 73,484 | ||||||
Income taxes and other | (34,979 | ) | 84,186 | |||||
Income (loss) before cumulative effect of an accounting change | 134,019 | (10,702 | ) | |||||
Cumulative effect of an accounting change | — | — | ||||||
Net income (loss) | 134,019 | (10,702 | ) |
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59
Fiscal Year ended March 31 | ||||||||
Consolidated | 2005 | 2006 | ||||||
(Yen in millions) | ||||||||
Financial service revenue | 537,715 | 720,566 | ||||||
Net sales and operating revenue | 6,653,610 | 6,790,031 | ||||||
7,191,325 | 7,510,597 | |||||||
Costs and expenses | 7,045,697 | 7,284,181 | ||||||
Operating income | 145,628 | 226,416 | ||||||
Other income (expenses), net | 11,579 | 59,913 | ||||||
Income before income taxes | 157,207 | 286,329 | ||||||
Income taxes and other | (11,344 | ) | 162,713 | |||||
Income before cumulative effect of an accounting change | 168,551 | 123,616 | ||||||
Cumulative effect of an accounting change | (4,713 | ) | — | |||||
Net income | 163,838 | 123,616 | ||||||
All other segments | ||||||||||||||||||||||||
excluding | ||||||||||||||||||||||||
Financial Services | Financial Services | Consolidated | ||||||||||||||||||||||
Year Ended March 31 | 2002 | 2003 | 2002 | 2003 | 2002 | 2003 | ||||||||||||||||||
(Yen in millions) | ||||||||||||||||||||||||
Financial Services revenue | 509,122 | 537,276 | — | — | 480,190 | 509,398 | ||||||||||||||||||
Net sales and operating revenue | — | — | 7,105,491 | 6,974,980 | 7,098,068 | 6,964,235 | ||||||||||||||||||
509,122 | 537,276 | 7,105,491 | 6,974,980 | 7,578,258 | 7,473,633 | |||||||||||||||||||
Costs and expenses | 487,300 | 514,518 | 6,992,254 | 6,811,292 | 7,443,627 | 7,288,193 | ||||||||||||||||||
Operating income | 21,822 | 22,758 | 113,237 | 163,688 | 134,631 | 185,440 | ||||||||||||||||||
Other income (expenses), net | (1,833 | ) | (1,282 | ) | (40,451 | ) | 67,846 | (41,856 | ) | 62,181 | ||||||||||||||
Income before income taxes | 19,989 | 21,476 | 72,786 | 231,534 | 92,775 | 247,621 | ||||||||||||||||||
Income taxes and other | 11,477 | 13,071 | 72,799 | 120,089 | 83,443 | 132,102 | ||||||||||||||||||
Cumulative effect of accounting changes | 4,305 | — | 1,673 | — | 5,978 | — | ||||||||||||||||||
Net income | 12,817 | 8,405 | 1,660 | 111,445 | 15,310 | 115,519 | ||||||||||||||||||
Other
Reflecting the realignment of the business segment configuration, results for fiscal year ended March 31, 2002, and 2003 have been reclassified to conform to the presentation for the fiscal year ended March 31, 2004. Based on that reclassification,2006, sales of thewithin All Other segment in the fiscal year ended March 31, 2003 were comprised mainly of an in-house oriented information system service business, an advertising agency business in Japan, and SCN,sales from SMEJ, a Japanese domestic recorded music business; SMEI’s music publishing business;So-net, an Internet-related service business subsidiary operating mainly in Japan; a retailer of imported general merchandise in Japan; an in-house facilities management business in Japan; and an advertising agency business in Japan.
Results for the first four months of the previous fiscal year in All Other incorporated the results for SMEI’s recorded music business, which, as noted above, was combined with Bertelsmann AG’s recorded music business to form the SONY BMG joint venture which is accounted for by the equity method.
54
60
In 2001,
purposes except for certain derivatives in the Financial Services segment utilized for portfolio investments and ALM.
55
(Regarding Assets and Liabilities refer also to “Increase in Assets and Liabilities as a Result of Consolidation of Variable Interest Entities” below.)
61
Assets, Liabilities and Stockholders’ Equity
year-end.
This was primarily the result of an increase in sales of the PS3.
(Also see “Investments” below.)
Investments and advances on March 31, 2004 increased by 518.8 billion yen, or 26.0 percent, to 2,513.0 billion yen, compared with the previous fiscal year-end.
Investments and advances on March 31, 2004 in all segments excluding the Financial Services segment decreased by 24.4 billion yen, or 6.4 percent, to 358.6 billion yen. This decrease was mainly due to the recording of an impairment loss on securities issued by a privately held Japanese company, which Sony accounted for under the cost method, that is engaged in cable broadcasting and other businesses and a decrease in the amount recorded in “investments” due to the consolidation of an affiliated company that was formerly accounted for under the equity method as a result of the adoption during the fiscal year ended March 31, 2004 of Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) 46 (refer to Notes 5 and 6 in the Notes to the Consolidated Financial Statements).
Investments and advances on March 31, 2004 in the Financial Services segment increased by 543.1 billion yen, or 31.4 percent, to 2,274.51,089.3 billion yen, compared with the previous fiscal year-end. This increase was primarily due to an increase in assets under management.
62
expansion of the life insurance and banking businesses.
Property, plant
Property, plant
56
Capitalyen of capital expenditures recorded in the Music segment decreased by 8.9 billion yen, or 40.9 percent, to 12.9 billion yen, in the Pictures segment by 1.1 billion yen, or 15.8 percent to 6.0 billion yen, and in the Other segment by 5.3 billion yen, or 34.3 percent, to 10.1 billion yen.
previous fiscal year.
year end.
Deferred tax assets on March 31, 2004 decreased by 124.9 billion yen, or 38.1 percent, to 203.21,100.8 billion yen compared with the previous fiscal year-end.
63
Short-term borrowings and current portion of long-term debt on March 31, 2004 in all segments excluding the Financial Services segment increased 283.1 billion yen, or 223.4 percent, to 409.8 billion yen compared with the previous fiscal year-end. This increase was mainly due to the shift from long-term liabilities to current liabilities of 287.8 billion yen (as of March 31, 2004) in outstanding convertible bonds, due for redemption on March 31, 2005, and an increase of 57.3 billion yen in bank syndicated loans, which will reach maturity by November 2004, as a result of the adoption of FIN 46. Partially offsetting these items was a 52.8 billion yen repayment of commercial paper during the fiscal year.
Notes and accounts payable, trade on March 31, 20042007 in all segments excluding the Financial Services segment increased by 79.6311.3 billion yen, or 11.513.4 percent, to 773.22,640.6 billion yen.
Current liabilitiescurrent portion of long-term debt, due to the redemption of straight bonds and medium-term notes.
Long-term liabilities on March 31, 2004 increased by 75.0 billion yen, or 2.1 percent, to 3,707.6 billion yen compared with the previous fiscal year-end.
Long-term liabilities on March 31, 20042007 in all segments, excluding the Financial Services segment, decreasedincreased by 118.1362.9 billion yen, or 7.445.1 percent, to 1,482.41,167.3 billion yen. This decrease wasyen compared with the previous fiscal year-end.
57
previous fiscal year-end.
for debt redemption.
Total Interest-bearing Debt
Sony adopted FIN 46 on July 1, 2003. As a result, Sony’s assets and liabilities increased as non-cash transactions, which resulted in no cash flows, by 95.3 billion yen and 98.0 billion yen, respectively. Cash
64
Sony leases the headquarters of its U.S. subsidiary from a VIE. Upon consolidation of the VIE, assets and liabilities increased by 25.3 billion yen and 27.0 billion yen, respectively. Sony has the option to purchase the building at any time for 26.9 billion yen during the lease term which expires in December 2008. The debt held by the VIE is unsecured. At the end of the lease term, Sony has agreed to either renew the lease, purchase the building or remarket it to a third party on behalf of the owner.
A subsidiary in the Pictures business entered into a joint venture agreement with a VIE for the purpose of funding the acquisition of certain international film rights. Upon consolidation of the VIE, assets and liabilities increased by 10.2 billion yen and 10.6 billion yen, respectively. Under the agreement, the subsidiary’s 1.2 billion yen equity investment is the last equity to be repaid.
Sony has utilized a VIE to erect and operate a multi-use real estate complex in Berlin, Germany, which was accounted for under the equity method by Sony until June 30, 2003. On July 1, 2003, Sony consolidated this entity. Upon consolidation of the VIE, assets and liabilities increased by 61.3 billion yen and 60.3 billion yen, respectively. These liabilities include a 57.3 billion yen syndicated bank loan which matures in November 2004. The syndicated bank loan is secured by the multi-use real estate complex.
Regarding further information on transactions with VIEs please refer to Notes 21 and 22 of Notes to Consolidated Financial Statements.
58
65
Condensed Balance Sheets Separating Out the Financial Services Segment (Unaudited)
All other Segments | |||||||||||||||||||||||||
excluding | |||||||||||||||||||||||||
Financial Services | Financial Services | Consolidated | |||||||||||||||||||||||
As at March 31 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | |||||||||||||||||||
(Yen in millions) | |||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||
Current assets | 684,945 | 699,698 | 2,503,940 | 2,692,436 | 3,154,214 | 3,363,355 | |||||||||||||||||||
Cash and cash equivalents | 274,543 | 256,316 | 438,515 | 592,895 | 713,058 | 849,211 | |||||||||||||||||||
Marketable securities | 236,621 | 270,676 | 4,899 | 4,072 | 241,520 | 274,748 | |||||||||||||||||||
Notes and accounts receivable, trade | 68,188 | 72,273 | 943,073 | 943,590 | 1,007,395 | 1,011,189 | |||||||||||||||||||
Other | 105,593 | 100,433 | 1,117,453 | 1,151,879 | 1,192,241 | 1,228,207 | |||||||||||||||||||
Film costs | — | — | 287,778 | 256,740 | 287,778 | 256,740 | |||||||||||||||||||
Investments and advances | 1,731,415 | 2,274,510 | 383,004 | 358,629 | 1,994,123 | 2,512,950 | |||||||||||||||||||
Investments in Financial Services, at cost | — | — | 166,905 | 176,905 | — | — | |||||||||||||||||||
Property, plant and equipment | 45,990 | 40,833 | 1,232,359 | 1,324,211 | 1,278,350 | 1,365,044 | |||||||||||||||||||
Other assets | 434,769 | 459,998 | 1,251,810 | 1,251,901 | 1,656,080 | 1,592,573 | |||||||||||||||||||
Deferred insurance acquisition costs | 327,869 | 349,194 | — | — | 327,869 | 349,194 | |||||||||||||||||||
Other | 106,900 | 110,804 | 1,251,810 | 1,251,901 | 1,328,211 | 1,243,379 | |||||||||||||||||||
2,897,119 | 3,475,039 | 5,825,796 | 6,060,822 | 8,370,545 | 9,090,662 | ||||||||||||||||||||
March 31 | ||||||||
2006 | 2007 | |||||||
(Yen in millions) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | 117,630 | 277,048 | ||||||
Marketable securities | 532,895 | 490,237 | ||||||
Other | 200,929 | 321,969 | ||||||
851,454 | 1,089,254 | |||||||
Investments and advances | 3,131,269 | 3,347,897 | ||||||
Property, plant and equipment | 37,422 | 38,671 | ||||||
Other assets: | ||||||||
Deferred insurance acquisition costs | 383,156 | 394,117 | ||||||
Other | 164,827 | 107,703 | ||||||
547,983 | 501,820 | |||||||
4,568,128 | 4,977,642 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Short-term borrowings | 136,723 | 48,688 | ||||||
Notes and accounts payable, trade | 11,707 | 13,159 | ||||||
Deposits from customers in the banking business | 599,952 | 752,367 | ||||||
Other | 169,956 | 143,245 | ||||||
918,338 | 957,459 | |||||||
Long-term liabilities: | ||||||||
Long-term debt | 128,097 | 129,484 | ||||||
Accrued pension and severance costs | 13,479 | 8,773 | ||||||
Future insurance policy benefits and other | 2,744,321 | 3,037,666 | ||||||
Other | 170,294 | 204,317 | ||||||
3,056,191 | 3,380,240 | |||||||
Minority interest in consolidated subsidiaries | 4,089 | 5,145 | ||||||
Stockholders’ equity | 589,510 | 634,798 | ||||||
4,568,128 | 4,977,642 | |||||||
59
66
All other Segments | |||||||||||||||||||||||||
excluding | |||||||||||||||||||||||||
Financial Services | Financial Services | Consolidated | |||||||||||||||||||||||
As at March 31 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | |||||||||||||||||||
(Yen in millions) | |||||||||||||||||||||||||
Liabilities and stockholders’ equity | |||||||||||||||||||||||||
Current liabilities | 415,877 | 648,803 | 2,065,854 | 2,373,550 | 2,435,048 | 2,982,215 | |||||||||||||||||||
Short-term borrowings | 72,753 | 86,748 | 126,687 | 409,766 | 158,745 | 475,017 | |||||||||||||||||||
Notes and accounts payable, trade | 5,417 | 7,847 | 693,589 | 773,221 | 697,385 | 778,773 | |||||||||||||||||||
Deposits from customers in the banking business | 248,721 | 378,851 | — | — | 248,721 | 378,851 | |||||||||||||||||||
Other | 88,986 | 175,357 | 1,245,578 | 1,190,563 | 1,330,197 | 1,349,574 | |||||||||||||||||||
Long-term liabilities | 2,168,476 | 2,450,969 | 1,600,484 | 1,482,378 | 3,632,580 | 3,707,587 | |||||||||||||||||||
Long-term debt | 140,908 | 135,811 | 802,911 | 775,233 | 807,439 | 777,649 | |||||||||||||||||||
Accrued pension and severance costs | 8,737 | 10,183 | 487,437 | 358,199 | 496,174 | 368,382 | |||||||||||||||||||
Future insurance policy benefits and other | 1,914,410 | 2,178,626 | — | — | 1,914,410 | 2,178,626 | |||||||||||||||||||
Other | 104,421 | 126,349 | 310,136 | 348,946 | 414,557 | 382,930 | |||||||||||||||||||
Minority interest in consolidated subsidiaries | — | — | 16,288 | 17,554 | 22,022 | 22,858 | |||||||||||||||||||
Stockholders’ equity | 312,766 | 375,267 | 2,143,170 | 2,187,340 | 2,280,895 | 2,378,002 | |||||||||||||||||||
2,897,119 | 3,475,039 | 5,825,796 | 6,060,822 | 8,370,545 | 9,090,662 | ||||||||||||||||||||
March 31 | ||||||||
2006 | 2007 | |||||||
(Yen in millions) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | 585,468 | 522,851 | ||||||
Marketable securities | 4,073 | 3,078 | ||||||
Notes and accounts receivable, trade | 973,675 | 1,343,128 | ||||||
Other | 1,393,306 | 1,625,914 | ||||||
2,956,522 | 3,494,971 | |||||||
Film costs | 360,372 | 308,694 | ||||||
Investments and advances | 474,568 | 623,342 | ||||||
Investments in Financial Services, at cost | 187,400 | 187,400 | ||||||
Property, plant and equipment | 1,351,125 | 1,382,860 | ||||||
Other assets | 1,056,726 | 1,100,795 | ||||||
6,386,713 | 7,098,062 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Short-term borrowings | 225,082 | 80,944 | ||||||
Notes and accounts payable, trade | 804,394 | 1,167,324 | ||||||
Other | 1,299,809 | 1,392,333 | ||||||
2,329,285 | 2,640,601 | |||||||
Long-term liabilities: | ||||||||
Long-term debt | 701,372 | 925,259 | ||||||
Accrued pension and severance costs | 168,768 | 164,701 | ||||||
Other | 352,457 | 410,354 | ||||||
1,222,597 | 1,500,314 | |||||||
Minority interest in consolidated subsidiaries | 32,623 | 32,808 | ||||||
Stockholders’ equity | 2,802,208 | 2,924,339 | ||||||
6,386,713 | 7,098,062 | |||||||
60
March 31 | ||||||||
2006 | 2007 | |||||||
(Yen in millions) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | 703,098 | 799,899 | ||||||
Marketable securities | 536,968 | 493,315 | ||||||
Notes and accounts receivable, trade | 985,508 | 1,369,777 | ||||||
Other | 1,543,950 | 1,883,732 | ||||||
3,769,524 | 4,546,723 | |||||||
Film costs | 360,372 | 308,694 | ||||||
Investments and advances | 3,519,907 | 3,888,736 | ||||||
Property, plant and equipment | 1,388,547 | 1,421,531 | ||||||
Other assets: | ||||||||
Deferred insurance acquisition costs | 383,156 | 394,117 | ||||||
Other | 1,186,247 | 1,156,561 | ||||||
1,569,403 | 1,550,678 | |||||||
10,607,753 | 11,716,362 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Short-term borrowings | 336,321 | 95,461 | ||||||
Notes and accounts payable, trade | 813,332 | 1,179,694 | ||||||
Deposits from customers in the banking business | 599,952 | 752,367 | ||||||
Other | 1,450,623 | 1,524,330 | ||||||
3,200,228 | 3,551,852 | |||||||
Long-term liabilities: | ||||||||
Long-term debt | 764,898 | 1,001,005 | ||||||
Accrued pension and severance costs | 182,247 | 173,474 | ||||||
Future insurance policy benefits and other | 2,744,321 | 3,037,666 | ||||||
Other | 475,106 | 542,691 | ||||||
4,166,572 | 4,754,836 | |||||||
Minority interest in consolidated subsidiaries | 37,101 | 38,970 | ||||||
Stockholders’ equity | 3,203,852 | 3,370,704 | ||||||
10,607,753 | 11,716,362 | |||||||
61
67
available for saleavailable-for-sale and held to maturity securities, breaking out the unrealized gains and losses by investment category. March 31, 2004 Unrealized Unrealized Fair Market Cost gain Loss Value Yen in Millions Financial Services Business: Available for sale Debt securities Sony Life 1,581,723 54,645 1,828 1,634,540 Other 348,443 971 232 349,182 Equity securities Sony Life 33,694 16,398 149 49,943 Other 2,384 4,365 0 6,749 Held to maturity Debt securities Sony Life — — — — Other 26,437 381 28 26,790 Total Financial Services 1,992,681 76,760 2,237 2,067,204 Non-Financial Services: Available for sale securities 58,946 42,768 1,749 99,965 Held to maturity securities 2 — — 2 Total Non-Financial Services 58,948 42,768 1,749 99,967 Consolidated 2,051,629 119,528 3,986 2,167,171 March 31, 2007 Unrealized Unrealized Fair Market Cost Gain Loss Value (Yen in millions) Financial Services Business: Available-for-sale Debt securities Sony Life 2,129,352 17,679 (3,052 ) 2,143,979 Other 381,663 5,983 (5,794 ) 381,852 Equity securities Sony Life 210,009 105,376 (3,579 ) 311,806 Other 7,341 1,657 (40 ) 8,958 Held to maturity Debt securities Sony Life — — — — Other 34,931 165 (127 ) 34,969 Total Financial Services 2,763,296 130,860 (12,592 ) 2,881,564 Non-Financial Services: 70,496 21,909 (3,770 ) 88,635 Held to maturity securities 1,104 — — 1,104 Total Non-Financial Services 71,600 21,909 (3,770 ) 89,739 Consolidated 2,834,896 152,769 (16,362 ) 2,971,303 betterhigher by Standard & Poor’s, Moody’s or others.other rating agencies. As of March 31, 2004,2007, Sony Life had debt and equity securities which had gross unrealized losses of 1.83.1 billion yen and 0.13.6 billion yen, respectively. Of the unrealized loss amounts recorded by Sony Life, less than 1approximately 46 percent relate to securities being in an unrealized loss position offor periods greater than 12 months.months as of March 31, 2007. These unrealized losses related to numerous investments, with no single investment being in a material unrealized loss position.position for the above-mentioned periods. In addition, there was no individual security with unrealized losses that met the test discussed above for impairment
62
2007.
• Within 1 year: | 0.4 percent | |||
• 1 to 5 years: | 96.0 percent | |||
• 5 to 10 years: | 3.4 percent | |||
• Above 10 years: | 0.2 percent |
68
is not readily determinable. If the value is estimated to have declined and such decline is judged to beother-than-temporary, the impairment of the investment is recognized and the carrying value is reduced to its fair value.
Sony.
price.
63
69
have any corporate loan exposure.
Payments Due by Period | |||||||||||||||||||||
Less than | 1 to | 3 to | After | ||||||||||||||||||
Total | 1 Year | 3 Years | 5 Years | 5 Years | |||||||||||||||||
(Yen in millions) | |||||||||||||||||||||
Contractual Obligations and Major Commitments: | |||||||||||||||||||||
Long-term debt (Note 10) | |||||||||||||||||||||
Capital lease obligations (Notes 7 and 10) | 42,689 | 12,667 | 13,109 | 10,923 | 5,990 | ||||||||||||||||
Other long-term debt (Note 10) | 1,118,717 | 371,090 | 316,103 | 299,984 | 131,540 | ||||||||||||||||
Minimum rental payments required under operating leases (Note 7) | 187,379 | 42,649 | 58,725 | 29,498 | 56,507 | ||||||||||||||||
Purchase commitments for property, plant and equipment and other assets (Note 22) | 20,796 | 20,331 | 462 | 3 | — | ||||||||||||||||
Expected payments regarding contracts with recording artists and other (Note 22) | 39,073 | 19,470 | 14,759 | 3,708 | 1,136 | ||||||||||||||||
Expected cost for the production or purchase of films and television programming or certain rights (Note 22) | 95,232 | 39,672 | 55,560 | — | — | ||||||||||||||||
Commitment under the joint venture agreement with Samsung Electronics Co., Ltd. (Note 22) | 96,285 | 96,285 | — | — | — |
Payments Due by Period | ||||||||||||||||||||
Less than | 3 to 5 | After 5 | ||||||||||||||||||
Total | 1 year | 1 to 3 year | year | year | ||||||||||||||||
(Yen in millions) | ||||||||||||||||||||
Contractual Obligations and Major Commitments:* | ||||||||||||||||||||
Long-term debt (Note 11) | ||||||||||||||||||||
Capital lease obligations (Notes 8 and 11) | 49,403 | 12,559 | 13,674 | 6,052 | 17,118 | |||||||||||||||
Other long-term debt (Note 11) | 994,772 | 30,611 | 448,404 | 272,798 | 242,959 | |||||||||||||||
Minimum rental payments required under operating leases (Note 8) | 202,723 | 46,154 | 64,811 | 31,129 | 60,629 | |||||||||||||||
Purchase commitments for property, plant and equipment and other assets (Note 23) | 43,329 | 43,083 | 213 | 33 | — | |||||||||||||||
Expected cost for the production or purchase of films and television programming or certain rights (Note 23) | 67,717 | 54,940 | 12,033 | 585 | 159 | |||||||||||||||
Partnership program contract with Fédération Internationale de Football Association (Note 23) | 30,939 | 3,897 | 7,794 | 9,624 | 9,624 | |||||||||||||||
8th generation amorphous TFT-LCD panel manufacturing line at joint venture, S-LCD Corporation (Note 23) | 50,200 | 50,200 | — | — | — | |||||||||||||||
64
Certain subsidiaries in the Music segment have entered into long-term contracts with recording artists and companies for the production and/or distribution of pre-recorded music and videos. As of March 31, 2004, the total amount of expected payments regarding these long-term contracts was 39.1 billion yen.
On March 8, 2004,
In December 2003, Sony and Bertelsmann AG 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
70
yen under such contract.
banks.
Total Amounts of | ||||||||
Contingent Liabilities | ||||||||
Contingent Liabilities: (Note 23) | (Yen in millions | ) | ||||||
Loan guarantees to related parties | ||||||||
Other | ||||||||
Total contingent liabilities | ||||||||
65
entities.
71
66
insurance-in-force at Sony Life.
50.9 percent compared with the previous fiscal year.
the outstanding balance of mortgage loans at Sony Bank, exceeded proceeds from the maturities of marketable securities, sales of securities investments and collections of advances.
72
136.2by 96.8 billion yen, or 19.113.8 percent, to 849.2799.9 billion yen, compared with the end of the previous fiscal year. The total outstanding balance of cash and cash equivalents of all segments, excluding the Financial Services segment, increased 154.4decreased by 62.6 billion yen, or 35.210.7 percent, to 592.9522.9 billion yen, and for the Financial Services segment, decreased 18.2increased by 159.4 billion, or 6.6135.5 percent, to 256.3277.0 billion yen, compared with the end of the previous fiscal year.
67
Condensed Statements of Cash Flows Separating Out the Financial Services Segment (Unaudited)
All other segments | ||||||||||||||||||||||||
excluding | ||||||||||||||||||||||||
Financial Services | Financial Services | Consolidated | ||||||||||||||||||||||
Year Ended March 31 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | ||||||||||||||||||
(Yen in millions) | ||||||||||||||||||||||||
Net cash provided by operating activities | 314,764 | 241,627 | 544,051 | 401,090 | 853,788 | 632,635 | ||||||||||||||||||
Net cash used in investing activities | (516,663 | ) | (401,550 | ) | (185,883 | ) | (352,496 | ) | (706,425 | ) | (761,792 | ) | ||||||||||||
Net cash provided by (used in) financing activities | 149,207 | 141,696 | (251,247 | ) | 153,759 | 93,134 | 313,283 | |||||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | 24,971 | (47,973 | ) | 24,971 | (47,973 | ) | ||||||||||||||||||
Net increase (decrease) in cash and cash equivalents | (52,692 | ) | (18,227 | ) | 81,950 | 154,380 | 29,258 | 136,153 | ||||||||||||||||
Cash and cash equivalents at beginning of the fiscal year | 327,235 | 274,543 | 356,565 | 438,515 | 683,800 | 713,058 | ||||||||||||||||||
Cash and cash equivalents at end of the fiscal year | 274,543 | 256,316 | 438,515 | 592,895 | 713,058 | 849,211 | ||||||||||||||||||
Fiscal Year ended March 31 | ||||||||
Financial Services | 2006 | 2007 | ||||||
(Yen in millions) | ||||||||
Net cash provided by operating activities | 147,149 | 256,540 | ||||||
Net cash used in investing activities | (563,753 | ) | (276,749 | ) | ||||
Net cash provided by financing activities | 274,863 | 179,627 | ||||||
Net increase (decrease) in cash and cash equivalents | (141,741 | ) | 159,418 | |||||
Cash and cash equivalents at beginning of the fiscal year | 259,371 | 117,630 | ||||||
Cash and cash equivalents at end of the fiscal year | 117,630 | 277,048 | ||||||
Fiscal Year ended March 31 | ||||||||
Sony without Financial Services | 2006 | 2007 | ||||||
(Yen in millions) | ||||||||
Net cash provided by operating activities | 251,975 | 305,571 | ||||||
Net cash used in investing activities | (296,376 | ) | (431,086 | ) | ||||
Net cash provided by (used in) financing activities | 74,600 | 59,598 | ||||||
Effect of exchange rate changes on cash and cash equivalents | 35,537 | 3,300 | ||||||
Net increase (decrease) in cash and cash equivalents | 65,736 | (62,617 | ) | |||||
Cash and cash equivalents at beginning of the fiscal year | 519,732 | 585,468 | ||||||
Cash and cash equivalents at end of the fiscal year | 585,468 | 522,851 | ||||||
Fiscal Year ended March 31 | ||||||||
Consolidated | 2006 | 2007 | ||||||
(Yen in millions) | ||||||||
Net cash provided by operating activities | 399,858 | 561,028 | ||||||
Net cash used in investing activities | (871,264 | ) | (715,430 | ) | ||||
Net cash provided by financing activities | 359,864 | 247,903 | ||||||
Effect of exchange rate changes on cash and cash equivalents | 35,537 | 3,300 | ||||||
Net increase (decrease) in cash and cash equivalents | (76,005 | ) | 96,801 | |||||
Cash and cash equivalents at beginning of the fiscal year | 779,103 | 703,098 | ||||||
Cash and cash equivalents at end of the fiscal year | 703,098 | 799,899 | ||||||
All Of this total, all segments, excluding the Financial Services segment, generated 542.8252.0 billion yen of net cash from
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The Financial Services segment generated 316.0
During the fiscal year, 706.4 billion yen innet cash was used in investing activities (a decrease of 60.7 billion yen, or 7.9 percentincreased due to an increase in investments and advances compared withto the previous fiscal year).
year.
In the Financial Services segment, 517.4 billion yen in cash was used in investing activities (an increase of 115.5 billion yen, or 28.7 percent compared with the previous fiscal year). The use of cash derived primarily from the fact that investments and advances of 1,026.4 billion yen exceeded sales of securities investments, maturities of marketable securities and collections of advances of 542.5 billion yen, reflecting an increase in assets under management in the Financial Services segment.
As a result of these factors, the difference between cash generated from operating activities and cash used in investing activities was a positive 147.4use of cash of 44.4 billion yen, foras compared to the fiscal year, an improvement of 176.913.3 billion yen compared withof cash generated in the previous fiscal year (in the previous fiscal year, net cash flow was a negative 29.5 billion yen). In terms of net cash flow from all segments excluding the Financial Services segment, net cash flow was a positive 357.7 billion yen for the fiscal year, an improvement of 290.6 billion yen, or 433.0 percent, compared with the previous fiscal year. Net cash flow from the Financial Services segment was a negative 201.4 billion yen, a deterioration of 101.2 billion yen compared with the previous fiscal year.
In all segments excluding the Financial Services segment, 251.1 billion yen of net cash was used in financing activities compared to 31.6 billion yen of cash used in financing activities in the previous year. Cash was used during the fiscal year for repayments of long-term debt including 1.5 billion U.S. dollars of U.S. dollar notes redeemed on March 4, 2003. These repayments caused cash used in financing activities to exceed cash provided by financing activities.
In the Financial Services segment, 149.12006, 359.9 billion yen of net cash was provided by financing activities compared to 120.3activities. Of the total, 74.6 billion yen of net cash provided bywas generated from financing activities.activities in all segments, excluding the Financial Services segment, compared to a use of net cash in the previous fiscal year of 95.4 billion yen. This was duea result of straight bonds issued in order to redeem bonds maturing during the fiscal years ended March 31, 2006 and March 31, 2007.
as well as call loan borrowings carried out at Sony Bank, financing activities generated 274.9 billion yen of net cash.
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Condensed Statements of Cash Flows Separating Out the Financial Services Segment (Unaudited)
All other segments | ||||||||||||||||||||||||
excluding | ||||||||||||||||||||||||
Financial Services | Financial Services | Consolidated | ||||||||||||||||||||||
Year Ended March 31 | 2002 | 2003 | 2002 | 2003 | 2002 | 2003 | ||||||||||||||||||
(Yen in millions) | ||||||||||||||||||||||||
Net cash provided by operating activities | 301,625 | 315,968 | 436,059 | 542,848 | 737,596 | 853,788 | ||||||||||||||||||
Net cash used in investing activities | (401,866 | ) | (517,383 | ) | (368,951 | ) | (185,163 | ) | (767,117 | ) | (706,425 | ) | ||||||||||||
Net cash provided by (used in) financing activities | 120,255 | 149,086 | (31,603 | ) | (251,128 | ) | 85,040 | (93,134 | ) | |||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | 3 | (5 | ) | 21,033 | (24,965 | ) | 21,036 | (24,971 | ) | |||||||||||||||
Net increase (decrease) in cash and cash equivalents | 20,017 | (52,334 | ) | 56,538 | 81,592 | 76,555 | 29,258 | |||||||||||||||||
Cash and cash equivalents at beginning of the fiscal year | 307,245 | 327,262 | 300,000 | 356,538 | 607,245 | 683,800 | ||||||||||||||||||
Cash and cash equivalents at end of the fiscal year | 327,262 | 274,928 | 356,538 | 438,130 | 683,800 | 713,058 | ||||||||||||||||||
Fiscal Year ended March 31 | ||||||||
Financial Services | 2005 | 2006 | ||||||
(Yen in millions) | ||||||||
Net cash provided by operating activities | 168,078 | 147,149 | ||||||
Net cash used in investing activities | (421,384 | ) | (563,753 | ) | ||||
Net cash provided by financing activities | 256,361 | 274,863 | ||||||
Net increase (decrease) in cash and cash equivalents | 3,055 | (141,741 | ) | |||||
Cash and cash equivalents at beginning of the fiscal year | 256,316 | 259,371 | ||||||
Cash and cash equivalents at end of the fiscal year | 259,371 | 117,630 | ||||||
Fiscal Year ended March 31 | ||||||||
Sony without Financial Services | 2005 | 2006 | ||||||
(Yen in millions) | ||||||||
Net cash provided by operating activities | 485,439 | 251,975 | ||||||
Net cash used in investing activities | (472,119 | ) | (296,376 | ) | ||||
Net cash provided by (used in) financing activities | (95,373 | ) | 74,600 | |||||
Effect of exchange rate changes on cash and cash equivalents | 8,890 | 35,537 | ||||||
Net increase (decrease) in cash and cash equivalents | (73,163 | ) | 65,736 | |||||
Cash and cash equivalents at beginning of the fiscal year | 592,895 | 519,732 | ||||||
Cash and cash equivalents at end of the fiscal year | 519,732 | 585,468 | ||||||
Fiscal Year ended March 31 | ||||||||
Consolidated | 2005 | 2006 | ||||||
(Yen in millions) | ||||||||
Net cash provided by operating activities | 646,997 | 399,858 | ||||||
Net cash used in investing activities | (931,172 | ) | (871,264 | ) | ||||
Net cash provided by financing activities | 205,177 | 359,864 | ||||||
Effect of exchange rate changes on cash and cash equivalents | 8,890 | 35,537 | ||||||
Net increase (decrease) in cash and cash equivalents | (70,108 | ) | (76,005 | ) | ||||
Cash and cash equivalents at beginning of the fiscal year | 849,211 | 779,103 | ||||||
Cash and cash equivalents at end of the fiscal year | 779,103 | 703,098 | ||||||
Sony’s mid-term fund requirements are expectedsheet, while securing adequate liquidity for business expenses.
In regards to the fundingfuture growth. Funding requirements that arise from thisits business strategy working capital needs, repayment of existing debt, and all its other capital needs, Sony believes that it can maintain sufficient liquidity and financial flexibility through operatingare principally covered by free cash flow generated from business operations and by cash and cash equivalents its ability to(“cash balance”) however as needed, Sony will procure necessary funds from the financial and capital markets, its commitment lines with banks, and other means.markets.
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2007.
Regarding MTNs, 2007.
On March 31, 2004, the amountemergency purposes, Sony has a total, translated into yen, of liquidity sources, as defined by Sony, held by consolidated Sony excluding Sony Life., Sony Assurance, and Sony Bank was 1,118.0 billion yen. Of this total, cash, cash equivalents and time deposits were 601.1689.3 billion yen and contracts for commitmentin committed lines of credit with banks rated “C” or above totaled approximately 516.9 billion yen,various financial institutions, of which the unused amount was approximately 515.6684.9 billion yen. Sony also has additional commitmentyen as of March 31, 2007. Major committed lines supporting its operational needsof credit include a total, translated into yen, of 505.4 billion yen of Global Commitment Facilities contracted with somea syndicate of global banks effective until March 2009, and a 150 billion yen committed line of credit contracted with Japanese financial institutions, which have Moody’s financial strength ratings of “C” or below, and these lines amount to approximately 302.8 billion yen. Refer to Note 11 of the Consolidated Financial Statements for the total amount of commitment lines regardless of Moody’s financial strength rating foreffective until July 2009. During the fiscal year ended March 31, 2004.
2007, the contract period of the committed line of credit with Japanese financial institutions was extended for one year, from the previous contract which was effective until July 2008. In the event of a downgrade in Sony’s credit ratings, even though the cost of borrowing could increase, there are no financial covenants in any of Sony’s material financial agreements that would cause an acceleration of the obligation. In general, there are no restrictions on how Sony’s borrowings can be usedthe uses of proceeds except that some borrowings may not be used to acquire securities listed on a U.S. exchange or tradedover-the-counter in the U.S., and the use of such borrowingborrowings must comply with the rules and regulations issued by authorities such as the Board of Governors of the Federal Reserve Board. In addition, there are no financial covenants that would cause an acceleration
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Moody’s | S&P | R&I | |||||||
Long-term debt | A2 (Outlook: Stable) | A- (Outlook: Negative) | AA- (Outlook: Stable) | ||||||
Short-term debt | P-1 | A-2 | a-1+ | ||||||
On June 25, 2003, Moody’s downgraded&P changed its outlook of Sony’s long-term debt rating from Aa3stable to A1 (outlook: negative). R&I downgradednegative. This change was made based upon their view of increased uncertainty for Sony’s long-term debt rating from AA+ to AA on June 16, 2003. These actions reflected the concerns of the two agencies thatbusiness recovery in fiscal year 2007 onwards. Despite this change in outlook, Sony may take longer than initially expected to regain its previous level of profit and cash flow under the severe competition, particularly in the electronics business, and deflationary pressures. Sony’s short-term debt rating from Moody’s and R&I has been unaffected.
Despite the downgrading of Sony’s long-term debt rating by Moody’s and R&I, Sony believes that its access to the global capital markets will remain sufficient for its financing needs going forward, and that it will retain its ability to issue CP to meetfor its working capital needs.
Sony seeks to maintain a stable credit rating in order to ensure financial flexibility for liquidity and capital management, and to continue to maintain adequate access to sufficient funding resources in the financial and capital markets.needs have not been restricted.
The above description covers liquidity and capital resources for consolidated Sony excluding Sony Life, Sony Assurance and Sony Bank, each of which respectively secures liquidity on its own.
For instance, cash inflows for Sony Life and Sony Assurance come mainly from policyholders’ insurance premiums and Sony Life and Sony Assurance keep sufficient liquidity in the form of investments primarily in various securities. Sony Bank, on the other hand, uses its cash inflows, which come mainly from customers’ deposits in local or foreign currencies, in order to offer mortgage loans to individuals or to make bond investments, and establish a necessary level of liquidity for the smooth settlement of transactions.
Aiming to advance corporate value creation management, Sony uses EVA®*, which reflects cost of capital, as one of its internal evaluation measures. The fiscal year ended March 31, 2004 marked the fourth year Sony has used EVA®. EVA® is used in the Electronics, Game, Music, and Pictures segments for various internal evaluation measures such as setting, monitoring and evaluating financial performance targets. EVA® is also linked to compensation. As a result, recognition of return on invested capital and cost of capital has spread further within each business unit and proactive efforts have been made to
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RESEARCH AND DEVELOPMENT
Recognizing
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Furthermore, in accordance with the strengthening of research
Development Group, to strengthen software development. In addition, two independent research laboratories,April 2007, Sony Computer Science Laboratories, Inc. (fundamental research and user interface research) and Sony-Kihara Research Center, Inc. (three-dimensional computer graphics and image processing technologies), are conducting research and development in close collaboration with each other.
expressed its intention to begin selling 11- inch OLED flat panel televisions during 2007.
PS3’s research and development phase.
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Research and development costs for the fiscal year ended March 31, 2002 increased 16.5 billion yen, or 4.0 percent, to 433.2 billion yen, compared with the previous fiscal year. The ratio of research and development costs to sales (excluding the Financial Services segment) was 6.1 percent, almost flat compared with the previous fiscal year. The bulk of research and development costs were incurred in the Electronics and Game segments; expenses in the Electronics segment increased 2.5 billion yen, or 0.7 percent, to 383.4 billion yen, and expenses in the Game segment increased 14.0 billion yen, or 40.9 percent, to 48.2108.7 billion yen. In the Electronics segment, approximately 64 percent of expenses were for the development of new product prototypes while the remaining approximately 36 percent were for the development of mid- to long-term new technologies in such areas as semiconductors, communications, displays and displays.next generation optical discs. In addition, within the Game segment, there was an increase primarily of hardware-related research and development costs associated with the PS3.
Compared with the previous fiscal year, the global business environment in which Sony operates has improved, with macroeconomic indicators showing signs of recovery and personal consumption beginning to increase. These improvements have done little to dissipate the challenges facing Sony, however, as competition
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In the fiscal year ended March 31, 2004, the first year of Transformation 60, Sony recorded 168.1 billion yen in consolidated restructuring charges, 514.5 billion yen in consolidated research and development costs and 175 billion yen in semiconductor capital expenditures (total of Electronics and Game segments). PSP businesses.
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CMOS image sensor, television- and video-related, and Game-related businesses.
Game
In the Music segment, album sales over the past several years have decreased due to the worldwide contraction of the global music industry brought on by piracy and competition from other entertainment sectors. Although Sony experienced improvement in a number of key retail markets duringsoftware, for the fiscal year ended March 31, 2004, it continued2007. However, as the PS2 platform is still recording favorable sales around the world, Sony will continue to record declining sales on a global basis. In an efforttry to maintain profitability,the scale of this business. Sony is continuingstrongly promoting the PSP platform by offering new ways to implement restructuring initiatives designedenjoy it, such as by increasing interconnectivity with the PS3, along with expanding theline-up of software unique to reduce fixed costs atthe PSP. Sony expects a rate equal to or abovesignificant reduction in the rateoperating loss of the decline in sales. Sony is also working to combat digital piracy and
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Pictures
Financial Services
With respect to the environment in the financial services industry, Sony expects increasingly intense competition as it confronts changes in its business environment. In particular, Sony expects competition to result from the deregulation and liberalization of additional insurance premiums, postal privatization and the complete lifting of the ban on the sale of insurance products at banks, as well as changes in the macroeconomic environment brought about by Japan’s declining population, low birthrate and growing proportion of elderly citizens. In response to this changing environment, each of |
Factors which may affect Sony’s financial performance includeservices businesses, which are latecomers to the following: market conditions, including general economic conditions, in major areas where Sony conducts its businesses,life insurance, property and casualty insurance and banking industries, make use of distinctive, individual industry-specific business models and plan to achieve further business expansion and even higher levels of consumer spending, foreign exchange fluctuations, Sony’s ability to continue to design, develop, manufacture, sell, and win acceptance of its products and services, Sony’s ability to continue to implement personnel reduction and other business reorganization initiatives, Sony’s ability to implement its network strategy, and implement successful sales and distribution strategies in the light of the Internet and other technological developments, Sony’s ability to devote sufficient resources to research and development, and capital expenditures, and the success of Sony’s joint ventures and alliances. Risks and uncertainties also include the impact of any future events with material unforeseen impacts. Refer also to the “Cautionary Statement”.customer satisfaction.
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Regarding the forecast of consolidated results for the fiscal year ending March 31, 2005, sales and operating revenue is expected to increase slightly compared with the fiscal year ended March 31, 2004. Operating income, income before income taxes, and net income are also expected to increase. This forecast assumes that the yen for the fiscal year ending March 31, 2005 will strengthen against the U.S. dollar and the euro compared with the fiscal year ended March 31, 2004.
During the fiscal year ending March 31, 2005, primarily in the Electronics segment, restructuring charges of approximately 130 billion yen are expected to be incurred across the Sony Group. 168.1 billion yen in restructuring charges were recorded in the fiscal year ended March 31, 2004.
In April 2004, a settlement was reached in a lawsuit between InterTrust, an equity affiliate of Sony, and Microsoft regarding patents held by InterTrust. In return for the provision of a license to Microsoft, InterTrust received 440 million U.S. dollars. As a result of this settlement, Sony expects to record approximately 100 million U.S. dollars in equity in net income of InterTrust during the fiscal year.
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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 costs.
From the fiscal year ending March 31, 2005, research and development costs associated with process technologies, including those technologies used in the Game segment, which were previously recorded in the Game segment, will be recorded in the Electronics segment, due to the integration of the semiconductor businesses in the Electronics and Game segments.
Although software production shipments are expected to remain unchanged year on year, production shipments of PS one and PlayStation 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 costs will be recorded in the Electronics segment, as described above and in “Research and Development” below, 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.
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.
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 notablySpider-Man 2.
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.
In the fiscal year ending March 31, 2005, capital expenditures (additions to fixed assets) are expected to be 410 billion yen, an increase of 8 percent compared with the previous year. More than 90 percent of the amount is expected to be spent in the Electronics and Game segments. Of this amount, capital expenditures on semiconductors (in the Electronics and Game segments) during the fiscal year are expected to amount to 190 billion yen (actual amount in the fiscal year ended March 31, 2004 was 175 billion yen). Of the capital expenditures on semiconductors, 120 billion yen 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 69 billion yen). For an explanation regarding fund procurement, refer to “Capital Resources” above.
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In the fiscal year ending March 31, 2005, expenses for depreciation and amortization, which includes the amortization of intangible assets and the amortization of deferred insurance acquisition costs, are expected to be 370 billion yen, an increase of 1 percent compared with the previous year. Although expenses for the amortization of deferred insurance acquisition costs in the Financial Services segment are expected to decrease, total expenses for depreciation and amortization in the Electronics and Game segments are expected to increase.
Sony expects research and development costs (total of expenses for the development of new product prototypes and expenses for the development of mid-to long-term new technologies) for the fiscal year ending March 31, 2005 to be 550 billion yen, a 7 percent increase compared with the fiscal year ended March 31, 2004. Research and development costs associated with process technologies, including those technologies used in the Game segment, which were previously recorded in the Game segment, will be recorded in the Electronics segment from the fiscal year ending March 31, 2005, due to the integration of the semiconductor businesses in the Electronics and Game segments. As a result, research and development costs in the Electronics segment are expected to increase more than 10 percent compared with the 429.4 billion yen recorded in the previous year. On the other hand, in the Game segment, overall research and development costs are expected to decrease by only 10 percent compared to the 83.4 billion yen recorded in the previous year. The relatively small decrease is due to the fact that, although research and development costs associated with process technologies will decrease, research and development costs associated with next generation semiconductor design, new platforms such as the PSP and software are expected to increase.
CRITICAL ACCOUNTING POLICIES
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Impairment of long-lived assets
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best information available.
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flows.
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pension plans, Sony used a discount rate of 2.4%2.3 percent for its Japanese pension plans as of March 31, 2004.2007. The discount rate was determined by using currently available information about rates of return on high-quality fixed-income investments currently available and expected to be available during the period to maturity of the pension benefit obligation.obligation in consideration of amounts and timing of cash outflows for expected benefit payments. Such available information about rates of returns is collected from Bloomberg and credit rating agencies. The 2.4%2.3 percent discount rate represents a 5010 basis point increase from the 1.9%2.2 percent discount rate used for fiscal year ended March 31, 20032006 and reflects current market interest rate conditions. For Japanese pension plans, a 5010 basis point increase in the discount rate would decrease pension costs by approximately 12.00.8 billion yen compared tofor the fiscal year endedending March 31, 2004.
2008.
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Refer to Note 14 of Notes to Consolidated Financial Statements for more information regarding Sony’s pension and severance plans.
Pre-Tax | Pension | Equity | ||||||||||||||||||||||
Change in Assumption | (Net of Tax) | |||||||||||||||||||||||
(Yen in billions) | ||||||||||||||||||||||||
25 basis point increase/decrease in discount rate | +/ | |||||||||||||||||||||||
25 basis point increase/decrease in expected return on assets | — | +/ |
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Sony applied
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As of March 31, 2004, the U.S. subsidiaries of Sony had a valuation allowance of 81.0 billion yen against deferred tax assets for federal and certain state taxes. Since the U.S. subsidiaries did not have a sufficient history of taxable income at this time to conclude that it is more likely than not that the tax benefit from these deferred tax assets would be realized, a valuation allowance was established. Management believes this lack of sufficient earnings history, when evaluated in connection with relevant qualitative factors and uncertainties concerning the U.S. subsidiaries’ businesses and industries, provided substantial negative evidence, which outweighs any positive evidence, regarding the eventual realizability of the tax benefit of the deferred tax assets as of March 31, 2004. However, under recent conditions, management considers that it is possible that the U.S. subsidiaries’ future results may yield sufficient positive evidence to support the conclusion that it is more likely than not that the U.S. subsidiaries could realize the tax benefit of these deferred tax assets and that such a conclusion may be reached as early as during the fiscal year ending March 31, 2005. If this is the case, subject to review of relevant qualitative factors and uncertainties, Sony may reverse part or all of the valuation allowance that would be recognized into income as a reduction to tax expense.
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Long-term liabilities
For a summary of Sony’s significant accounting policies, including the critical accounting policies discussed above, please see Note 2 of Notes to the Consolidated Financial Statements.
Inventory Costs -
In January 2003, the FASB issued FIN No. 46, “Consolidation of Variable Interest Entities — an Interpretation of ARB No. 51”, which addresses consolidation by a primary beneficiary of a VIE. FIN No. 46 became effective immediately for all new VIEs created or acquired after January 31, 2003. Sony has not entered into any new agreements with VIEs on or after February 1, 2003. For VIEs created or acquired prior to February 1, 2003, Sony early adopted the provisions of FIN No. 46 on July 1, 2003. Under FIN No. 46, any difference between the net amount added to the balance sheet and the amount of any previously recognized interest in the VIE shall be recognized as a cumulative effect of accounting changes. As a result of adopting FIN No. 46, Sony recognized a one-time charge with no tax effect of 2.1 billion yen as a cumulative effect of accounting change in the consolidated statement of income, and Sony’s assets and liabilities increased by 95.3 billion yen and 98.0 billion yen, respectively. These increases were treated as non-cash transactions in the consolidated statements of cash flows. In addition, cash and cash equivalents increased by 1.5 billion yen. See Consolidated Financial Statements Note 21 for further discussion on the VIEs that are used by Sony.
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In December 2003, the FASB issued a revision to FIN No. 46 (“FIN No. 46R”), which replaces FIN No. 46. FIN No. 46R retains many of the basic concepts introduced in FIN No. 46; however, it also introduces a new scope exception for certain types of entities that qualify as a “business” as defined in FIN No. 46R, revises the method of calculating expected losses and residual returns for determination of a primary beneficiary, and includes new guidance for assessing variable interests. Sony early adopted the provisions of FIN No. 46R upon its issuance. The adoption of FIN No. 46R did not have an impact on Sony’s results of operations and financial position or impact the way Sony had previously accounted for VIEs.
In November 2003, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue No. 03-01, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”. EITF Issue No. 03-01 establishes additional disclosure requirements for each category of FAS No. 115 investments in a loss position. In March 2004, the EITF also reached a consensus on the additional accounting guidance for other-than-temporary impairments and its application to debt and equity investments. In accordance with the new disclosure requirements under EITF Issue No. 03-01, the disclosure in the consolidated financial statements has been expanded to include certain additional information regarding Sony’s securities investments.
In November 2002, the FASB issued EITF Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables”. EITF Issue No. 00-21 provides guidance on when and how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. Sony adopted EITF Issue No. 00-21 on July 1, 2003. The adoption of EITF Issue No. 00-21151 did not have a material impact on Sony’s results of operations and financial positionposition.
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Derivative Instruments and Hedging Activities -
On April 1, 2003,2006, Sony adoptedrecognized a net charge of 3,785 million yen (net of income taxes of 2,148 million yen) as a cumulative-effect adjustment to beginning retained earnings, which consisted of 1,754 million yen (net of income taxes of 996 million yen) of gross gains and 5,539 million yen (net of income taxes of 3,144 million yen) of gross losses.
In May 2003, the FASB issued FAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. FAS No. 150 establishes standards for how certain financial instruments with characteristics of both liabilities and equity shall be classified and measured. Sony adopted FAS No. 150 during the first quarter of the year ended March 31, 2004. The adoption of FAS No. 150 did not have an impact on Sony’s results of operations and financial position for the year ended March 31, 2004.
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RECENT PRONOUNCEMENTS
Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts -
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Item 6. Directors, Senior Management and Employees
Item 6. | Directors, Senior Management and Employees |
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Date of Birth: February 19, 1942 | |||
Director (Member of the Board) Since: 1999 | |||
Corporate Executive Officer Since: 2003 | |||
Current | Chairman and Chief Executive Officer, Representative Corporate Executive Officer Chairman and Chief Executive Officer, Sony Member of the Nominating Committee |
Prior Positions: | |||
2003 | Vice Chairman, Chief Operating Officer in charge of Entertainment Business Group, | ||
1997 | President, Sony Corporation of America | ||
1995 | Chairman and Chief Executive Officer,TELE-TV | ||
1988 | President, CBS Broadcast Group, CBS Inc. | ||
1986 | President, CBS News | ||
Principal Business Activities Outside Sony: | |||
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Date of Birth: | |||
Director (Member of the Board) Since: | |||
Corporate Executive Officer Since: 2004 | |||
Current | President, Representative Corporate Executive Member of the Nominating Committee |
Prior Positions: | |||
2004 | Chief Operating Officer in charge of Executive Deputy President, Corporate Executive Officer, Sony Corporation | ||
2003 | Executive Vice President, Executive Officer, NC President, | ||
2002 | NC President, Core Technology & Network Company (“CNC”), Sony Corporation | ||
2002 | Corporate Senior Vice President, Sony Corporation | ||
1999 | |||
Entered Sony Corporation | |||
Principal Business Activities Outside Sony: None |
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Date of Birth: | ||
Director (Member of the Board) Since: | ||
Corporate Executive Officer Since: 2004 | ||
Current | Executive Deputy President, Representative Officer in charge of Consumer Products Group |
Prior Positions: | |||
2005 | Officer in charge of Procurement Strategies and TV & Video Business NC President of Home Electronics Network Company, Sony Corporation | ||
2004 | Group Chief Strategy Officer | ||
2001 | Group Executive Officer, Sony Corporation President, Sony Ericsson Mobile Communications AB | ||
2000 | Corporate Senior Vice President, NC President, Personal IT Network Company, Sony Corporation | ||
1997 | Corporate Vice President, Sony Corporation | ||
1996 | President, | ||
Entered Sony Corporation | |||
1973 | Entered Mitsui Knowledge Industry Co., Ltd. | ||
Principal Business Activities Outside Sony: None | |||
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Akishige Okada | |||
Date of Birth: April 9, 1938 | |||
Outside Director (Member of the Board) Since: 2002 | |||
Current | |||
Principal Business Activities Outside Sony: | |||
Advisor, Sumitomo Mitsui Banking Corporation | |||
Director, Daicel Chemical Industries, Ltd. | |||
Director, Mitsui & Co., Ltd. | |||
Statutory Auditor, Toyota Motor Corporation | |||
Statutory Auditor, Hotel Okura Co., Ltd. | |||
Statutory Auditor, Mitsui Fudosan Co., Ltd. | |||
Prior Positions: | |||
2002 | Chairman of the Board (Representative Director), Sumitomo Mitsui Financial Group, Inc. | ||
2001 | Chairman of the Board (Representative Director), Sumitomo Mitsui Banking Corporation | ||
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Hirobumi Kawano | |||
Date of Birth: January 1, 1946 | |||
Outside Director (Member of the Board) Since: 2003 | |||
Current | Vice Chairman of the Board Member of the Nominating Committee | ||
Principal Business Activities Outside Sony: Senior Vice President, JFE Steel Corporation |
Prior Positions: | |||
2002 | Executive Adviser, The Tokio Marine and Fire Insurance Co., Ltd. | ||
1999 | Director-General, Agency for Natural Resources and Energy, Ministry of International Trade and Industry (“MITI”) (later renamed the Ministry of Economy, Trade and | ||
1998 | Director-General, Basic Industries Bureau, MITI |
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1996 | Director-General, Machinery and Information Industries Policy, Machinery and Information Industries Bureau, MITI | ||
1995 | Director-General, Petroleum Department, Agency of Natural Resources and Energy, MITI | ||
Yotaro Kobayashi | |||
Date of Birth: April 25, 1933 | |||
Outside Director (Member of the Board) Since: 2003 | |||
Current | |||
Principal Business Activities Outside Sony: | |||
Chief Corporate Advisor, Fuji Xerox Co., Ltd. | |||
Director, Nippon Telegraph and Telephone Corporation | |||
Director, Callaway Golf Company | |||
Prior Positions: | |||
1999 | Chairman of the Board, Fuji Xerox Co., Ltd. | ||
1992 | Chairman and Chief Executive Officer, Fuji Xerox Co., Ltd. | ||
1987 | Director, | ||
1978 | President and Chief Executive Officer, Fuji Xerox Co., Ltd. | ||
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Sakie T. Fukushima | |||
Date of Birth: September 10, 1949 | |||
Outside Director (Member of the Board) Since: 2003 | |||
Principal Business Activities Outside Sony: | |||
Representative Director & Regional Managing Director — Japan, Korn/Ferry International | |||
Director, | |||
Prior Position: | |||
2000 | Managing Director, Korn/Ferry International — Japan |
Yoshihiko Miyauchi | |||
Date of Birth: September 13, 1935 | |||
Outside Director (Member of the Board) Since: 2003 | |||
Principal Business Activities Outside Sony: | |||
Director, Representative Executive Officer, Chairman and | |||
Officer, ORIX Corporation | |||
Director, Aozora Bank, Ltd. | |||
Director, | |||
Director, Daikyo Incorporated | |||
Director, Access Co., Ltd. | |||
Director, | |||
Prior Positions: | |||
2000 | Representative Director, Chairman and Chief Executive Officer, ORIX Corporation | ||
1980 | Representative Director, President, ORIX Corporation |
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Yoshiaki Yamauchi | |||
Date of Birth: June 30, 1937 | |||
Outside Director (Member of the Board) Since: 2003 | |||
Current | |||
Principal Business Activities Outside Sony: | |||
Director, Sumitomo Mitsui Financial Group, Inc. | |||
Director, Sumitomo Mitsui Banking Corporation | |||
Director, amana Inc. | |||
Statutory Auditor, Stanley Electric Co., Ltd. | |||
Statutory Auditor, Sumitomo Wiring System, Ltd. | |||
Executive Officer, ARI Research Institute | |||
Prior Positions: | |||
1999 | Director, Sumitomo Banking Corporation | ||
1993 | Executive Director, Asahi & Co. | ||
1991 | President, Inoue Saito Eiwa Audit Corporation | ||
1986 | President, Eiwa Audit Corporation | ||
Country Managing Partner — Japan, Arthur Andersen & Co. |
Sir Peter Bonfield | ||
Date of Birth: June 3, 1944 | ||
Outside Director (Member of the Board) Since: 2005 | ||
Current Position within Sony: Member of the Nominating Committee | ||
Principal Business Activities Outside Sony: | ||
Director, Telefonaktiebolaget LM Ericsson, Sweden | ||
Director, Mentor Graphics, Inc. | ||
Director and Chairman of Audit Committee, Taiwan Semiconductor Manufacturing Company Ltd. | ||
Prior Positions: | ||
1996 | Chief Executive Officer, British Telecom plc | |
1986 | Chairman, ICL plc, U.K | |
1984 | Managing Director, ICL plc, U.K. |
Fueo Sumita | ||
Date of Birth: May 24, 1938 | ||
Outside Director (Member of the Board) Since: 2005 | ||
Current Position within Sony: Member of the Audit Committee | ||
Principal Business Activities Outside Sony: Chief of Sumita Accounting Office | ||
Prior Positions: | ||
2002 | Executive Vice President, Kawada Corporation | |
2001 | Vice Chairman, Ernst & Young ShinNihon | |
2000 | Deputy | |
1999 | Chairman, Century Audit Corporation | |
1985 | Deputy General Manager, Corporate Accounting Dept., Hitachi, Ltd. |
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Fujio Cho | ||
Date of Birth: February 2, 1937 | ||
Outside Director (Member of the Board) Since: 2006 | ||
Current Position within Sony: Member of the Nominating Committee | ||
Principal Business Activities Outside Sony: | ||
Chairman, Toyota Motor Corporation | ||
Director, Central Japan Railway Company | ||
Statutory Auditor, | ||
Prior Positions: | ||
2005 | Vice Chairman, Toyota Motor Corporation | |
1999 | President, Toyota Motor Corporation |
Ned Lautenbach | ||
Date of Birth: February 2, 1944 | ||
Outside Director (Member of the Board) Since: 2006 | ||
Principal Business Activities Outside Sony: | ||
Partner, Clayton, Dubilier & Rice, Inc. | ||
Lead Director, Fidelity Investments | ||
Director, | ||
Prior Positions: | ||
1995 | Senior Vice President & Group Executive, IBM Worldwide Sales & Services, International Business Machines Corporation |
Ryuji Yasuda | ||
Date of Birth: April 28, 1946 | ||
Outside Director (Member of the Board) Since: 2007 | ||
Current Position within Sony: Member of the Audit Committee | ||
Principal Business Activities Outside Sony: | ||
Director, | ||
Director, Fuji Fire and Marine Insurance Co., Ltd. (present) | ||
Prior Positions: | ||
2003 | Chairman, J-Will Partners Co., Ltd. | |
1996 | Managing Director and Chairman, A.T. Kearney, Asia | |
1991 | Director, McKinsey & Company |
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Corporate Executive Officers
Date of Birth: | |||
Corporate Executive Officer Since: | |||
Current | Executive Deputy President, |
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Prior Positions: | |||
NC President, | |||
Deputy President, | |||
Corporate Senior Vice President, | |||
President, Personal | |||
1997 | Corporate Vice President, Sony Corporation | ||
Entered Sony Corporation | |||
Principal Business Activities Outside Sony: None |
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Nobuyuki Oneda | |||
Date of Birth: May 6, 1945 | |||
Corporate Executive Officer Since: 2004 | |||
Current Positions within Sony: | Executive Vice President and Chief Financial Officer |
Prior Positions: | |||
2004 | Senior Vice President, Officer in charge of | ||
2003 | Senior Vice President, Executive Officer, Sony Corporation | ||
2002 | Officer and Chief Financial Officer, Network Application & Content Service Sector, Sony Corporation | ||
Corporate Senior Vice President, Sony Corporation | |||
2000 | Deputy President and Chief Financial Officer, Sony Electronics Inc. | ||
Group Executive Officer, Sony Corporation | |||
1999 | Executive Vice President and Chief Financial Officer, Sony Electronics Inc. (a U.S. subsidiary of Sony Corporation) | ||
1996 | General Manager, Corporate Planning & Control Department, Sony Corporation | ||
1969 | Entered Sony Corporation | ||
Principal Business Activities Outside Sony: None |
Date of Birth: | ||
Corporate Executive Officer Since: 2004 | ||
Current | Executive Vice President, Officer in charge of |
Prior Positions: | |||
2005 | NC President, Information Technology & Communications Network Company, Sony Corporation | ||
2004 | Senior Executive Vice President, Corporate Executive Officer, Sony Corporation | ||
2003 | Senior Vice President, Executive Officer, Sony Corporation | ||
Corporate Senior Vice President, | |||
2001 | NC President, Mobile Network Company, Sony Corporation | ||
NC President, Information Technology Company, Personal Network Company, Sony Corporation | |||
Entered Sony Corporation | |||
Principal Business Activities Outside Sony: None |
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Nicole Seligman | |||
Date of Birth: October 25, 1956 | |||
Corporate Executive Officer Since: 2003 | |||
Current | Executive Vice President and General Counsel Executive Vice President and General Counsel, Sony Corporation of America |
Prior Positions: | |||
2003 | Group Deputy General Counsel, Sony Corporation | ||
2000 | Entered Sony Corporation of America as Executive Vice President and General Counsel | ||
1992 | Partner, Williams & Connolly LLP | ||
1985 | Entered Williams & Connolly LLP | ||
1978 | Associate Editorial Page Editor for The Asian Wall Street Journal, Hong Kong | ||
Principal Business Activities Outside Sony: None |
Mr. Nakatani, Mr.Messrs. Okada, Mr. Kawano, Mr. Kobayashi, Mr. Ghosn,Miyauchi, Yamauchi, Bonfield, Sumita, Cho, Lautenbach, Yasuda and Ms. Fukushima, Mr. Miyauchi and Mr. Yamauchi are engaged on a full-time basis in the affairs ofby Sony. There is no family relationship between any of the persons named above. There is no arrangement or understanding with major shareholders, customers, suppliers, or others pursuant to which any person named above was selected as a Director or a Corporate Executive Officer.20042007 to all Directors and Corporate Executive Officers (refer to “Board Practices” below) of Sony Corporation who served during the fiscal year ended March 31, 2004,2007, as a group (21(18 people), totaled 2,4242,600 million yen. Also, as a part of Sony’s incentive compensation arrangements, Sony Corporation issued stock acquisition rights during the fiscal year ended March 31, 2004.2007. The stock acquisition rights, which represent rights to subscribe for shares of common stock of Sony Corporation, have been granted to the Directors, Corporate Executive Officers, Executive Officers,Corporate Executives, Group Executive Officers,Executives, and selected employees. The stock acquisition rights generally vest ratably up to three years from the date of grant and are generally exercisable up to ten years from the date of grant. The portion of those stock acquisition rights which was granted by Sony during the fiscal year ended March 31, 20042007 to the Directors and Corporate Executive Officers as of May 31, 2004 confers rights to purchase a total number of 669,000686,800 shares of Sony Corporation’s Common Stock. The exercise price for these yen-denominated stock acquisition rights issued as of November 14, 2003 is 4,10116, 2006 was 4,756 yen per share, and the exercise price for these U.S. dollar-denominated stock acquisition rights issued as of March 31, 2004 is 40.90November 16, 2006 was 40.05 U.S. dollars.1516 of Notes to Consolidated Financial Statements.The aggregate20042007 for all Directors and Corporate Executive Officers of Sony Corporation as of MayMarch 31, 2004,2007, as a group (21(18 people),.210 million yen.57,000 points.
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As required under the
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90
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Board and Committees on whichhe/she served (during the period thathe/she served).
Company Law.
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March 31 | |||||||||||||
2002 | 2003 | 2004 | |||||||||||
Electronics | 131,500 | 122,100 | 121,700 | ||||||||||
Game | 4,100 | 4,400 | 4,800 | ||||||||||
Music | 14,900 | 13,400 | 12,000 | ||||||||||
Pictures | 5,500 | 5,700 | 6,200 | ||||||||||
Financial Services | 6,800 | 6,600 | 6,700 | ||||||||||
Other | 4,500 | 7,300 | 8,300 | ||||||||||
Unallocated — Corporate employees | 700 | 1,600 | 2,300 | ||||||||||
Total | 168,000 | 161,100 | 162,000 | ||||||||||
March 31 | ||||||||||||
2005 | 2006 | 2007 | ||||||||||
Electronics | 124,500 | 130,800 | 136,900 | |||||||||
Game | 4,300 | 4,700 | 5,100 | |||||||||
Pictures | 5,900 | 6,900 | 7,300 | |||||||||
Financial Services | 6,800 | 6,500 | 6,600 | |||||||||
All Other | 8,000 | 7,400 | 4,700 | |||||||||
Unallocated — Corporate employees | 1,900 | 2,200 | 2,400 | |||||||||
Total | 151,400 | 158,500 | 163,000 | |||||||||
Regarding labor relations in the Electronics segment by area, in Asia, where Sony operates many manufacturing facilities, only a few manufacturing facilities have labor unions that have union contracts. In May 2003, Sony completed negotiations with a labor union regarding the terms of severance for employees who had been working at a manufacturing facility in Indonesia which was closed in the second half of the fiscal year ended March 31, 2003. The outcome of these negotiations did not have a significant impact on Sony’s consolidated financial results.
In the U.S., no manufacturing facilities have labor unions that have union contracts.unions. In Mexico, one manufacturing facility has a labor union that has a union contract, but labor relations are good and there have been no significant problems in renegotiating the contract. In Europe, Sony maintains good labor relations with the Work Councils in each country, and, while some employees belong to unions, they are not eligible for union contracts.
In the Music segment, overall employee and labor relations at Sony Music Entertainment Inc. (“SMEI”) are good. Sony Music’s U.S. manufacturing and distribution operations remain non-unionized. Sony Music Studio is a signatory to a union contract with the International Brotherhood of Electrical Workers (“IBEW”), which represents a unit of recording engineers. Renegotiation of the union contract with the IBEW was completed without any adverse impact on business, and the contract now runs through May 31, 2006. Sony is also subject to agreements with the American Federation of Television and Radio Artists (“AFTRA”), which represents recording artists, and the American Federation of Musicians (“AFM”), which represents musicians. The union contract with AFTRA runs through June 30, 2006.
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In the Pictures segment, Sony also generally considers its labor relations to be good. A number of Pictures’ subsidiaries are signatories to union contracts. Renegotiations with Alliance of Canadian Cinema, Televisions and Radio Artists (“ACTRA”) were successfully concluded in July 2003. During the fiscal year ended March 31, 2004,2007, negotiations to renewof new three-year agreements for Electronic Digital and Area Standards, and negotiations of new three-year agreements for Local 764, Local 829, Local 798 and Local 873 were successfully concluded with the International Alliance of Theatrical Stage Employees (“IATSE”); a contract that expires on June 30, 2005three-year agreement was negotiated with the Association of Canadian Cinema,
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theatrical production.
Number of shares | Percentage | |||||||||||
Title of class | Identity of person or group | beneficially owned | of class | |||||||||
(in thousands) | ||||||||||||
Common Stock | Directors and Executive Officers | 1,158 | 0.1 |
None of Sony’s Directors or Executive Officers is a beneficial owner of more than one percent of Sony Corporation’s Common Stock.
Regarding compensation plans, following the amendments to the Commercial Code of Japan effective May 2002, Sony integrated different equity-related securities it had previously issued for the purpose of giving stock incentives into one unified stock option right.
Number of shares | Percentage | |||||||||||
Title of class | Identity of person or group | beneficially owned | of class | |||||||||
(in thousands) | ||||||||||||
Common Stock | Directors and Corporate Executive Officers | 62 | 0.006 |
Total number of | ||||||||
Year granted | shares subject to stock | |||||||
(Year ended March 31) | acquisition rights | Exercise price per share | ||||||
(in thousands) | ||||||||
2004 | 225 | 40.90 U.S. dollars | ||||||
2004 | 444 | 4,101 yen | ||||||
2003 | 200 | 36.57 U.S. dollars | ||||||
2003 | 375 | 5,396 yen |
Total number of | ||||||
Year granted | shares subject to stock | |||||
(Fiscal Year ended March 31) | acquisition rights | Exercise price per share | ||||
(in thousands) | ||||||
2007 | 430 | 40.05 U.S. dollars | ||||
2007 | 257 | 4,756 yen | ||||
2006 | 430 | 34.14 U.S. dollars | ||||
2006 | 159 | 4,060 yen | ||||
2005 | 230 | 40.34 U.S. dollars | ||||
2005 | 71 | 3,782 yen | ||||
2004 | 225 | 40.90 U.S. dollars | ||||
2004 | 42 | 4,101 yen | ||||
2003 | 215 | 36.57 U.S. dollars | ||||
2003 | 9 | 5,396 yen |
Year granted | Total number of shares | |||||||
(Fiscal Year ended March 31) | subject to warrants | Exercise price per share | ||||||
(in thousands) | (yen) | |||||||
2002 | 19 | 6,039 |
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Year granted | Total number of shares | |||||||
(Year ended March 31) | subject to warrants | Exercise price per share | ||||||
(in thousands) | (yen) | |||||||
1999 | 139 | 6,264 | ||||||
2000 | 171 | 7,167 | ||||||
2001 | 261 | 12,457 | ||||||
2002 | 291 | 6,039 |
conversion priceprincipal amount of CBs to such executives for their purchase of the CBs until the date of conversion. The CBs generally vest ratably up to three years from the date of sale and are generally exercisable up to ten years from the date of sale. The following table shows the portion of those CBs which were held by current Directors and Corporate Executive Officers as of May 31, 20042007 and which were outstanding as of the same date. Year issued Total number of shares (Year ended March 31) subject to CBs Exercise price per share (in thousands) (U.S. dollars) 2001 60 122.98 2002 106 71.28 2003 115 52.29 Year issued Total number of shares (Fiscal Year ended March 31) subject to CBs Exercise price per share (in thousands) (U.S. dollars) 2003 115 52.29 2002 106 71.28 2001 60 122.98 Japan, Europe, and the U.S. to selected employees. Under the terms of thesethe plans, employees receive upon exercise cash equal to the amount by which the market price of Sony Corporation’s Common Stock exceeds the strike price of the SARs. The SARs generally vest ratably up to three years from the date of grant and are generally exercisable up to sixten years from the date of grant. The following table shows the portion of those SARs which were granted by Sony to selected employees who are Directors and Corporate Executive Officers as of May 31, 20042007 and which were outstanding as of the same date. The exercise price per share has been adjusted for the two-for-one stock split and is subject to anti-dilution adjustment. A range of exercise prices is given when such compensation was granted several times during the respective fiscal year. Year granted Total number of shares (Year ended March 31) subject to SARs Exercise price per share (Yen for the Japanese plan, (in thousands) U.S. dollars for the U.S. plan) The Japanese plan 1999 2 5,586 2000 3 7,445 The U.S. plan 1999 236 37.28 2002 11 44.00 Year granted Total number of shares (Fiscal Year ended March 31) subject to SARs Exercise price per share (in thousands) (U.S. dollars) The U.S. plan 2002 10 44.00 1516 of Notes to Consolidated Financial Statements.104Item 7. Major Shareholders and Related Party Transactions
Identity of | Number of | Percentage of | ||||||||||
Title of class | person or group | shares owned | class owned | |||||||||
(in thousands) | ||||||||||||
Common Stock | Moxley & Co. | 115,546 | 12.5 | |||||||||
Common Stock | Japan Trustee Services Bank, Ltd. (Trust Account) | 48,748 | 5.3 |
Moxleyof March 31, 2007, Dodge & Co. isCox owned 14,737,600 shares of outstanding Sony Corporation Common Stock. As a result, it appears that in total, Dodge & Cox beneficially owned 83,658,643 shares of outstanding Sony Corporation Common Stock representing 8.3 percent of the nominee of JPMorgan Chase Bank, which istotal. To the depositaryknowledge of Sony Corporation’s American Depositary Receipts (“ADRs”). The shares held by Japan Trustee Services Bank, Ltd. (Trust Account) are held in trust for investors, including shares in securities investment trusts. There wasCorporation, there is no other significant change in the percentage ownership held by any major beneficial shareholders during the past three years. Major shareholders of Sony Corporation do not have different voting rights.
251.
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As of April 1, 2004, Sony Computer Entertainment
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Item 8. | Financial Information |
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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.
Item 9. | The Offer and Listing |
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The delisting procedures of these stock exchanges was completed as of March 31, 2006.
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Tokyo Stock Exchange New York Stock Price Per Share of Exchange Price Per Common Stock Share of ADS High Low High Low (yen) (U.S. dollars) Annual highs and lows The fiscal year ended March 31, 2000* 16,950 5,360 157.38 44.63 The fiscal year ended March 31, 2001 15,100 7,510 141.25 65.40 The fiscal year ended March 31, 2002 10,340 3,960 85.75 32.80 Quarterly highs and lows The fiscal year ended March 31, 2003 1st quarter 7,460 5,800 59.95 47.91 2nd quarter 6,360 4,810 53.49 40.20 3rd quarter 5,590 4,850 45.84 39.79 4th quarter 5,130 4,070 43.40 34.85 The fiscal year ended March 31, 2004 1st quarter 4,240 2,720 35.82 23.16 2nd quarter 4,450 3,350 38.30 28.33 3rd quarter 4,280 3,490 38.04 32.42 4th quarter 4,670 3,760 42.81 34.81 107 Tokyo Stock Exchange New York Stock Price Per Share of Exchange Price Per Common Stock Share of ADS High Low High Low (yen) (U.S. dollars) Monthly highs and lows 2003 December 3,830 3,490 34.89 32.42 2004 January 4,470 3,760 42.00 34.81 February 4,610 4,150 42.81 39.52 March 4,670 4,120 42.15 38.29 April 4,710 4,240 43.67 38.13 May 4,340 3,880 39.34 33.95 June (through June 21) 4,130 3,910 37.49 35.36 Tokyo Stock Exchange Price Per Share of New York Stock Common Stock Exchange Price Per Share of ADS High Low High Low (yen) (U.S. dollars) Annual highs and lows* The fiscal year ended March 31, 2003 7,460 4,070 59.95 34.85 The fiscal year ended March 31, 2004 4,670 2,720 42.81 23.16 The fiscal year ended March 31, 2005 4,710 3,550 43.67 32.35 Quarterly highs and lows* The fiscal year ended March 31, 2006 1st quarter 4,410 3,770 40.79 34.38 2nd quarter 4,100 3,660 36.74 32.38 3rd quarter 5,020 3,710 41.30 31.80 4th quarter 6,040 4,700 51.16 40.90 The fiscal year ended March 31, 2007 1st quarter 6,200 4,660 52.29 40.67 2nd quarter 5,360 4,610 46.40 39.30 3rd quarter 5,190 4,340 43.78 37.24 4th quarter 6,540 5,120 53.34 42.73 Monthly highs and lows* 2006 December 5,190 4,470 43.78 39.27 2007 January 5,830 5,120 48.01 42.73 February 6,540 5,560 53.34 47.13 March 6,290 5,650 53.24 48.28 April 6,660 5,860 55.54 49.77 May 7,190 6,260 59.84 52.51 June (through June 20) 7,030 6,500 57.33 52.98 * The reported high and low share prices of Sony Corporation for the fiscal year ended March 31, 2000 have been restated for the two-for-one stock split that has become effective on May 19, 2000. Stock price data are based on prices throughout the sessions for each corresponding period at each stock exchange.
21, 2004,20, 2007, the closing sales price per share of Sony Corporation’s Common Stock on the TSE was 4,0506,620 yen. On June 21, 2004,20, 2007, the closing sales price per share of Sony Corporation’s ADS on the NYSE was 36.9053.18 U.S. dollars.
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Item 10. | Additional Information |
108
Article 3 of the
(i) | manufacture and sale of electronic and electrical machines and equipment, medical instruments, optical instruments and other equipment, machines and instruments; | |
(ii) | planning, production and sale of audio-visual software and computer software programs; | |
(iii) | manufacture and sale of metal industrial products, chemical industrial products and ceramic industrial products, textile products, paper products and wood-crafted articles, daily necessities, foodstuffs and toys, transportation machines, equipment, petroleum and coal products; | |
(iv) | real estate activities, construction business, transportation business and warehousing business; | |
(v) | publishing business and printing business; | |
(vi) | advertising agency business, insurance agency business, broadcasting enterprise, recreation business such as travel, management of sporting facilities, etc. and other service enterprises; | |
(vii) | financial business; | |
(viii) | Type I and Type II telecommunications business under the Telecommunications Business Law; | |
(ix) | investing in stocks and bonds, etc.; | |
(x) | manufacture, sale, export and import of products which are incidental to or related to those mentioned above; | |
(xi) | rendering of services related to those mentioned above; | |
(xii) | investment in businesses mentioned above operated by other companies or persons; and | |
(xiii) | all businesses which are incidental to or related to those mentioned above. |
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Directors
Except as stated below, neither
The Commercial Code specifically requires a resolution of the Board of Directors, or a determination of the Corporate Executive Officer to whom the authority to make such a determination has been delegated by a resolution of the Board of Directors, for Sony Corporation to acquire or dispose of material assets; to borrow a substantial amount of money; to employ or discharge from employment important employees, such as general managers; and to establish, change or abolish a material corporate organization such as a branch office. The Regulations of the Board of Directors of Sony Corporation require a
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Unless otherwise indicated or the context otherwise requires, the following discussion applies equallyboth the shares of Common Stock“Board Practices” in “Item 6.Directors, Senior Management and the shares of subsidiary tracking stock.Employees.”(General)
Set
In
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Article 5
Paragraph 2 of Article 5 ofStock. Sony Corporation’s Articles of Incorporation providesprovide that the total number of shares authorized to be issued by Sony Corporation is 3.6 billion shares, of which 3.5 billion shares shall be Common Stock and 100 million shares shall be subsidiary tracking stock. If shares of Common Stock are retired or shares of subsidiary tracking stock are either retired or converted into shares
110
shares.
(Dividends)
The Articles
The Commercial Code provides that a company may not make any distribution of profit by way of dividends or interim dividends unless it has set aside in its legal reserve an amount equal to at least one-tenth of the amount paid by way of appropriation of retained earnings for such fiscal period, or equal to one-tenth of the amount of interim dividends, until the aggregate amount of its additional paid-in capital and its legal reserve is at least one-quarter of its stated capital. Under the Commercial Code, Sony Corporation is permitted to distribute profits by way of year-end or interim dividends out of the excess of its net assets, on a non-consolidated basis, over the aggregate of:
In the case of interim dividends, the net assets are calculated by reference to the non-consolidated balance sheet as at the lasteffective date of the preceding fiscal year, but adjusted to reflect (a) the legal reservedistribution. If a distribution of Surplus is to be set asidemade in respect of interim dividends, (b) any subsequent payment by way of appropriation of retained earnings and transfer to legal reserve in respect thereof, (c) any subsequent transfer of retained earnings to stated capital and (d) ifkind, Sony Corporation has been authorized,may, pursuant to a resolution of an Ordinary General Meeting of Shareholders, a resolution of the Board of Directors or both,(as the case may be) a General Meeting of Shareholders, grant a right to purchasethe shareholders to require Sony Corporation to make such distribution in cash instead of in kind. If no such right is granted to shareholders, the relevant distribution of Surplus must be approved by a special resolution of a General Meeting of Shareholders (refer to “Voting Rights” with respect to a “special resolution”).
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date on which they first became payable.
Under its Articles The price of Incorporation,the shares of Common Stock generally goes ex-dividend on the third business day prior to the record date.
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“A” = | the total amount of other capital surplus and other retained earnings, each such amount being that appearing on the non-consolidated balance sheet as of the end of the last business year |
“B” = | ( | |
“C” = | (if Sony Corporation has reduced its stated capital after the end of the last business year) the amount of such reduction less the portion thereof that has been transferred to additional paid-in capital or legal reserve (if any) | |
“D” = | (if Sony Corporation has reduced its additional paid-in capital or legal reserve after the end of the last business year) the amount of such reduction less the portion thereof that has been transferred to stated capital (if any) | |
“E” = | (if Sony Corporation has cancelled its treasury stock after the end of the last business year) the book value of such treasury stock | |
“F” = | (if Sony Corporation has distributed Surplus to its shareholders after the end of the last business year) the total book value of the Surplus so distributed | |
“G” = | certain other amounts set forth in ordinances of the Ministry of Justice, including (if Sony Corporation has reduced Surplus and increased its stated capital, additional paid-in capital or legal reserve after the end of the last business year) the amount of such reduction and (if Sony Corporation has distributed Surplus to the shareholders after the end of the last business year) the amount set aside in additional paid-in capital or legal reserve (if any) as required by ordinances of the Ministry of Justice. |
(a) | the book value of its treasury stock; | |
(b) | the amount of consideration for any of treasury stock disposed of by Sony Corporation after the end of the last business year; and | |
(c) | certain other amounts set forth in ordinances of the Ministry of Justice, including (if the sum of one-half of goodwill and the deferred assets exceeds the total of stated capital, additional paid-in capital and legal reserve, each such amount being that appearing on the non-consolidated balance sheet as of the end of the last business year) all or certain part of such exceeding amount as calculated in accordance with ordinances of the Ministry of Justice. |
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Officer (“CEO”).
If the Articles of Incorporation so provide, any of the minimum voting rights or percentages, time periods and number of voting rights necessary for exercising the minority shareholder rights described above may be decreased or shortened. |
(Voting rights)
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Commercial CodeCompany Law and the Articles of Incorporation of Sony Corporation provide that in order to amend the Articles of Incorporation and in certain other instances, including a reduction of stated capital, the removal of a Director, dissolution, merger or consolidation requiring shareholders resolution, the transfer of the whole or a substantial part of the business, the taking over of the whole of the business of any other corporation requiring shareholders resolution, share exchange or share transfer requiring shareholders resolution for the purpose of establishing 100 percent parent-subsidiary relationships, any splitting of the company into two or more corporations requiring shareholders resolution, any offering of new shares at a “specially favorable” price to any persons other than shareholders, any granting of rights to subscribe for or acquire shares from Sony Corporation (shinkabu-yoyakuken; “stock acquisition rights”) or bonds with stock acquisition rights, under “specially favorable” conditions to any persons other than shareholders, including:(1) acquisition of its own shares from a specific party other than its subsidiaries; (2) consolidation of shares; (3) any offering of new shares at a “specially favorable” price (or any offering of stock acquisition rights to acquire shares of capital stock, or bonds with stock acquisition rights at “specially favorable” conditions) to any persons other than shareholders; (4) the exemption of liability of a Director, Corporate Executive Officer or independent auditor with certain exceptions; (5) a reduction of stated capital with certain exceptions; (6) a distribution of in-kind dividends which meets certain requirements; (7) dissolution, merger, consolidation, or corporate split with certain exceptions; (8) the transfer of the whole or a material part of the business; (9) the taking over of the whole of the business of any other corporation with certain exceptions; or (10) share exchange or share transfer for the purpose of establishing 100 percent parent-subsidiary relationships with certain exceptions, (Issue of additional shares and pre-emptive rights)
(Issue of additional shares and pre-emptive rights)
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The price of shares generally goes ex-dividend or ex-rights on Japanese stock exchanges on the third business day prior to a record date (or if the record date is not a business day, the fourth business day prior thereto), for the purpose of dividends or rights offerings.
(Acquisition by Sony Corporation of its capital stock) Under the Company Law and the Articles of Incorporation of Sony Corporation, |
Sony Corporation may acquire its own shares through a stock exchange on which such shares are listed (pursuant to an ordinary resolution of an Ordinary General Meeting of Shareholders or a resolution of the Board of Directors), by way of tender offer (pursuant to an ordinary resolution of an Ordinary General Meeting of Shareholders or a resolution of the Board of Directors), by purchaseCommon Stock (i) from a specific partyshareholder other than a subsidiaryany of Sony Corporationits subsidiaries (pursuant to a special resolution of an Ordinarya General Meeting of Shareholders) or, (ii) from a subsidiaryany of Sony Corporationits subsidiaries (pursuant to a resolutiondetermination by the CEO), or (iii) by way of purchase on any Japanese stock exchange on which Sony Corporation’s shares of Common stock are listed or by way of tender offer (as long as its non-consolidated annual financial statements and certain documents for the last business year present fairly its assets and profit or loss, as required by ordinances of the Executive Board). When such acquisition is made by Sony Corporation from a specific party other than a subsidiaryMinistry of Sony Corporation, any other shareholder may make a request to the CompanyJustice) in writing, not later than five days prior to the relevant shareholders’ meeting, to include him/her as a seller in the proposed purchase. Any such acquisition of shares must satisfy certain requirements, including that in cases other than the acquisition by Sony Corporation of its own shareseither case pursuant to a resolution of the Board of Directors or (as the case may be) an ordinary resolution of a General Meeting of Shareholders). In the case of (i) above, any other shareholder may make a request to Sony Corporation that such other shareholder be included as a seller in the proposed purchase, provided that no such right will be available if the purchase price or any other consideration to be received by the relevant specific shareholder will not exceed the last trading price of the shares on the relevant stock exchange on the day immediately preceding the date on which the resolution mentioned in (i) above was adopted (or, if there is no trading in the shares on the stock exchange or if the stock exchange is not open on such day, the price at which the shares are first traded on such stock exchange thereafter).
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Except as otherwise described above, Moreover, holders of the shares constituting less than one full unit will have allno other shareholder rights if Sony Corporation’s Articles of Incorporation so provide, except that such holders may not be deprived of certain rights specified in the rights grantedCompany Law or an ordinance of the Ministry of Justice, including the right to shareholders under the Commercial Code.
receive distribution of Surplus.
By a special resolution of the Extraordinary General Meeting of Shareholders held on January 25, 2001, Sony Corporation’s Articles of Incorporation were amended to enable Sony Corporation to issue shares of subsidiary tracking stock. By resolutions of the Board of Directors dated May 15 and 31, 2001, Sony Corporation created and issued 3,072,000 shares of a series of subsidiary tracking stock. The subsidiary whose economic value this series of subsidiary tracking stock tracks is Sony Communication
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The dividend (the year-end dividend and the interim dividend) on the sharesReporting of this series of subsidiary tracking stock is payable only when the board of directors of SCN has resolved to pay to the holders of its common stock a dividend (in the case of year-end dividend, SCN’s year-end dividend, and in the case of interim dividend, SCN’s interim dividend) in an amount per share of the subsidiary tracking stock equal to the smaller of the amount of SCN’s dividend per share of its common stock multiplied by the Standard Ratio (as defined in the Articles of Incorporation: currently one one-hundredth, which is subject to adjustment in the occurrence of certain dilutive events) or 100,000 yen multiplied by the Standard Ratio per share (the “Maximum Dividend Amount”), subject to statutory restriction on Sony Corporation’s ability to pay dividends on its shares of capital stock referred to under “Capital stocksubstantial shareholdings —(Dividends)” above. If the amount of interim dividend paid to the holders of shares of a series of subsidiary tracking stock for any fiscal year is less than the amount calculated in accordance with the foregoing formula, such shortfall will be added to the amount of the year-end dividend of such fiscal year. If the amount of dividends paid to the holders of shares of a series of subsidiary tracking stock is less than the amount which should have been paid pursuant to the formula set forth above due to the statutory restriction referred to above or for any other reason, such shortfall will be accumulated and such cumulative amount will be paid to the holders of shares of the subsidiary tracking stock for subsequent fiscal period(s), subject to the statutory limitation set forth above and the Maximum Dividend Amount. Any such dividend on the subsidiary tracking stock is payable in priority to the payment of dividends to the holders of shares of Common Stock. However, the holders of shares of subsidiary tracking stock have no right to participate in the dividends to holders of shares of Common Stock. Furthermore, even if the Board of Directors of SCN does not take a resolution for the payment of dividends to the holders of SCN common stock, Sony Corporation may decide to pay dividends to the holders of its Common Stock.
The holders of shares of subsidiary tracking stock have the same voting rights, subject to the same limitation on voting rights, as those of the holders of shares of Common Stock and, thus, are entitled to participate and vote at any General Meeting of Shareholders in the same way as the shareholders of Common Stock. In addition, as each series of subsidiary tracking stock is a separate class of stock different from the Common Stock, if any resolution of the General Meeting of Shareholders for amending the Articles of Incorporation, any granting to shareholders of any series of subsidiary tracking stock certain rights with respect to certain matters including the issue of new shares, stock acquisition rights, bonds with stock acquisition rights, consolidation, split, purchase or retirement of shares, share exchange or share transfer, or a merger or consolidation or splitting of Sony Corporation would adversely affect the rights of the holders of shares of a particular class or classes of subsidiary tracking stock, the holders of shares of each such class of subsidiary tracking stock will have the right to approve or disapprove such resolution by a special resolution of the meeting of holders of shares of that class of subsidiary tracking stock.
In the event of distribution of residual assets to the shareholders of Sony Corporation, as long as such assets include shares of common stock of SCN, the number of shares of SCN common stock obtained by multiplying the number of shares of the subsidiary tracking stock held by each holder by the Standard Ratio (if the total number of shares of SCN common stock available for distribution is less than the total number so to be distributed, the lesser number adjusted in proportion to the respective numbers of shares of the subsidiary tracking stock held by such holders) or the net proceeds from the sale of the shares of SCN common stock so to be distributed will be distributed to the holders of shares of the subsidiary
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The shares of subsidiary tracking stock may be subject to acquisition in the same manner and under the same restriction as the shares of Common Stock referred to under “Capital stock —(Acquisition by Sony Corporation of its capital stock)” above.
In addition, Sony Corporation may at any time retire the entire amount of all outstanding shares of that series of subsidiary tracking stock upon paying to the holders thereof an amount equal to the current market price (as defined in the Articles of Incorporation) of shares of the subsidiary tracking stock out of Sony Corporation’s retained earnings available for dividend payments.
Sony Corporation may also retire the shares of a series of subsidiary tracking stock in their entirety pursuant to the procedures prescribed by the Commercial Code for the reduction of capital upon payment to the holders of shares of the subsidiary tracking stock an amount equal to the market value thereof as set forth above.
So long as the shares of Sony Corporation’s Common Stock are listed or registered on any stock exchange or over-the-counter market (a “Stock Exchange”), Sony Corporation may at any time convert the entire amount of all outstanding shares of the subsidiary tracking stock into shares of Sony Corporation’s Common Stock at the rate of the multiple of 1.1 of the market value (as defined in the Articles of Incorporation) of shares of the subsidiary tracking stock divided by the market value (as similarly defined) of shares of Sony Corporation’s Common Stock.
If any of the following events occurs, the entire amount of all outstanding shares of the subsidiary tracking stock will be either retired or converted into shares of Sony Corporation’s Common Stock at the price or rate set forth above:
If the shares of capital stock of SCN are approved by any Stock Exchange for listing or registration thereon, the entire amount of all outstanding shares of the subsidiary tracking stock will be either retired or converted into shares of Sony Corporation’s Common Stock at the price or rate set forth above on the date determined by Sony Corporation’s Board of Directors or the Corporate Executive Officer to whom the authority to make such a determination has been delegated by a resolution of the Board of Directors prior to the date of such approval of the Stock Exchange; or, they may be retired in their entirety by
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Either or both of the shares of Common Stock and the shares of subsidiary tracking stock may be consolidated or split at the same ratio or at different ratios. The holders of shares of Common Stock and/or the holders of shares of subsidiary tracking stock may be allotted rights to subscribe for new shares (to the holders of Common Stock, new shares of Common Stock, and to the holders of subsidiary tracking stock, new shares of subsidiary tracking stock) at the same ratio or different ratios and on different conditions.
The Securities and Exchange Law of Japan and its related regulations require any person, regardless of residence, who has become, beneficially and solely or jointly, a holder of more than five percent of the total issued shares of capital stock of a company listed on any Japanese stock exchange or whose shares are traded on theover-the-counter market in Japan to file with the Director General of the competent RegionalLocal Finance Bureau of the Ministry of Finance within five business days a report concerning such shareholdings.
A similar report must also be filed in respect of any subsequent change of one percent or more in any such holding, with certain exceptions. For this purpose, shares issuable to such persons upon conversion of convertible securities or exercise of share subscription warrants or stock acquisition rights are taken into account in determining both the number of shares held by such holders and the issuer’s total issued share capital. Any such report shall be filed with the Director
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shares.
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• | individuals who do not reside in Japan; and | |
• | corporations whose principal offices are located outside Japan. |
• | individuals who are exchange non-residents; | |
• | corporations that are organized under the laws of foreign countries or whose principal offices are located outside of Japan; and | |
• | corporations (1) of which 50 percent or more of their shares are held by individuals who are exchange non-residentsand/or corporations (a) that are organized under the laws of foreign countries or (b) whose principal offices are located outside of Japan or (2) a majority of whose officers, or officers having the power of representation, are individuals who are exchange non-residents. |
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U.S. holders (as defined below) should note that the United States and Japan have ratified the new income tax convention (the “New Treaty”), which is to replace its predecessor income tax convention signed on March 8, 1971 (the “Prior Treaty”). The New Treaty entered into force on March 30, 2004 and shall be applicable in Japan, in place of the Prior Treaty, (i) with respect to taxes withheld at source, for amounts taxable on or after July 1, 2004, and (ii) with respect to taxes on income which are not withheld at source and the enterprise taxes, as regards income for any taxable year beginning on or after January 1, 2005 (subject to certain transitional rules with respect to both items (i) and (ii) above). The Prior Treaty shall cease to have effect in relation to any tax from the date on which the New Treaty shall be applicable (subject to certain transitional rules allowing for exceptions). Where relevant, U.S. holders are urged to confirm with their tax advisors whether they are entitled to the treaty benefit provided under the Prior Treaty or the New Treaty, as the case may be.
In addition, this
(i) | is a resident of the U.S. for purposes of the | |
(ii) | does not maintain a permanent establishment | |
(iii) | is |
a taxable event.
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Treaty.
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Foreign tax credits will not be allowed for withholding taxes imposed in respect of certain short-term of hedged positions and may not be allowed in respect of arrangements in which economic profit, afternon-U.S. taxes, is insubstantial. Holders of Ads and Common Stock should consult their own tax advisors regarding the implications of these rules in light of their particular circumstances.
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Item 11. | Quantitative and Qualitative Disclosures |
Until March 31, 2004, Sony disclosed market risk solely on a consolidated basis. Henceforth, however, in addition to disclosing market risk on a consolidated basis, Sony will make two additional disclosures: (i) the risk for the Financial Services segment and (ii) the risk for all other segments excluding Financial Services. Sony believes that such a comparative presentation may be useful in understanding and analyzing Sony’s market risk on a consolidated basis, since the risks faced by the Financial Services segment are different from those faced by Sony’s other business segments.
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March 31, | June 30, | September 30, | December 31, | March 31, | ||||||||||||||||
2003 | 2003 | 2003 | 2003 | 2004 | ||||||||||||||||
(Yen in billions) | ||||||||||||||||||||
Net VaR | 0.7 | 1.1 | 1.3 | 1.7 | 2.1 | |||||||||||||||
VaR of currency exchange rate risk | 0.3 | 0.8 | 1.2 | 0.5 | 1.1 | |||||||||||||||
VaR of interest rate risk | 0.1 | 0.3 | 0.4 | 0.4 | 0.7 | |||||||||||||||
VaR of stock price risk | 0.8 | 0.8 | 0.6 | 1.8 | 1.7 |
June 30, | September 29, | December 29, | March 30, | |||||||||||||
2006 | 2006 | 2006 | 2007 | |||||||||||||
(Yen in billions) | ||||||||||||||||
Net VaR | 4.8 | 3.8 | 2.3 | 2.9 | ||||||||||||
VaR of currency exchange rate risk | 1.3 | 1.6 | 0.6 | 1.3 | ||||||||||||
VaR of interest rate risk | 0.4 | 0.2 | 0.4 | 0.1 | ||||||||||||
VaR of stock price risk | 4.8 | 3.4 | 2.4 | 3.2 |
March 31, | June 30, | September 30, | December 31, | March 31, | ||||||||||||||||
2003 | 2003 | 2003 | 2003 | 2004 | ||||||||||||||||
(Yen in billions) | ||||||||||||||||||||
Net VaR | 0.7 | 0.8 | 0.8 | 1.5 | 1.5 | |||||||||||||||
VaR of currency exchange rate risk | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||||||||||||||
VaR of interest rate risk | 0.1 | 0.4 | 0.5 | 0.5 | 0.8 | |||||||||||||||
VaR of stock price risk | 0.8 | 0.8 | 0.6 | 1.8 | 1.7 |
June 30, | September 29, | December 29, | March 30, | |||||||||||||
2006 | 2006 | 2006 | 2007 | |||||||||||||
(Yen in billions) | ||||||||||||||||
Net VaR | 4.8 | 3.5 | 2.4 | 3.0 | ||||||||||||
VaR of currency exchange rate risk | 0.5 | 0.4 | 0.3 | 0.6 | ||||||||||||
VaR of interest rate risk | 0.4 | 0.2 | 0.3 | 0.6 | ||||||||||||
VaR of stock price risk | 4.8 | 3.4 | 2.4 | 3.2 |
March 31, | June 30, | September 30, | December 31, | March 31, | ||||||||||||||||
2003 | 2003 | 2003 | 2003 | 2004 | ||||||||||||||||
(Yen in billions) | ||||||||||||||||||||
Net VaR | 0.3 | 0.8 | 1.2 | 0.5 | 1.1 | |||||||||||||||
VaR of currency exchange rate risk | 0.3 | 0.8 | 1.2 | 0.5 | 1.1 | |||||||||||||||
VaR of interest rate risk | 0.0 | 0.1 | 0.2 | 0.1 | 0.1 | |||||||||||||||
VaR of stock price risk | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
June 30, | September 29, | December 29, | March 30, | |||||||||||||
2006 | 2006 | 2006 | 2007 | |||||||||||||
(Yen in billions) | ||||||||||||||||
Net VaR | 0.9 | 1.3 | 0.5 | 0.8 | ||||||||||||
VaR of currency exchange rate risk | 0.9 | 1.3 | 0.5 | 0.8 | ||||||||||||
VaR of interest rate risk | 0.0 | 0.0 | 0.2 | 0.1 | ||||||||||||
VaR of stock price risk | 0.0 | 0.0 | 0.0 | 0.0 |
Item 12. | Description of Securities Other Than Equity Securities |
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
In June 2001, Sony Corporation issued shares of subsidiary tracking stock in Japan, the economic value of which is intended to be linked to the economic value of Sony Communication Network Corporation (“SCN”), a directly and indirectly wholly-owned subsidiary of Sony Corporation, which is engaged in Internet-related services. Regarding the rights of holders of Sony Corporation’s Common Stock and subsidiary tracking stock, refer to “Memorandum and Articles of Association” in “Item 10.Additional Information.”
Item 15. | Controls and Procedures |
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Sony’s Board of Directors has determined that Mr. Yoshiaki Yamauchi and Mr. Akihisa Ohnishi eachFueo Sumita both qualify as an “audit committee financial expert” as defined in this Item 16A, and16A. In addition, both are both “independent”independent as defined in Rule 10A-3 under the Securities andNew York Stock Exchange ActCorporate Governance Standards.
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chief executive officer, chief financial officer,Chief Executive Officer, Chief Financial Officer, chief accounting officer and persons performing similar functions, as well as to directors and all other officers and employees of Sony, Group, as defined in the code of ethics. The code of ethics is available athttp://www.sony.net/SonyInfo/Environment/management/code/pdf/codecompliance/qfhh7c000006e52h-att/code_of_conduct.pdfofconduct.pdfItem 16C.Principal Accountant Fees and Services
PricewaterhouseCoopers has served as Sony’s principal accountant for the three fiscal years ended March 31, 2004. ChuoAoyama PricewaterhouseCoopers is a member firm of PricewaterhouseCoopers in Japan.
March 31 | ||||||||
2003 | 2004 | |||||||
Yen in millions | ||||||||
Audit Fees | 1,690 | 2,118 | ||||||
Audit-Related Fees(1) | 38 | 284 | ||||||
Tax Fees(2) | 822 | 970 | ||||||
All Other Fees(3) | 1,925 | 150 | ||||||
4,475 | 3,522 | |||||||
2007.
Fiscal Year Ended | ||||||||
March 31 | ||||||||
2006 | 2007 | |||||||
Yen in millions | ||||||||
Audit Fees(1) | 2,180 | 4,900 | ||||||
Audit-Related Fees(2) | 206 | 204 | ||||||
Tax Fees(3) | 486 | 110 | ||||||
All Other Fees(4) | 12 | 16 | ||||||
2,884 | 5,230 | |||||||
(1) | |
(2) | Audit-Related Fees consist of fees billed for assurance and related services, and mainly include the audits of employee benefit plans. The audit-related fees for the fiscal year ended March 31, 2006 included the advisory services related to the implementation of Sarbanes-Oxley Act Section 404 and employee benefit plan audits. |
(3) | Tax Fees primarily include tax compliance, tax advice |
All Other Fees comprise fees for all other services not included in any of the other categories noted above. |
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Not applicable.
Not applicable. Item 16E.Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
Not yet applicable.
Not applicable
Item 17. Financial Statements
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1 .1 Articles of Incorporation, as amended (English Translation) 1 .2 Board of Directors Regulations (English Translation) 8 Significant subsidiaries (as defined in §210.1-02(w) of Regulation S-X) of Sony Corporation, including additional subsidiaries that management has deemed to be significant, as of March 31, 2004: Incorporated by reference to “Business Overview and Organizational Structure” in “Item 4.Information on the Company” 31 Rule 13a-14(a)/15d-14(a) Certifications 32 Section 1350 Certifications 8.1 Significant subsidiaries (as defined in §210.1-02(w) ofRegulation S-X) of Sony Corporation, including additional subsidiaries that management has deemed to be significant, as of March 31, 2007: Incorporated by reference to “Business Overview and Organizational Structure” in “Item 4. Information on the Company” 12.1 302 Certification 12.2 302 Certification 13.1 906 Certification 15.1(a) Consent of PricewaterhouseCoopers Aarata 15.1(b) Consent of PricewaterhouseCoopers AB
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2007 based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, Sony maintained, in all material respects, effective internal control over financial reporting as of March 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the COSO. Sony’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of Sony’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
March 31 | |||||||||
2003 | 2004 | ||||||||
(Yen in millions) | |||||||||
ASSETS | |||||||||
Current assets: | |||||||||
Cash and cash equivalents | 713,058 | 849,211 | |||||||
Time deposits | 3,689 | 4,662 | |||||||
Marketable securities | 241,520 | 274,748 | |||||||
Notes and accounts receivable, trade | 1,117,889 | 1,123,863 | |||||||
Allowance for doubtful accounts and sales returns | (110,494 | ) | (112,674 | ) | |||||
Inventories | 625,727 | 666,507 | |||||||
Deferred income taxes | 143,999 | 125,532 | |||||||
Prepaid expenses and other current assets | 418,826 | 431,506 | |||||||
Total current assets | 3,154,214 | 3,363,355 | |||||||
Film costs | 287,778 | 256,740 | |||||||
Investments and advances: | |||||||||
Affiliated companies | 111,510 | 86,253 | |||||||
Securities investments and other | 1,882,613 | 2,426,697 | |||||||
1,994,123 | 2,512,950 | ||||||||
Property, plant and equipment: | |||||||||
Land | 188,365 | 189,785 | |||||||
Buildings | 872,228 | 930,983 | |||||||
Machinery and equipment | 2,054,219 | 2,053,085 | |||||||
Construction in progress | 60,383 | 98,480 | |||||||
3,175,195 | 3,272,333 | ||||||||
Less — Accumulated depreciation | 1,896,845 | 1,907,289 | |||||||
1,278,350 | 1,365,044 | ||||||||
Other assets: | |||||||||
Intangibles, net | 258,624 | 248,010 | |||||||
Goodwill | 290,127 | 277,870 | |||||||
Deferred insurance acquisition costs | 327,869 | 349,194 | |||||||
Deferred income taxes | 328,091 | 203,203 | |||||||
Other | 451,369 | 514,296 | |||||||
1,656,080 | 1,592,573 | ||||||||
8,370,545 | 9,090,662 | ||||||||
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Yen in millions | ||||||||
2006 | 2007 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | 703,098 | 799,899 | ||||||
Marketable securities | 536,968 | 493,315 | ||||||
Notes and accounts receivable, trade | 1,075,071 | 1,490,452 | ||||||
Allowance for doubtful accounts and sales returns | (89,563 | ) | (120,675 | ) | ||||
Inventories | 804,724 | 940,875 | ||||||
Deferred income taxes | 221,311 | 243,782 | ||||||
Prepaid expenses and other current assets | 517,915 | 699,075 | ||||||
Total current assets | 3,769,524 | 4,546,723 | ||||||
Film costs | 360,372 | 308,694 | ||||||
Investments and advances: | ||||||||
Affiliated companies | 285,870 | 448,169 | ||||||
Securities investments and other | 3,234,037 | 3,440,567 | ||||||
3,519,907 | 3,888,736 | |||||||
Property, plant and equipment: | ||||||||
Land | 178,844 | 167,493 | ||||||
Buildings | 926,783 | 978,680 | ||||||
Machinery and equipment | 2,327,676 | 2,479,308 | ||||||
Construction in progress | 116,149 | 64,855 | ||||||
3,549,452 | 3,690,336 | |||||||
Less — Accumulated depreciation | 2,160,905 | 2,268,805 | ||||||
1,388,547 | 1,421,531 | |||||||
Other assets: | ||||||||
Intangibles, net | 207,034 | 233,255 | ||||||
Goodwill | 299,024 | 304,669 | ||||||
Deferred insurance acquisition costs | 383,156 | 394,117 | ||||||
Deferred income taxes | 178,751 | 216,997 | ||||||
Other | 501,438 | 401,640 | ||||||
1,569,403 | 1,550,678 | |||||||
Total assets: | 10,607,753 | 11,716,362 | ||||||
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March 31 | |||||||||
2003 | 2004 | ||||||||
(Yen in millions) | |||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||
Current liabilities: | |||||||||
Short-term borrowings | 124,360 | 91,260 | |||||||
Current portion of long-term debt | 34,385 | 383,757 | |||||||
Notes and accounts payable, trade | 697,385 | 778,773 | |||||||
Accounts payable, other and accrued expenses | 864,188 | 812,175 | |||||||
Accrued income and other taxes | 109,199 | 57,913 | |||||||
Deposits from customers in the banking business | 248,721 | 378,851 | |||||||
Other | 356,810 | 479,486 | |||||||
Total current liabilities | 2,435,048 | 2,982,215 | |||||||
Long-term liabilities: | |||||||||
Long-term debt | 807,439 | 777,649 | |||||||
Accrued pension and severance costs | 496,174 | 368,382 | |||||||
Deferred income taxes | 159,079 | 96,193 | |||||||
Future insurance policy benefits and other | 1,914,410 | 2,178,626 | |||||||
Other | 255,478 | 286,737 | |||||||
3,632,580 | 3,707,587 | ||||||||
Minority interest in consolidated subsidiaries | 22,022 | 22,858 | |||||||
Stockholders’ equity: | |||||||||
Subsidiary tracking stock, no par value — | |||||||||
Authorized 100,000,000 shares, outstanding 3,072,000 shares | 3,917 | 3,917 | |||||||
Common stock, no par value — | |||||||||
2003 — Authorized 3,500,000,000 shares, outstanding 922,385,176 shares | 472,361 | ||||||||
2004 — Authorized 3,500,000,000 shares, outstanding 926,418,280 shares | 476,350 | ||||||||
Additional paid-in capital | 984,196 | 992,817 | |||||||
Retained earnings | 1,301,740 | 1,367,060 | |||||||
Accumulated other comprehensive income — | |||||||||
Unrealized gains on securities | 17,658 | 69,950 | |||||||
Unrealized losses on derivative instruments | (4,793 | ) | (600 | ) | |||||
Minimum pension liability adjustment | (182,676 | ) | (89,261 | ) | |||||
Foreign currency translation adjustments | (302,167 | ) | (430,048 | ) | |||||
(471,978 | ) | (449,959 | ) | ||||||
Treasury stock, at cost | |||||||||
(2003 — 1,573,396 shares, 2004 — 2,468,258 shares) | (9,341 | ) | (12,183 | ) | |||||
2,280,895 | 2,378,002 | ||||||||
Commitments and contingent liabilities | |||||||||
8,370,545 | 9,090,662 | ||||||||
Yen in millions | ||||||||
2006 | 2007 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Short-term borrowings | 142,766 | 52,291 | ||||||
Current portion of long-term debt | 193,555 | 43,170 | ||||||
Notes and accounts payable, trade | 813,332 | 1,179,694 | ||||||
Accounts payable, other and accrued expenses | 854,886 | 968,757 | ||||||
Accrued income and other taxes | 87,295 | 70,286 | ||||||
Deposits from customers in the banking business | 599,952 | 752,367 | ||||||
Other | 508,442 | 485,287 | ||||||
Total current liabilities | 3,200,228 | 3,551,852 | ||||||
Long-term debt | 764,898 | 1,001,005 | ||||||
Accrued pension and severance costs | 182,247 | 173,474 | ||||||
Deferred income taxes | 216,497 | 261,102 | ||||||
Future insurance policy benefits and other | 2,744,321 | 3,037,666 | ||||||
Other | 258,609 | 281,589 | ||||||
Total liabilities: | 7,366,800 | 8,306,688 | ||||||
Minority interest in consolidated subsidiaries | 37,101 | 38,970 | ||||||
Stockholders’ equity: | ||||||||
Common stock, no par value — | ||||||||
2006 — Authorized 3,500,000,000 shares, outstanding 1,001,679,664 shares | 624,124 | |||||||
2007 — Authorized 3,600,000,000 shares, outstanding 1,002,897,264 shares | 626,907 | |||||||
Additional paid-in capital | 1,136,638 | 1,143,423 | ||||||
Retained earnings | 1,602,654 | 1,719,506 | ||||||
Accumulated other comprehensive income — | ||||||||
Unrealized gains on securities | 100,804 | 86,096 | ||||||
Unrealized losses on derivative instruments | (2,049 | ) | (1,075 | ) | ||||
Minimum pension liability adjustment | (39,824 | ) | — | |||||
Pension liability adjustment | — | (71,459 | ) | |||||
Foreign currency translation adjustments | (215,368 | ) | (129,055 | ) | ||||
(156,437 | ) | (115,493 | ) | |||||
Treasury stock, at cost | ||||||||
Common stock | ||||||||
2006 — 740,888 shares | (3,127 | ) | ||||||
2007 — 834,859 shares | (3,639 | ) | ||||||
3,203,852 | 3,370,704 | |||||||
Commitments and contingent liabilities | ||||||||
Total liabilities and stockholders’ equity: | 10,607,753 | 11,716,362 | ||||||
F-5
Year Ended March 31 | ||||||||||||
2002 | 2003 | 2004 | ||||||||||
(Yen in millions) | ||||||||||||
Sales and operating revenue: | ||||||||||||
Net sales | 7,058,755 | 6,916,042 | 6,883,478 | |||||||||
Financial service revenue | 480,190 | 509,398 | 565,752 | |||||||||
Other operating revenue | 39,313 | 48,193 | 47,161 | |||||||||
7,578,258 | 7,473,633 | 7,496,391 | ||||||||||
Costs and expenses: | ||||||||||||
Cost of sales | 5,239,592 | 4,979,421 | 5,058,205 | |||||||||
Selling, general and administrative | 1,695,897 | 1,782,367 | 1,798,239 | |||||||||
Financial service expenses | 458,276 | 486,464 | 505,550 | |||||||||
Loss on sale, disposal or impairment of assets, net | 49,862 | 39,941 | 35,495 | |||||||||
7,443,627 | 7,288,193 | 7,397,489 | ||||||||||
Operating income | 134,631 | 185,440 | 98,902 | |||||||||
Other income: | ||||||||||||
Interest and dividends | 16,021 | 14,441 | 18,756 | |||||||||
Royalty income | 33,512 | 32,375 | 34,244 | |||||||||
Foreign exchange gain, net | — | 1,928 | 18,059 | |||||||||
Gain on sales of securities investments, net | 1,398 | 72,552 | 11,774 | |||||||||
Gain on issuances of stock by subsidiaries and equity investees | 503 | — | 4,870 | |||||||||
Other | 44,894 | 36,232 | 34,587 | |||||||||
96,328 | 157,528 | 122,290 | ||||||||||
Other expenses: | ||||||||||||
Interest | 36,436 | 27,314 | 27,849 | |||||||||
Loss on devaluation of securities investments | 18,458 | 23,198 | 16,481 | |||||||||
Foreign exchange loss, net | 31,736 | — | — | |||||||||
Other | 51,554 | 44,835 | 32,795 | |||||||||
138,184 | 95,347 | 77,125 | ||||||||||
Income before income taxes | 92,775 | 247,621 | 144,067 | |||||||||
Income taxes: | ||||||||||||
Current | 114,930 | 178,847 | 87,219 | |||||||||
Deferred | (49,719 | ) | (98,016 | ) | (34,445 | ) | ||||||
65,211 | 80,831 | 52,774 | ||||||||||
Yen in millions | ||||||||||||
2005 | 2006 | 2007 | ||||||||||
Sales and operating revenue: | ||||||||||||
Net sales | 6,565,010 | 6,692,776 | 7,567,359 | |||||||||
Financial service revenue | 537,715 | 720,566 | 624,282 | |||||||||
Other operating revenue | 88,600 | 97,255 | 104,054 | |||||||||
7,191,325 | 7,510,597 | 8,295,695 | ||||||||||
Costs and expenses: | ||||||||||||
Cost of sales | 5,000,112 | 5,151,397 | 5,889,601 | |||||||||
Selling, general and administrative | 1,535,015 | 1,527,036 | 1,788,427 | |||||||||
Financial service expenses | 482,576 | 531,809 | 540,097 | |||||||||
Loss on sale, disposal or impairment of assets, net | 27,994 | 73,939 | 5,820 | |||||||||
7,045,697 | 7,284,181 | 8,223,945 | ||||||||||
Operating income | 145,628 | 226,416 | 71,750 | |||||||||
Other income: | ||||||||||||
Interest and dividends | 14,708 | 24,937 | 28,240 | |||||||||
Gain on sale of securities investments, net | 5,437 | 9,645 | 14,695 | |||||||||
Gain on change in interest in subsidiaries and equity investees | 16,322 | 60,834 | 31,509 | |||||||||
Other | 29,447 | 23,039 | 20,738 | |||||||||
65,914 | 118,455 | 95,182 | ||||||||||
Other expenses: | ||||||||||||
Interest | 24,578 | 28,996 | 27,278 | |||||||||
Loss on devaluation of securities investments | 3,715 | 3,878 | 1,308 | |||||||||
Foreign exchange loss, net | 524 | 3,065 | 18,835 | |||||||||
Other | 25,518 | 22,603 | 17,474 | |||||||||
54,335 | 58,542 | 64,895 | ||||||||||
Income before income taxes | 157,207 | 286,329 | 102,037 | |||||||||
Income taxes: | ||||||||||||
Current | 85,510 | 96,400 | 67,081 | |||||||||
Deferred | (69,466 | ) | 80,115 | (13,193 | ) | |||||||
16,044 | 176,515 | 53,888 | ||||||||||
Income before minority interest, equity in net income of affiliated companies and cumulative effect of an accounting change | 141,163 | 109,814 | 48,149 | |||||||||
Minority interest in income (loss) of consolidated subsidiaries | 1,651 | (626 | ) | 475 | ||||||||
Equity in net income of affiliated companies | 29,039 | 13,176 | 78,654 | |||||||||
Income before cumulative effect of an accounting change | 168,551 | 123,616 | 126,328 | |||||||||
Cumulative effect of an accounting change | ||||||||||||
(2005: Net of income taxes of 2,675 million) | (4,713 | ) | — | — | ||||||||
Net income | 163,838 | 123,616 | 126,328 | |||||||||
F-6
CONSOLIDATED STATEMENTS OF INCOME — (Continued)
Year Ended March 31 | ||||||||||||||
2002 | 2003 | 2004 | ||||||||||||
(Yen in millions) | ||||||||||||||
Income before minority interest, equity in net income (loss) of affiliated companies and cumulative effect of accounting changes | 27,564 | 166,790 | 91,293 | |||||||||||
Minority interest in income (loss)of consolidated subsidiaries | (16,240 | ) | 6,581 | 2,379 | ||||||||||
Equity in net income (loss) of affiliated companies | (34,472 | ) | (44,690 | ) | 1,714 | |||||||||
Income before cumulative effect of accounting changes | 9,332 | 115,519 | 90,628 | |||||||||||
Cumulative effect of accounting changes | ||||||||||||||
(2002: Net of income taxes of ¥2,975 million | ||||||||||||||
2004: Net of income taxes of ¥0 million) | 5,978 | — | (2,117 | ) | ||||||||||
Net income | 15,310 | 115,519 | 88,511 | |||||||||||
Per share data: | ||||||||||||||
Common stock | ||||||||||||||
Income before cumulative effect of accounting changes | ||||||||||||||
— Basic | 10.21 | 125.74 | 98.26 | |||||||||||
— Diluted | 10.18 | 118.21 | 93.00 | |||||||||||
Cumulative effect of accounting changes | ||||||||||||||
— Basic | 6.51 | — | (2.29 | ) | ||||||||||
— Diluted | 6.49 | — | (2.12 | ) | ||||||||||
Net income | ||||||||||||||
— Basic | 16.72 | 125.74 | 95.97 | |||||||||||
— Diluted | 16.67 | 118.21 | 90.88 | |||||||||||
Cash dividends | 25.00 | 25.00 | 25.00 | |||||||||||
Subsidiary tracking stock | ||||||||||||||
Net income (loss) | ||||||||||||||
— Basic | (15.87 | ) | (41.98 | ) | (41.80 | ) | ||||||||
Cash dividends | — | — | — | |||||||||||
Yen | ||||||||||||
2005 | 2006 | 2007 | ||||||||||
Per share data: | ||||||||||||
Common stock | ||||||||||||
Income before cumulative effect of an accounting change | ||||||||||||
— Basic | 180.96 | 122.58 | 126.15 | |||||||||
— Diluted | 162.59 | 116.88 | 120.29 | |||||||||
Cumulative effect of an accounting change | ||||||||||||
— Basic | (5.06 | ) | — | — | ||||||||
— Diluted | (4.52 | ) | — | — | ||||||||
Net income | ||||||||||||
— Basic | 175.90 | 122.58 | 126.15 | |||||||||
— Diluted | 158.07 | 116.88 | 120.29 | |||||||||
Cash dividends | 25.00 | 25.00 | 25.00 | |||||||||
Subsidiary tracking stock | ||||||||||||
Net income | ||||||||||||
— Basic | 17.21 | — | — | |||||||||
F-7
Year Ended March 31 | ||||||||||||||||
2002 | 2003 | 2004 | ||||||||||||||
(Yen in millions) | ||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income | 15,310 | 115,519 | 88,511 | |||||||||||||
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 | 366,269 | |||||||||||||
Amortization of film costs | 242,614 | 312,054 | 305,786 | |||||||||||||
Accrual for pension and severance costs, less payments | 14,995 | 37,858 | 35,562 | |||||||||||||
Loss on sale, disposal or impairment of assets, net | 49,862 | 39,941 | 35,495 | |||||||||||||
Gain on sales of securities investments, net | (1,398 | ) | (72,552 | ) | (11,774 | ) | ||||||||||
Gain on issuances of stock by subsidiaries and equity investees | (503 | ) | — | (4,870 | ) | |||||||||||
Deferred income taxes | (49,719 | ) | (98,016 | ) | (34,445 | ) | ||||||||||
Equity in net (income) losses of affiliated companies, net of dividends | 37,537 | 46,692 | 1,732 | |||||||||||||
Cumulative effect of accounting changes | (5,978 | ) | — | 2,117 | ||||||||||||
Changes in assets and liabilities: | ||||||||||||||||
(Increase) decrease in notes and accounts receivable, trade | 111,301 | 174,679 | (63,010 | ) | ||||||||||||
(Increase) decrease in inventories | 290,872 | 36,039 | (78,656 | ) | ||||||||||||
Increase in film costs | (236,072 | ) | (317,953 | ) | (299,843 | ) | ||||||||||
Increase (decrease) in notes and accounts payable, trade | (172,626 | ) | (58,384 | ) | 93,950 | |||||||||||
Increase (decrease) in accrued income and other taxes | (39,589 | ) | 14,637 | (46,067 | ) | |||||||||||
Increase in future insurance policy benefits and other | 314,405 | 233,992 | 264,216 | |||||||||||||
Increase in deferred insurance acquisition costs | (71,522 | ) | (66,091 | ) | (71,219 | ) | ||||||||||
Increase in marketable securities held in the insurance business for trading purpose | (55,661 | ) | — | — | ||||||||||||
(Increase) decrease in other current assets | 5,543 | 29,095 | (34,991 | ) | ||||||||||||
Increase (decrease) in other current liabilities | (19,418 | ) | 26,205 | 44,772 | ||||||||||||
Other | (46,492 | ) | 48,148 | 39,100 | ||||||||||||
Net cash provided by operating activities | 737,596 | 853,788 | 632,635 | |||||||||||||
Yen in millions | ||||||||||||
2005 | 2006 | 2007 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | 163,838 | 123,616 | 126,328 | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities — | ||||||||||||
Depreciation and amortization, including amortization of deferred insurance acquisition costs | 372,865 | 381,843 | 400,009 | |||||||||
Amortization of film costs | 276,320 | 286,655 | 368,382 | |||||||||
Stock-based compensation | (74 | ) | 150 | 3,838 | ||||||||
Accrual for pension and severance costs, less payments | 22,837 | (7,563 | ) | (22,759 | ) | |||||||
Gain on the transfer to the Japanese Government of the substitutional portion of employee pension fund, net | — | (73,472 | ) | — | ||||||||
Loss on sale, disposal or impairment of assets, net | 27,994 | 73,939 | 5,820 | |||||||||
Gain on sale or loss on devaluation of securities investments, net | (1,722 | ) | (5,767 | ) | (13,387 | ) | ||||||
Gain on revaluation of marketable securities held in the financial service business for trading purpose, net | (5,246 | ) | (44,986 | ) | (11,857 | ) | ||||||
Gain on change in interest in subsidiaries and equity investees | (16,322 | ) | (60,834 | ) | (31,509 | ) | ||||||
Deferred income taxes | (69,466 | ) | 80,115 | (13,193 | ) | |||||||
Equity in net (income) losses of affiliated companies, net of dividends | (15,648 | ) | 9,794 | (68,179 | ) | |||||||
Cumulative effect of an accounting change | 4,713 | — | — | |||||||||
Changes in assets and liabilities: | ||||||||||||
(Increase) decrease in notes and accounts receivable, trade | (22,056 | ) | 17,464 | (357,891 | ) | |||||||
(Increase) decrease in inventories | 34,128 | (164,772 | ) | (119,202 | ) | |||||||
Increase in film costs | (294,272 | ) | (339,697 | ) | (320,079 | ) | ||||||
Increase (decrease) in notes and accounts payable, trade | 31,473 | (9,078 | ) | 362,079 | ||||||||
Increase (decrease) in accrued income and other taxes | 3 | 29,009 | (14,396 | ) | ||||||||
Increase in future insurance policy benefits and other | 144,143 | 143,122 | 172,498 | |||||||||
Increase in deferred insurance acquisition costs | (65,051 | ) | (51,520 | ) | (61,563 | ) | ||||||
(Increase) decrease in marketable securities held in the financial service business for trading purpose | (26,096 | ) | (35,346 | ) | 31,732 | |||||||
Increase in other current assets | (29,699 | ) | (8,792 | ) | (35,133 | ) | ||||||
Increase in other current liabilities | 46,545 | 105,865 | 73,222 | |||||||||
Other | 67,790 | (49,887 | ) | 86,268 | ||||||||
Net cash provided by operating activities | 646,997 | 399,858 | 561,028 | |||||||||
F-8
Year Ended March 31 | ||||||||||||||
2002 | 2003 | 2004 | ||||||||||||
(Yen in millions) | ||||||||||||||
Cash flows from investing activities: | ||||||||||||||
Payments for purchases of fixed assets | (388,514 | ) | (275,285 | ) | (427,344 | ) | ||||||||
Proceeds from sales of fixed assets | 37,434 | 25,711 | 33,987 | |||||||||||
Payments for investments and advances by financial service business | (689,944 | ) | (1,012,508 | ) | (1,167,945 | ) | ||||||||
Payments for investments and advances (other than financial service business) | (106,396 | ) | (123,839 | ) | (33,329 | ) | ||||||||
Proceeds from sales of securities investments, maturities of marketable securities and collections of advances by financial service business | 330,239 | 529,395 | 791,188 | |||||||||||
Proceeds from sales of securities investments, maturities of marketable securities and collections of advances (other than financial service business) | 48,842 | 148,977 | 35,521 | |||||||||||
(Increase) decrease in time deposits | 1,222 | 1,124 | (1,456 | ) | ||||||||||
Cash assumed upon acquisition by stock exchange offering | — | — | 3,634 | |||||||||||
Proceeds from the issuance of stock by subsidiaries | — | — | 3,952 | |||||||||||
Net cash used in investing activities | (767,117 | ) | (706,425 | ) | (761,792 | ) | ||||||||
Cash flows from financing activities: | ||||||||||||||
Proceeds from issuance of long-term debt | 228,999 | 12,323 | 267,864 | |||||||||||
Payments of long-term debt | (171,739 | ) | (238,144 | ) | (32,042 | ) | ||||||||
Decrease in short-term borrowings | (78,104 | ) | (7,970 | ) | (57,708 | ) | ||||||||
Increase in deposits from customers in the banking business | 106,472 | 142,023 | 129,874 | |||||||||||
Proceeds from issuance of subsidiary tracking stock | 9,529 | — | — | |||||||||||
Dividends paid | (22,951 | ) | (22,871 | ) | (23,106 | ) | ||||||||
Other | 12,834 | 21,505 | 28,401 | |||||||||||
Net cash provided by (used in) financing activities | 85,040 | (93,134 | ) | 313,283 | ||||||||||
Effect of exchange rate changes on cash and cash equivalents | 21,036 | (24,971 | ) | (47,973 | ) | |||||||||
Net increase in cash and cash equivalents | 76,555 | 29,258 | 136,153 | |||||||||||
Cash and cash equivalents at beginning of the fiscal year | 607,245 | 683,800 | 713,058 | |||||||||||
Cash and cash equivalents at end of the fiscal year | 683,800 | 713,058 | 849,211 | |||||||||||
Supplemental data: | ||||||||||||||
Cash paid during the year for — | ||||||||||||||
Income taxes | 148,154 | 171,531 | 114,781 | |||||||||||
Interest | 35,371 | 22,216 | 22,571 | |||||||||||
Non-cash investing and financing activities — | ||||||||||||||
Obtaining assets by entering into capital lease | 10,572 | 9,034 | 18,298 | |||||||||||
Contribution of assets into an affiliated company | 10,545 | — | — | |||||||||||
Yen in millions | ||||||||||||
2005 | 2006 | 2007 | ||||||||||
Cash flows from investing activities: | ||||||||||||
Payments for purchases of fixed assets | (453,445 | ) | (462,473 | ) | (527,515 | ) | ||||||
Proceeds from sales of fixed assets | 34,184 | 38,168 | 87,319 | |||||||||
Payments for investments and advances by financial service business | (1,309,092 | ) | (1,368,158 | ) | (914,754 | ) | ||||||
Payments for investments and advances (other than financial service business) | (158,151 | ) | (36,947 | ) | (100,152 | ) | ||||||
Proceeds from maturities of marketable securities, sales of securities investments and collections of advances by financial service business | 923,593 | 857,376 | 679,772 | |||||||||
Proceeds from maturities of marketable securities, sales of securities investments and collections of advances (other than financial service business) | 25,849 | 24,527 | 22,828 | |||||||||
Proceeds from sales of subsidiaries’ and equity investees’ stocks | 3,162 | 75,897 | 43,157 | |||||||||
Other | 2,728 | 346 | (6,085 | ) | ||||||||
Net cash used in investing activities | (931,172 | ) | (871,264 | ) | (715,430 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from issuance of long-term debt | 57,232 | 246,326 | 270,780 | |||||||||
Payments of long-term debt | (94,862 | ) | (138,773 | ) | (182,374 | ) | ||||||
Increase (decrease) in short-term borrowings | 11,397 | (11,045 | ) | 6,096 | ||||||||
Increase in deposits from customers in the financial service business | 294,352 | 190,320 | 273,435 | |||||||||
Increase (decrease) in call money and bills sold in the banking business | (40,400 | ) | 86,100 | (100,700 | ) | |||||||
Dividends paid | (22,978 | ) | (24,810 | ) | (25,052 | ) | ||||||
Proceeds from the issuance of shares under stock-based compensation plans | 105 | 4,681 | 5,566 | |||||||||
Proceeds from the issuance of shares by subsidiaries | 4,023 | 6,937 | 2,217 | |||||||||
Other | (3,692 | ) | 128 | (2,065 | ) | |||||||
Net cash provided by financing activities | 205,177 | 359,864 | 247,903 | |||||||||
Effect of exchange rate changes on cash and cash equivalents | 8,890 | 35,537 | 3,300 | |||||||||
Net increase (decrease) in cash and cash equivalents | (70,108 | ) | (76,005 | ) | 96,801 | |||||||
Cash and cash equivalents at beginning of the fiscal year | 849,211 | 779,103 | 703,098 | |||||||||
Cash and cash equivalents at end of the fiscal year | 779,103 | 703,098 | 799,899 | |||||||||
Supplemental data: | ||||||||||||
Cash paid during the fiscal year for — | ||||||||||||
Income taxes | 65,477 | 70,019 | 104,822 | |||||||||
Interest | 18,187 | 24,651 | 23,000 | |||||||||
Non-cash investing and financing activities — | ||||||||||||
Conversion of convertible bonds | 282,744 | — | — | |||||||||
Obtaining assets by entering into capital lease | 19,049 | 19,682 | 13,784 | |||||||||
Contribution of net assets into the joint venture with Bertelsmann AG | 9,402 | — | — | |||||||||
F-9
Year Ended March 31 | |||||||||||||||||||||||||||||||
Accumulated | |||||||||||||||||||||||||||||||
Subsidiary | Additional | other | Treasury | ||||||||||||||||||||||||||||
tracking | Common | Paid-In | Retained | comprehensive | stock, | ||||||||||||||||||||||||||
Stock | Stock | Capital | earnings | income | at cost | Total | |||||||||||||||||||||||||
(Yen in millions) | |||||||||||||||||||||||||||||||
Balance at March 31, 2001 | — | 472,002 | 962,401 | 1,217,110 | (328,567 | ) | (7,493 | ) | 2,315,453 | ||||||||||||||||||||||
Exercise of stock purchase warrants | 26 | 26 | 52 | ||||||||||||||||||||||||||||
Conversion of convertible bonds | 161 | 162 | 323 | ||||||||||||||||||||||||||||
Issuance of subsidiary tracking stock | 3,917 | 5,612 | 9,529 | ||||||||||||||||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||||||
Net income | 15,310 | 15,310 | |||||||||||||||||||||||||||||
Other comprehensive income, net of tax — | |||||||||||||||||||||||||||||||
Unrealized gains on securities: | |||||||||||||||||||||||||||||||
Unrealized holding gains or losses arising during the period | (20,243 | ) | (20,243 | ) | |||||||||||||||||||||||||||
Less: Reclassification adjustment for gains or losses included in net income | (1,276 | ) | (1,276 | ) | |||||||||||||||||||||||||||
Unrealized losses on derivative instruments: | |||||||||||||||||||||||||||||||
Cumulative effect of an accounting change | 1,089 | 1,089 | |||||||||||||||||||||||||||||
Unrealized holding gains or losses arising during the period | 2,437 | 2,437 | |||||||||||||||||||||||||||||
Less: Reclassification adjustment for gains or losses included in net income | (4,237 | ) | (4,237 | ) | |||||||||||||||||||||||||||
Minimum pension liability adjustment | (22,228 | ) | (22,228 | ) | |||||||||||||||||||||||||||
Foreign currency translation adjustments | 97,432 | 97,432 | |||||||||||||||||||||||||||||
Total comprehensive income | 68,284 | ||||||||||||||||||||||||||||||
Stock issue costs, net of tax | (166 | ) | (166 | ) | |||||||||||||||||||||||||||
Dividends declared | (22,992 | ) | (22,992 | ) | |||||||||||||||||||||||||||
Purchase of treasury stock | (468 | ) | (468 | ) | |||||||||||||||||||||||||||
Reissuance of treasury stock | 22 | 373 | 395 | ||||||||||||||||||||||||||||
Balance at March 31, 2002 | 3,917 | 472,189 | 968,223 | 1,209,262 | (275,593 | ) | (7,588 | ) | 2,370,410 | ||||||||||||||||||||||
Yen in millions | ||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||
Subsidiary | Additional | other | Treasury | |||||||||||||||||||||||||
tracking | Common | paid-in | Retained | comprehensive | stock, at | |||||||||||||||||||||||
stock | stock | capital | earnings | income | cost | Total | ||||||||||||||||||||||
Balance at March 31, 2004 | 3,917 | 476,350 | 992,817 | 1,367,060 | (449,959 | ) | (12,183 | ) | 2,378,002 | |||||||||||||||||||
Exercise of stock acquisition rights | 52 | 53 | 105 | |||||||||||||||||||||||||
Conversion of convertible bonds | 141,390 | 141,354 | 282,744 | |||||||||||||||||||||||||
Stock based compensation | 340 | 340 | ||||||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||
Net income | 163,838 | 163,838 | ||||||||||||||||||||||||||
Other comprehensive income, net of tax — | ||||||||||||||||||||||||||||
Unrealized gains on securities: | ||||||||||||||||||||||||||||
Unrealized holding gains (losses) arising during the period | 5,643 | 5,643 | ||||||||||||||||||||||||||
Less: Reclassification adjustment included in net income | (12,924 | ) | (12,924 | ) | ||||||||||||||||||||||||
Unrealized losses on derivative instruments: | ||||||||||||||||||||||||||||
Unrealized holding gains (losses) arising during the period | (209 | ) | (209 | ) | ||||||||||||||||||||||||
Less: Reclassification adjustment included in net income | (1,681 | ) | (1,681 | ) | ||||||||||||||||||||||||
Minimum pension liability adjustment | (769 | ) | (769 | ) | ||||||||||||||||||||||||
Foreign currency translation adjustments | 74,224 | 74,224 | ||||||||||||||||||||||||||
Total comprehensive income | 228,122 | |||||||||||||||||||||||||||
Stock issue costs, net of tax | (541 | ) | (541 | ) | ||||||||||||||||||||||||
Dividends declared | (24,030 | ) | (24,030 | ) | ||||||||||||||||||||||||
Purchase of treasury stock | (416 | ) | (416 | ) | ||||||||||||||||||||||||
Reissuance of treasury stock | (342 | ) | (245 | ) | 6,599 | 6,012 | ||||||||||||||||||||||
Balance at March 31, 2005 | 3,917 | 617,792 | 1,134,222 | 1,506,082 | (385,675 | ) | (6,000 | ) | 2,870,338 | |||||||||||||||||||
F-10
Year Ended March 31 | |||||||||||||||||||||||||||||||
Accumulated | |||||||||||||||||||||||||||||||
Subsidiary | Additional | other | Treasury | ||||||||||||||||||||||||||||
tracking | Common | Paid-In | Retained | comprehensive | stock, | ||||||||||||||||||||||||||
Stock | Stock | Capital | earnings | income | at cost | Total | |||||||||||||||||||||||||
(Yen in millions) | |||||||||||||||||||||||||||||||
Balance at March 31, 2002 | 3,917 | 472,189 | 968,223 | 1,209,262 | (275,593 | ) | (7,588 | ) | 2,370,410 | ||||||||||||||||||||||
Conversion of convertible bonds | 172 | 172 | 344 | ||||||||||||||||||||||||||||
Stock issued under exchange offering | 15,791 | 15,791 | |||||||||||||||||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||||||
Net income | 115,519 | 115,519 | |||||||||||||||||||||||||||||
Other comprehensive income, net of tax — | |||||||||||||||||||||||||||||||
Unrealized gains on securities: | |||||||||||||||||||||||||||||||
Unrealized holding gains or losses arising during the period | (9,627 | ) | (9,627 | ) | |||||||||||||||||||||||||||
Less: Reclassification adjustment for gains or losses included in net income | 4,288 | 4,288 | |||||||||||||||||||||||||||||
Unrealized losses on derivative instruments: | |||||||||||||||||||||||||||||||
Unrealized holding gains or losses arising during the period | (4,477 | ) | (4,477 | ) | |||||||||||||||||||||||||||
Less: Reclassification adjustment for gains or losses included in net income | 395 | 395 | |||||||||||||||||||||||||||||
Minimum pension liability adjustment | (110,636 | ) | (110,636 | ) | |||||||||||||||||||||||||||
Foreign currency translation adjustments: | |||||||||||||||||||||||||||||||
Translation adjustments arising during the period | (83,993 | ) | (83,993 | ) | |||||||||||||||||||||||||||
Less: Reclassification adjustment for losses included in net income | 7,665 | 7,665 | |||||||||||||||||||||||||||||
Total comprehensive income | (80,866 | ) | |||||||||||||||||||||||||||||
Stock issue costs, net of tax | (19 | ) | (19 | ) | |||||||||||||||||||||||||||
Dividends declared | (23,022 | ) | (23,022 | ) | |||||||||||||||||||||||||||
Purchase of treasury stock | (1,817 | ) | (1,817 | ) | |||||||||||||||||||||||||||
Reissuance of treasury stock | 10 | 64 | 74 | ||||||||||||||||||||||||||||
Balance at March 31, 2003 | 3,917 | 472,361 | 984,196 | 1,301,740 | (471,978 | ) | (9,341 | ) | 2,280,895 | ||||||||||||||||||||||
Yen in millions | ||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||
Subsidiary | Additional | other | Treasury | |||||||||||||||||||||||||
tracking | Common | paid-in | Retained | comprehensive | stock, at | |||||||||||||||||||||||
stock | stock | capital | earnings | income | cost | Total | ||||||||||||||||||||||
Balance at March 31, 2005 | 3,917 | 617,792 | 1,134,222 | 1,506,082 | (385,675 | ) | (6,000 | ) | 2,870,338 | |||||||||||||||||||
Exercise of stock acquisition rights | 931 | 932 | 1,863 | |||||||||||||||||||||||||
Conversion of convertible bonds | 1,484 | 1,484 | 2,968 | |||||||||||||||||||||||||
Conversion of subsidiary tracking stock | (3,917 | ) | 3,917 | — | ||||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||
Net income | 123,616 | 123,616 | ||||||||||||||||||||||||||
Other comprehensive income, net of tax — | ||||||||||||||||||||||||||||
Unrealized gains on securities: | ||||||||||||||||||||||||||||
Unrealized holding gains (losses) arising during the period | 79,630 | 79,630 | ||||||||||||||||||||||||||
Less: Reclassification adjustment included in net income | (41,495 | ) | (41,495 | ) | ||||||||||||||||||||||||
Unrealized losses on derivative instruments: | ||||||||||||||||||||||||||||
Unrealized holding gains (losses) arising during the period | 7,865 | 7,865 | ||||||||||||||||||||||||||
Less: Reclassification adjustment included in net income | (7,424 | ) | (7,424 | ) | ||||||||||||||||||||||||
Minimum pension liability adjustment | 50,206 | 50,206 | ||||||||||||||||||||||||||
Foreign currency translation adjustments | 140,473 | 140,473 | ||||||||||||||||||||||||||
Less: Reclassification adjustment included in net income | (17 | ) | (17 | ) | ||||||||||||||||||||||||
Total comprehensive income | 352,854 | |||||||||||||||||||||||||||
Stock issue costs, net of tax | (780 | ) | (780 | ) | ||||||||||||||||||||||||
Dividends declared | (24,968 | ) | (24,968 | ) | ||||||||||||||||||||||||
Purchase of treasury stock | (394 | ) | (394 | ) | ||||||||||||||||||||||||
Reissuance of treasury stock | (1,296 | ) | 3,267 | 1,971 | ||||||||||||||||||||||||
Balance at March 31, 2006 | — | 624,124 | 1,136,638 | 1,602,654 | (156,437 | ) | (3,127 | ) | 3,203,852 | |||||||||||||||||||
F-11
Yen in millions | ||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||
Subsidiary | Additional | other | Treasury | |||||||||||||||||||||||||
tracking | Common | paid-in | Retained | comprehensive | stock, at | |||||||||||||||||||||||
stock | stock | capital | earnings | income | cost | Total | ||||||||||||||||||||||
Balance at March 31, 2006 | — | 624,124 | 1,136,638 | 1,602,654 | (156,437 | ) | (3,127 | ) | 3,203,852 | |||||||||||||||||||
Exercise of stock acquisition rights | 2,175 | 2,175 | 4,350 | |||||||||||||||||||||||||
Conversion of convertible bonds | 608 | 608 | 1,216 | |||||||||||||||||||||||||
Stock based compensation | 3,993 | 3,993 | ||||||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||
Net income | 126,328 | 126,328 | ||||||||||||||||||||||||||
Cumulative effect of an accounting change, net of tax | (3,785 | ) | (3,785 | ) | ||||||||||||||||||||||||
Other comprehensive income, net of tax — | ||||||||||||||||||||||||||||
Unrealized gains on securities: | ||||||||||||||||||||||||||||
Unrealized holding gains (losses) arising during the period | 6,963 | 6,963 | ||||||||||||||||||||||||||
Less: Reclassification adjustment included in net income | (21,671 | ) | (21,671 | ) | ||||||||||||||||||||||||
Unrealized losses on derivative instruments: | ||||||||||||||||||||||||||||
Unrealized holding gains (losses) arising during the period | 6,907 | 6,907 | ||||||||||||||||||||||||||
Less: Reclassification adjustment included in net income | (5,933 | ) | (5,933 | ) | ||||||||||||||||||||||||
Minimum pension liability adjustment | (2,754 | ) | (2,754 | ) | ||||||||||||||||||||||||
Foreign currency translation adjustments | 86,313 | 86,313 | ||||||||||||||||||||||||||
Total comprehensive income | 192,368 | |||||||||||||||||||||||||||
Stock issue costs, net of tax | (22 | ) | (22 | ) | ||||||||||||||||||||||||
Dividends declared | (25,042 | ) | (25,042 | ) | ||||||||||||||||||||||||
Purchase of treasury stock | (558 | ) | (558 | ) | ||||||||||||||||||||||||
Reissuance of treasury stock | 9 | 46 | 55 | |||||||||||||||||||||||||
Adoption of FAS No. 158, net of tax | (9,508 | ) | (9,508 | ) | ||||||||||||||||||||||||
Other | 19,373 | (19,373 | ) | — | ||||||||||||||||||||||||
Balance at March 31, 2007 | — | 626,907 | 1,143,423 | 1,719,506 | (115,493 | ) | (3,639 | ) | 3,370,704 | |||||||||||||||||||
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY — (Continued)
Year Ended March 31 | |||||||||||||||||||||||||||||||
Accumulated | |||||||||||||||||||||||||||||||
Subsidiary | Additional | other | Treasury | ||||||||||||||||||||||||||||
tracking | Common | Paid-In | Retained | comprehensive | stock, | ||||||||||||||||||||||||||
Stock | Stock | Capital | earnings | income | at cost | Total | |||||||||||||||||||||||||
(Yen in millions) | |||||||||||||||||||||||||||||||
Balance at March 31, 2003 | 3,917 | 472,361 | 984,196 | 1,301,740 | (471,978 | ) | (9,341 | ) | 2,280,895 | ||||||||||||||||||||||
Conversion of convertible bonds | 3,989 | 3,988 | 7,977 | ||||||||||||||||||||||||||||
Stock issued under exchange offering | 5,409 | 5,409 | |||||||||||||||||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||||||
Net income | 88,511 | 88,511 | |||||||||||||||||||||||||||||
Other comprehensive income, net of tax — | |||||||||||||||||||||||||||||||
Unrealized gains on securities: | |||||||||||||||||||||||||||||||
Unrealized holding gains or losses arising during the period | 57,971 | 57,971 | |||||||||||||||||||||||||||||
Less: Reclassification adjustment for gains or losses included in net income | (5,679 | ) | (5,679 | ) | |||||||||||||||||||||||||||
Unrealized losses on derivative instruments: | |||||||||||||||||||||||||||||||
Unrealized holding gains or losses arising during the period | 7,537 | 7,537 | |||||||||||||||||||||||||||||
Less: Reclassification adjustment for gains or losses included in net income | (3,344 | ) | (3,344 | ) | |||||||||||||||||||||||||||
Minimum pension liability adjustment | 93,415 | 93,415 | |||||||||||||||||||||||||||||
Foreign currency translation adjustments: | |||||||||||||||||||||||||||||||
Translation adjustments arising during the period | (129,113 | ) | (129,113 | ) | |||||||||||||||||||||||||||
Less: Reclassification adjustment for losses included in net income | 1,232 | 1,232 | |||||||||||||||||||||||||||||
Total comprehensive income | 110,530 | ||||||||||||||||||||||||||||||
Stock issue costs, net of tax | (53 | ) | (53 | ) | |||||||||||||||||||||||||||
Dividends declared | (23,138 | ) | (23,138 | ) | |||||||||||||||||||||||||||
Purchase of treasury stock | (8,523 | ) | (8,523 | ) | |||||||||||||||||||||||||||
Reissuance of treasury stock | (776 | ) | 5,681 | 4,905 | |||||||||||||||||||||||||||
Balance at March 31, 2004 | 3,917 | 476,350 | 992,817 | 1,367,060 | (449,959 | ) | (12,183 | ) | 2,378,002 | ||||||||||||||||||||||
F-12
Page | ||||||||
Nature of operations | F-14 | |||||||
Summary of significant accounting policies | F-14 | |||||||
Inventories | F-25 | |||||||
Film costs | F-26 | |||||||
Related party transactions | F-26 | |||||||
Accounts receivable securitization programs | F-29 | |||||||
Marketable securities and securities investments and other | F-29 | |||||||
Leased assets | F-30 | |||||||
Goodwill and intangible assets | F-31 | |||||||
Insurance-related accounts | F-33 | |||||||
Short-term borrowings and long-term debt | F-34 | |||||||
Deposits from customers in the banking business | F-36 | |||||||
Financial instruments | F-36 | |||||||
Pension and severance plans | F-40 | |||||||
Stockholders’ equity | F-46 | |||||||
Stock-based compensation plans | F-49 | |||||||
Restructuring charges and asset impairments | F-52 | |||||||
Research and development costs, advertising costs and shipping and handling costs | F-55 | |||||||
Gain on | F-55 | |||||||
Income taxes | F-57 | |||||||
Reconciliation of the differences between basic and diluted net income per share | F-60 | |||||||
Variable interest entities | F-61 | |||||||
Commitments and contingent liabilities | F-63 | |||||||
Business segment information | F-65 | |||||||
F-70 |
F-13
principal manufacturing facilities are located in Japan, the United States of America, Europe, and Asia. Its electronic products are marketed throughout the world and game products are marketed mainly in Japan, the United States of America and Europe by sales subsidiaries and unaffiliated local distributors as well as direct sales via the Internet. Sony is engaged in the development, production, manufacture, and distribution of recorded music, in all commercial formats and musical genres. Sony is also engaged in the development, production, manufacture, marketing, distribution and broadcasting of image-based software, including film, video and television. Further,television product. Sony is also engaged in various financial service businesses including insurance operations through a Japanese life insurance subsidiary and a non-life insurance subsidiaries,subsidiary, banking operations through a Japanese internet-based banking subsidiary and leasing and credit financing operations in Japan. In addition to the above, Sony is engaged in Internet-related businesses,the development, production, manufacture, and distribution of recorded music, a network service business, an IC cardanimation production and marketing business, and an advertising agency business in Japan.2.Summary of significant accounting policies
2. Summary of significant accounting policies
Inventory Costs -
In January 2003, the FASB issued FASB Interpretation (“FIN”) No. 46, “Consolidation of Variable Interest Entities — an Interpretation of ARB No. 51”. FIN No. 46 addresses consolidation by a primary
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
beneficiary of a variable interest entity (“VIE”). FIN No. 46 was effective immediately for all new VIEs created or acquired after January 31, 2003. Sony has not entered into any new agreements with VIEs on or after February 1, 2003. For VIEs created or acquired prior to February 1, 2003, Sony early adopted the provisions of FIN No. 46 on July 1, 2003. Under FIN No. 46, any difference between the net amount added to the balance sheet and the amount of any previously recognized interest in the VIE shall be recognized as a cumulative effect of accounting changes. As a result of adopting the original FIN No. 46, Sony recognized a one-time charge with no tax effect of 2,117 million yen as a cumulative effect of accounting change in the consolidated statement of income, and Sony’s assets and liabilities increased by 95,255 million yen and 97,950 million yen, respectively. These increases were treated as non-cash transactions in the consolidated statement of cash flows. In addition, cash and cash equivalents increased by 1,521 million yen. See Note 21 for further discussion on the VIEs that are used by Sony.
In December 2003, the FASB issued revised FIN No. 46 (“FIN No. 46R”), which replaces FIN No. 46. FIN No. 46R retains many of the basic concepts introduced in FIN No. 46; however, it also introduces a new scope exception for certain types of entities that qualify as a “business” as defined in FIN No. 46R, revises the method of calculating expected losses and residual returns for determination of a primary beneficiary, and includes new guidance for assessing variable interests. Sony early adopted the provisions of FIN No. 46R upon its issuance. The adoption of FIN No. 46R did not have an impact on Sony’s results of operations and financial position or impact the way Sony had previously accounted for VIEs.
In November 2003, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue No. 03-01, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”. EITF Issue No. 03-01 establishes additional disclosure requirements for each category of FAS No. 115 investments in a loss position. In March 2004, the EITF also reached a consensus on the additional accounting guidance for other-than-temporary impairments and its application to debt and equity investments. In accordance with the new disclosure requirements under EITF Issue No. 03-01, Note 6 has been expanded to include certain additional information regarding Sony’s securities investments.
In November 2002, the FASB issued EITF Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables”. EITF Issue No. 00-21 provides guidance on when and how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. Sony adopted EITF Issue No. 00-21 on July 1, 2003. The adoption of EITF Issue No. 00-21151 did not have a material impact on Sony’s results of operations and financial positionposition.
On
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
whether the derivative instruments qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity.
As a result of the adoption of the new standards, Sony’s operating income, income before income taxes and net income for the year ended March 31, 2002 decreased by 3,007 million yen, 3,441 million yen and 2,167 million yen, respectively. Additionally, on April 1, 2001, Sony recorded a one-time non-cash after-tax unrealized gain of 1,089 million yen in accumulated other comprehensive income in the consolidated balance sheet, as well as an after-tax gain of 5,978 million yen in the cumulative effectbased method of accounting changes infor employee stock-based compensation and eliminates the consolidated statement of income. The after-tax gain was primarily attributablealternative to fairuse the intrinsic value adjustments of convertible rights embedded in convertible bonds heldmethod prescribed by Sony’s life insurance subsidiary as available-for-sale debt securities.
In April 2003, the FASB issued FAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”. This statement amends and clarifies financial accounting and reporting for derivative instruments, including derivative instruments embedded in other contracts and for hedging activities under FAS No. 133. Sony adopted FAS No. 149 on July 1, 2003. The adoption of FAS No. 149 did not have an impact on Sony’s results of operations and financial position.
On April 1, 2003, Sony adopted FAS No. 143, “Accounting for Asset Retirement Obligations”, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The adoption of FAS No. 143 did not have a material impact on Sony’s results of operations and financial position for the year ended March 31, 2004.
In May 2003, the FASB issued FAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. FAS No. 150 establishes standards for how certain financial instruments with characteristics of both liabilities and equity shall be classified and measured. Sony adopted FAS No. 150 during the first quarter of the year ended March 31, 2004. The adoption of FAS No. 150 did not have an impact on Sony’s results of operations and financial position for the year ended March 31, 2004.
In June 2002, the FASB issued FAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, which nullifies EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)”. FAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. FAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities. FAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred, rather than the date of an entity’s commitment to an exit plan. Sony adopted FAS No. 146 on January 1, 2003. The adoption of this statement did not have a material effect on Sony’s results of operations and financial position.
In July 2001, Sony elected early adoption, retroactive to April 1, 2001, of FAS No. 142, “Goodwill and Other Intangible Assets” which superseded Accounting Principle Board Opinion (“APB”) No. 17, “Intangible Assets”.25. With limited exceptions, FAS No. 142 addresses123(R) requires that the grant-date fair value of share-based payments to employees be expensed over the period the service is received. Sony had accounted for its employee stock-based compensation in accordance with the provisions prescribed by APB No. 25 and its related interpretations and had disclosed the net effect on net income and net income per share (“EPS”) allocated to the common stock as if Sony had applied the fair value recognition provisions of FAS No. 123 to stock-based compensation as described in (2) Significant accounting policies — Stock-based compensation. Sony has elected the modified prospective method of transition prescribed in FAS No. 123(R), which requires that compensation expense be recorded for acquired goodwill and other intangibleall unvested stock acquisition rights as the requisite service is rendered
F-16
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
assets. Under FAS No. 142, goodwill and certain other intangible assets that are determined to have an indefinite life are no longer amortized, but rather are tested for impairment on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reducefair value below its carrying amount. Prior to the adoptionfirst period of FAS No. 142, goodwill recognized in acquisitions accounted for as purchases was amortized on a straight-line basis principally over a 20 or 40-year period.adoption. As a result of the adoption of FAS No. 142,123(R), Sony’s operating income decreased by 3,670 million yen for the fiscal year ended March 31, 2007.beforeincreased by 3,828 million yen for the fiscal year ended March 31, 2007. Additionally, on April 1, 2006, Sony recognized a net charge of 3,785 million yen (net of income taxes of 2,148 million yen) as a cumulative-effect adjustment to beginning retained earnings, which consisted of 1,754 million yen (net of income taxes of 996 million yen) of gross gains and 5,539 million yen (net of income taxes of 3,144 million yen) of gross losses.2002 increased by 20,114 million yen and income before cumulative effect2007. FAS No. 158 also requires companies to measure the funded status of accounting changesthe plan as well as net incomeof the date of its fiscal year-end, effective for years ending after December 15, 2008. Sony expects to adopt the year endedmeasurement provisions of FAS No. 158 effective March 31, 2002 increased by 18,932 million yen.2009. See Note 14, Pension and severance plans, for further details.(2)Significant accounting policies:Basis of consolidation and accounting for investments in affiliated companies -
F-15
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Cash and cash equivalents -
Marketable debt and equity securities -
F-16
Equity securities in non-public companies -
Inventories -
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Property, plant and equipment and depreciation -
F-17
profits.
being amortized mainly over the premium-paying period of the related insurance policies using assumptions consistent with those used in computing policy reserves. The deferred insurance acquisition costs for non-traditional life insurance contracts are amortized over the expected life in proportion to the estimated gross profits.Product warranty -
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
businesssegment offer extended warranty programs. The consideration received through extended warranty service is deferred and amortized on a straight-line basis over the term of the extended warranty.Future insurance policy benefits -
Future insurance policy benefits -
Accounting for the impairment of long-lived assets -
F-18
Derivative |
All derivatives, including certain derivative financial instruments embedded in other contracts,-
Fair value hedges
Cash flow hedges
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
transaction.transactions. Sony also assesses, both at the inception of the hedge and on an on-going basis, whether the derivatives that are designated as hedges are highly effective in offsetting changes in fair value or cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge, Sony discontinues hedge accounting.Stock-based compensation -
F-19
grant.
Year Ended March 31 | ||||||||||||
2002 | 2003 | 2004 | ||||||||||
(Yen in millions) | ||||||||||||
Income before cumulative effect of accounting changes allocated to common stock: | ||||||||||||
As reported | 9,381 | 115,648 | 90,756 | |||||||||
Deduct: Total stock-based compensation expense determined under fair value based method, net of related tax effects | (5,395 | ) | (7,008 | ) | (6,334 | ) | ||||||
Pro forma | 3,986 | 108,640 | 84,422 | |||||||||
Net income allocated to common stock: | ||||||||||||
As reported | 15,359 | 115,648 | 88,639 | |||||||||
Deduct: Total stock-based compensation expense determined under fair value based method, net of related tax effects | (5,395 | ) | (7,008 | ) | (6,334 | ) | ||||||
Pro forma | 9,964 | 108,640 | 82,305 | |||||||||
Yen in millions | ||||||||
Fiscal Year Ended March 31 | ||||||||
2005 | 2006 | |||||||
Income before cumulative effect of an accounting change allocated to common stock: | ||||||||
As reported | 168,498 | 122,308 | ||||||
Deduct: Total stock-based compensation expense determined under the fair value based method, net of related tax effects | (4,690 | ) | (4,182 | ) | ||||
Pro forma | 163,808 | 118,126 | ||||||
Net income allocated to common stock: | ||||||||
As reported | 163,785 | 122,308 | ||||||
Deduct: Total stock-based compensation expense determined under the fair value based method, net of related tax effects | (4,690 | ) | (4,182 | ) | ||||
Pro forma | 159,095 | 118,126 | ||||||
F-21
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Year Ended March 31 | ||||||||||||||
2002 | 2003 | 2004 | ||||||||||||
(Yen) | ||||||||||||||
Income before cumulative effect of accounting changes allocated to common stock: | ||||||||||||||
— Basic EPS: | ||||||||||||||
As reported | 10.21 | 125.74 | 98.26 | |||||||||||
Pro forma | 4.34 | 118.12 | 91.40 | |||||||||||
— Diluted EPS: | ||||||||||||||
As reported | 10.18 | 118.21 | 93.00 | |||||||||||
Pro forma | 4.33 | 111.20 | 86.66 | |||||||||||
Net income allocated to common stock: | ||||||||||||||
— Basic EPS: | ||||||||||||||
As reported | 16.72 | 125.74 | 95.97 | |||||||||||
Pro forma | 10.85 | 118.12 | 89.11 | |||||||||||
— Diluted EPS: | ||||||||||||||
As reported | 16.67 | 118.21 | 90.88 | |||||||||||
Pro forma | 10.82 | 111.20 | 84.55 |
Net income and net income per share allocated to the subsidiary tracking stock for the years ended March 31, 2002, 2003 and 2004 would not be impacted. Yen Fiscal Year Ended March 31 2005 2006 Income before cumulative effect of an accounting change allocated to common stock: — Basic EPS: As reported 180.96 122.58 Pro forma 175.92 118.39 — Diluted EPS: As reported 162.59 116.88 Pro forma 158.10 112.91 Net income allocated to common stock: — Basic EPS: As reported 175.90 122.58 Pro forma 170.86 118.39 — Diluted EPS: As reported 158.07 116.88 Pro forma 153.58 112.91
Directors.
Stock issue costs -
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
exploitation of the product lapse. Revenues from the sale of home videocassettes and DVDs and Blu-ray discs are recognized upon availability of sale to the public.
F-21
Property and casualty insurance policies that the non-life insurance subsidiary writesunderwrites are primarily automotive insurance contracts which are categorized as short-duration contracts. Premiums from these policies are reported as revenue over the period of the contract in proportion to the amount of insurance protection provided.
EITFthe Emerging Issue Task Force (“EITF”) IssueNo. 01-09,01-9, “Accounting for Consideration Given by a Vendor to a Customer or Reseller of the Vendor’s Products”, cash consideration given to a customer or a reseller including payments for buydowns, slotting fees and cooperative advertising programs, is accounted for as a reduction of revenue unless Sony receives an identifiable benefit (goods or services) in exchange for the consideration, can reasonably estimate the fair value of thisthe benefit is reasonably estimated and receives documentation from the reseller is received to support the amounts spent. Any paymentspaid to the reseller. Payments meeting these criteria are treatedrecorded as selling, general and administrative expenses. For the fiscal years ended March 31, 2002, 20032005, 2006 and 2004,2007, consideration given to a reseller, primarily for free promotional shipping and cooperative advertising programs included in selling, general and administrative expense totaled 28,683, 29,13527,946 million yen, 29,489 million yen and 30,33831,933 million yen, respectively.Cost of sales -
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Research and development costs -
Selling, general and administrative expenses are expensed as incurred. |
Financial service expenses -
F-22
Advertising costs -
Shipping and handling costs -
Income taxes -
F-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
F-23
There are no potentially dilutive securities for net income per subsidiary tracking stock, as tracking stock shares outstanding are increased upon potential subsidiary tracking stocks’ being exercised, which results in a proportionate increase in earnings allocatedincluding the conversion of contingently convertible debt instruments (“Co-Cos”) regardless of whether the conditions to exercise the subsidiary tracking stock. However, they couldconversion rights have a dilutive effect on net income per common stock, as earnings allocated to the common stock would be decreased.been met.
Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts -
F-24
3. Inventories
March 31 | ||||||||
2003 | 2004 | |||||||
(Yen in millions) | ||||||||
Finished products | 398,180 | 427,877 | ||||||
Work in process | 110,008 | 98,607 | ||||||
Raw materials, purchased components and supplies | 117,539 | 140,023 | ||||||
625,727 | 666,507 | |||||||
Yen in millions | ||||||||
March 31 | ||||||||
2006 | 2007 | |||||||
Finished products | 534,766 | 649,848 | ||||||
Work in process | 123,381 | 123,539 | ||||||
Raw materials, purchased components and supplies | 146,577 | 167,488 | ||||||
804,724 | 940,875 | |||||||
F-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
compriseare comprised of the following: March 31 2003 2004 (Yen in millions) Theatrical: Released (including acquired film libraries) 142,168 136,057 Completed not released 13,356 7,946 In production and development 91,696 79,198 Television licensing: Released (including acquired film libraries) 40,417 33,378 In production and development 141 161 287,778 256,740 Yen in millions March 31 2006 2007 Theatrical: Released (including acquired film libraries) 153,992 150,396 Completed not released 13,377 16,255 In production and development 156,019 93,584 Television licensing: Released (including acquired film libraries) 36,918 48,313 In production and development 66 146 360,372 308,694 88%89% of unamortized costs of released films (excluding amounts allocated to acquired film libraries) at March 31, 20042007 will be amortized within the next three years. Approximately 83,992 million98 billion yen of released film costs are expected to be amortized during the next twelve months. As of March 31, 2004,2007, unamortized acquired film libraries of approximately 14,833 million8 billion yen remainedare expected to be amortized on a straight-line basis over an average of the remaining lifelives of 63 years. Approximately 83,381 million126 billion yen of accrued participation liabilities included in accounts payable, other and accrued expenses are expected to be paid during the next twelve months.5.Related party transactions
March 31 | |||||||||
2003 | 2004 | ||||||||
(Yen in millions) | |||||||||
Current assets | 349,414 | 433,154 | |||||||
Property, plant and equipment | 242,303 | 94,130 | |||||||
Other assets | 43,272 | 57,756 | |||||||
Total assets | 634,989 | 585,040 | |||||||
Current liabilities | 374,414 | 397,242 | |||||||
Long-term liabilities | 129,497 | 27,639 | |||||||
Stockholders’ equity | 131,078 | 160,159 | |||||||
Total liabilities and stockholders’ equity | 634,989 | 585,040 | |||||||
Number of companies at end of the fiscal year | 84 | 66 |
Yen in millions | ||||||||
March 31 | ||||||||
2006 | 2007 | |||||||
Current assets | 991,440 | 1,428,227 | ||||||
Property, plant and equipment | 376,155 | 448,199 | ||||||
Other assets | 903,873 | 888,100 | ||||||
Total assets | 2,271,468 | 2,764,526 | ||||||
Current liabilities | 1,009,895 | 1,178,299 | ||||||
Long-term liabilities | 660,504 | 668,254 | ||||||
Stockholders’ equity | 601,069 | 917,973 | ||||||
Total liabilities and stockholders’ equity | 2,271,468 | 2,764,526 | ||||||
Number of companies at end of the fiscal year | 58 | 62 |
F-26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Year Ended March 31 | ||||||||||||
2002 | 2003 | 2004 | ||||||||||
(Yen in millions) | ||||||||||||
Sales and revenue | 659,589 | 785,697 | 1,009,005 | |||||||||
Gross profit | 161,655 | 140,078 | 231,083 | |||||||||
Net income (loss) | (68,608 | ) | (81,422 | ) | 11,323 |
Yen in millions Fiscal Year Ended March 31 2005 2006 2007 Sales and revenue 1,473,273 2,357,172 3,288,212 Gross profit 477,796 668,226 894,232 Net income 63,404 32,982 148,495
In April 2002,2001 and is included in affiliated companies accounted for under the equity method. Sony completedEricsson is engaged in the development, design, production, marketing and sale of mobile phones and related accessories.
In June 2002, SonyCorporation of America (“SCA”) and its equity partners, Providence Equity Partners, Texas Pacific Group, Comcast Corporation and DLJ Merchant Banking Partners, completed the partial saleacquisition of its equity investment in the Columbia House Company (“CHC”), a 50-50 joint venture between AOL Time Warner Inc. and Sony, to Blackstone Capital Partners III LP (“Blackstone”), an affiliate of The Blackstone Group, a private investment bank. The chairman of The Blackstone Group was also a director of Sony until June 2002.MGM. Under the terms of the saleacquisition agreement, the aforementioned investor group acquired MGM for a total purchase price of approximately 5.0 billion U.S. dollars. As part of this transaction, Sony received cash proceedsPictures Entertainment (“SPE”) entered into agreements to co-finance and produce certain new motion pictures with MGM as well as distribute MGM’s existing film and television content in most markets through SPE’s global distribution channels. In June 2006, MGM and SPE modified this arrangement with respect to the co-financing of 17,839motion pictures and also allowed MGM to bring its worldwide television distribution business in-house and to consolidate substantially all of its worldwide home entertainment distribution activities with another major studio. MGM continues to operate under theMetro-Goldwyn-Mayer name as a private company, headquartered in Los Angeles, California, and is focused on new film production and distribution activities. As part of the acquisition, SCA invested 257 million yenU.S. dollars for 20% of the total equity capital, which includes both common stock and a subordinated note receivable from Columbia House Holdings, Inc., a majority owned subsidiary of Blackstone, with a facesignificant amount of 7,827 million yen. The sale resulted innon-voting preferred stock with detachable common stock warrants. Although Sony owns 20% of MGM’s total equity, on a gain of 1,324 million yen. Sony still has a 7.5% ownership interest in CHC, which is no longer accounted for under the equity method but is now accounted forfully diluted basis as a cost method investment.
In September 2002,result of the warrants dilution, Sony completedowns 45% of the saletotal outstanding common stock and therefore, records 45% of itsMGM’s net income (loss) as equity interest in Sony Tektronix Inc., which resulted in a gainnet income of 3,090 million yen.
In January 2003, Sony acquired a 49.5% interest in InterTrust Technologies Corporation for 23,076 million yen.
In May 2003, Sony acquired the remaining 50% interest in American Video Glass Company (“AVGC”) that it did not own from Corning Asahi Corporation.affiliated companies. As a result AVGCof the cumulative losses recorded by MGM through March 31, 2007, the carrying value of Sony’s investment in MGM was written down to zero as of March 31, 2007. As Sony has not guaranteed the obligations of MGM nor is it otherwise committed to provide further financial support to MGM, Sony will no longer accounted for under therecord its share of MGM’s future equity method and is now a consolidated subsidiary. The financial position and operating resultslosses.
F-27
Effective July 1, 2003, in accordance with FIN No. 46, Sony has consolidated BE-ST Bellevuestrasse Development GmbH & Co. First Real Estate KG, Berlin (“BE-ST”).Monex Beans Holdings, Inc. As a result BE-ST is no longer accounted for under the equity method (Note 21)of this sale, Sony’s ownership interest has been reduced from 20.1% to 10.3%. The financial position and operating results of BE-ST as of and for the year ended March 31, 2004 are not included in the above summarized combined financial information.
In August 2003, Crosswave CommunicationsTherefore, Monex Beans Holdings, Inc. (“CWC”), of which Sony owned approximately a 23.9% interest, commenced reorganization proceedings under the Corporate Reorganization Law of Japan. As a result, Sony no longer has a significant influence on the decision making of CWC. Therefore, CWC is no longer accounted for under the equity method. The financial position and operating results of CWCMonex Beans Holdings, Inc. as of and for the yearfiscal years ended March 31, 2004 is2006 and 2007 are not included in the above summarized combined financial information.
See Note 19 for more information on this transaction.
Yen in millions | ||||||||
March 31 | ||||||||
2006 | 2007 | |||||||
Accounts receivable, trade | 44,837 | 45,617 | ||||||
Advances | 15,985 | 20,740 | ||||||
Accounts payable, trade | 40,507 | 51,894 | ||||||
Yen in millions | ||||||||||||
Fiscal Year Ended March 31 | ||||||||||||
2005 | 2006 | 2007 | ||||||||||
Sales | 256,799 | 234,636 | 299,487 | |||||||||
Purchases | 101,976 | 282,071 | 463,578 | |||||||||
F-27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The stock for stock exchange ratio iswas determined based on the estimated equity values of SCE and Sony on a consolidated basis. ByThrough the stock for stock exchange, Sony Corporation provided 1,000,000 shares of its common stock to athe then Executive Deputy President, Corporate Executive Officer of Sony Corporation who had owned 100 shares of SCE’s common stock. This transaction willdid not have a material impact on Sony’s results of operations and financial position for the fiscal year endingended March 31, 2005.
Affiliated companies accounted for under the equity method with an aggregate carrying amount of 6,342 million yen and 6,081 million yen at March 31, 2003 and 2004, were quoted on established markets at an aggregate value of 6,894 million yen and 37,603 million yen, respectively.
Account balances and transactions with affiliated companies accounted for under the equity method are presented below:
March 31 | ||||||||
2003 | 2004 | |||||||
(Yen in millions) | ||||||||
Accounts receivable, trade | 35,132 | 62,359 | ||||||
Advances | 13,090 | 561 | ||||||
Accounts payable, trade | 9,964 | 13,547 | ||||||
Year Ended March 31 | ||||||||||||
2002 | 2003 | 2004 | ||||||||||
(Yen in millions) | ||||||||||||
Sales | 72,824 | 161,983 | 258,454 | |||||||||
Purchases | 69,254 | 102,735 | 106,100 | |||||||||
F-28
6. | Accounts receivable securitization programs |
7. | Marketable securities and securities investments and other |
March 31, 2003 March 31, 2004 Gross Gross Gross Gross unrealized unrealized unrealized unrealized Cost gains losses Fair Value Cost gains losses Fair Value (Yen in millions) Available-for-sale: Debt securities 1,550,290 37,237 (8,430 ) 1,579,097 1,938,673 55,922 (2,072 ) 1,992,523 Equity securities 63,786 8,222 (4,330 ) 67,678 86,517 63,225 (1,886 ) 147,856 Held-to-maturity securities 18,153 672 (1 ) 18,824 26,439 381 (28 ) 26,792 Total 1,632,229 46,131 (12,761 ) 1,665,599 2,051,629 119,528 (3,986 ) 2,167,171 Yen in millions March 31, 2006 March 31, 2007 Gross Gross Gross Gross unrealized unrealized unrealized unrealized Cost gains losses Fair value Cost gains losses Fair value Available-for-sale: Debt securities 2,522,864 17,021 (22,810 ) 2,517,075 2,517,849 23,716 (8,903 ) 2,532,662 Equity securities 227,079 171,921 (1,589 ) 397,411 281,012 128,888 (7,332 ) 402,568 Held-to-maturity Securities 33,193 132 (221 ) 33,104 36,035 165 (127 ) 36,073 Total 2,783,136 189,074 (24,620 ) 2,947,590 2,834,896 152,769 (16,362 ) 2,971,303 2004,2007, debt securities classified asavailable-for-sale securities andheld-to-maturity securities mainly consist of Japanese government and municipal bonds and corporate debt securities due within 1with maturities of one to 10ten years.F-28SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
respectively, which consist of debt and equity securities.
The net change in Non-public equity investments are valued at cost as fair value is not readily determinable. If the unrealized gains or losses on trading securities that has been included in earnings duringvalue is estimated to have declined and such decline is judged to be other than temporary, the impairment of the investment is recognized and the carrying value is reduced to its fair value.
Securities investments2007, Sony booked 5,696 million yen, 45,092 million yen and other as11,550 million yen of March 31, 2003 and 2004 also included separate account assets (Note 9)net unrealized gains on trading securities primarily in the life insurance business, which were carried at fair value. Although the separate account assets consist primarily of debt and equity securities, they are excluded from the above table due to the nature of the assets. Proceeds from sales of available-for-sale securities and gross realized gains or losses described above also exclude the amounts related to the separate account assets. Separate account assets at March 31, 2003 and 2004 were 118,190 million yen and 164,461 million yen, respectively.business.
F-29
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||||
Fair value | losses | Fair value | losses | Fair value | losses | |||||||||||||||||||||
(Yen in millions) | ||||||||||||||||||||||||||
Available-for-sale: | ||||||||||||||||||||||||||
Debt securities | 421,650 | (2,035 | ) | 10,370 | (37 | ) | 432,020 | (2,072 | ) | |||||||||||||||||
Equity securities | 3,189 | (1,533 | ) | 1,417 | (353 | ) | 4,606 | (1,886 | ) | |||||||||||||||||
Held-to-maturity securities | 2,344 | (28 | ) | 0 | (0 | ) | 2,344 | (28 | ) | |||||||||||||||||
Total | 427,183 | (3,596 | ) | 11,787 | (390 | ) | 438,970 | (3,986 | ) | |||||||||||||||||
2007.
Yen in millions | ||||||||||||||||||||||||
Less than 12 months | 12 months or More | Total | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Fair value | losses | Fair value | losses | Fair value | losses | |||||||||||||||||||
Available-for-sale: | ||||||||||||||||||||||||
Debt securities | 67,840 | (124 | ) | 404,486 | (8,779 | ) | 472,326 | (8,903 | ) | |||||||||||||||
Equity securities | 59,790 | (7,104 | ) | 962 | (228 | ) | 60,752 | (7,332 | ) | |||||||||||||||
Held-to-maturity | ||||||||||||||||||||||||
Securities | 2,110 | (6 | ) | 14,906 | (121 | ) | 17,016 | (127 | ) | |||||||||||||||
Total | 129,740 | (7,234 | ) | 420,354 | (9,128 | ) | 550,094 | (16,362 | ) | |||||||||||||||
F-29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Certain of these leases have renewal and purchase options.
March 31 | ||||||||
Class of property | 2003 | 2004 | ||||||
(Yen in millions) | ||||||||
Land | 1,829 | 174 | ||||||
Buildings | 15,937 | 12,421 | ||||||
Machinery, equipment and others | 33,733 | 36,907 | ||||||
Accumulated depreciation | (21,236 | ) | (19,385 | ) | ||||
30,263 | 30,117 | |||||||
Yen in millions | ||||||||
March 31 | ||||||||
Class of property | 2006 | 2007 | ||||||
Land | 193 | 80 | ||||||
Buildings | 7,437 | 1,859 | ||||||
Machinery, equipment, film costs, and others | 28,870 | 50,506 | ||||||
Accumulated depreciation | (14,820 | ) | (13,675 | ) | ||||
21,680 | 38,770 | |||||||
F-30
Yen in | |||||
millions | |||||
Year ending March 31: | |||||
2005 | 15,940 | ||||
2006 | 12,100 | ||||
2007 | 7,926 | ||||
2008 | 6,467 | ||||
2009 | 9,213 | ||||
Later years | 6,970 | ||||
Total minimum lease payments | 58,616 | ||||
Less — Amount representing interest | 15,927 | ||||
Present value of net minimum lease payments | 42,689 | ||||
Less — Current obligations | 12,667 | ||||
Long-term capital lease obligations | 30,022 | ||||
Minimum2007:
Yen in millions | ||||
Fiscal Year Ending March 31: | ||||
2008 | 14,113 | |||
2009 | 9,911 | |||
2010 | 6,756 | |||
2011 | 4,838 | |||
2012 | 3,405 | |||
Later years | 21,491 | |||
Total minimum lease payments | 60,514 | |||
Less — Amount representing interest | 11,111 | |||
Present value of net minimum lease payments | 49,403 | |||
Less — Current obligations | 12,559 | |||
Long-term capital lease obligations | 36,844 | |||
F-30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
required under operating leases that have initial or remaining noncancelable lease terms in excess of one year at March 31, 20042007 are as follows:
(Yen in | |||||
millions) | |||||
Year ending March 31: | |||||
2005 | 42,649 | ||||
2006 | 32,861 | ||||
2007 | 25,864 | ||||
2008 | 16,556 | ||||
2009 | 12,942 | ||||
Later years | 56,507 | ||||
Total minimum future rentals | 187,379 | ||||
Yen in millions Fiscal Year Ending March 31: 2008 46,154 2009 36,869 2010 27,942 2011 17,322 2012 13,807 Later years 60,629 Total minimum future rentals 202,723
F-31
March 31 | ||||||||||||||||
2003 | 2004 | |||||||||||||||
Gross | Gross | |||||||||||||||
carrying | Accumulated | carrying | Accumulated | |||||||||||||
amount | Amortization | amount | Amortization | |||||||||||||
Yen in millions | ||||||||||||||||
Artist contracts | 89,078 | (69,281 | ) | 80,675 | (68,300 | ) | ||||||||||
Music catalog | 120,242 | (48,447 | ) | 109,795 | (47,610 | ) | ||||||||||
Acquired patent rights | 46,758 | (18,024 | ) | 52,996 | (23,172 | ) | ||||||||||
Software to be sold, leased or otherwise marketed | 17,848 | (7,267 | ) | 31,983 | (13,577 | ) | ||||||||||
PlayStation format | 11,873 | (7,719 | ) | 11,873 | (10,094 | ) | ||||||||||
Other | 45,257 | (20,499 | ) | 43,175 | (17,328 | ) | ||||||||||
Total | 331,056 | (171,237 | ) | 330,497 | (180,081 | ) | ||||||||||
F-31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Yen in millions March 31 2006 2007 Gross carrying Accumulated Gross carrying Accumulated amount amortization amount amortization Artist contracts 15,218 (12,218 ) 15,218 (13,019 ) Music catalog 71,921 (24,012 ) 79,930 (27,669 ) Acquired patent rights 67,467 (30,200 ) 84,482 (37,173 ) Software to be sold, leased or otherwise marketed 40,007 (24,194 ) 42,028 (21,435 ) Other 36,833 (15,133 ) 57,022 (26,287 ) Total 231,446 (105,757 ) 278,680 (125,583 ) expensesexpense for intangible assets for the fiscal years ended March 31, 2002, 20032005, 2006 and 2004 were 25,5542007 was 24,993 million yen, 27,87128,390 million yen and 28,86633,168 million yen, respectively. The estimated aggregate amortization expense for intangible assets for the next five years is as follows: Yen in millions Year ending March 31, 2005 26,863 2006 21,401 2007 13,958 2008 12,269 2009 11,705 Yen in millions Fiscal Year Ending March 31, 2008 37,334 2009 31,265 2010 23,234 2011 19,534 2012 7,515 compriseare comprised of the following: March 31 2003 2004 (Yen in millions) Trademarks 57,410 57,384 Distribution agreement 18,834 18,834 76,244 76,218 Yen in millions March 31 2006 2007 Trademarks 58,195 58,212 Distribution agreement 18,848 18,834 Other 4,145 3,112 81,188 80,158
In addition to the amortizable and indefinite-lived intangible assets shown in the above tables, intangible assets at March 31, 2003 and 2004 also include unrecognized prior service costs totaling 22,561 million yen and 21,376 million yen, respectively, which were recorded under FAS No. 87 as discussed in Note 13.
F-32
Electronics | Game | Music | Pictures | Other | Total | |||||||||||||||||||
(Yen in millions) | ||||||||||||||||||||||||
Balance at March 31, 2002 | 56,853 | 111,105 | 58,600 | 89,392 | 1,290 | 317,240 | ||||||||||||||||||
Goodwill acquired during year | 5,380 | 108 | 1,837 | — | 140 | 7,465 | ||||||||||||||||||
Reduction under FAS No. 109 | (9,054 | ) | — | (17,768 | ) | (6,703 | ) | — | (33,525 | ) | ||||||||||||||
Other * | — | (607 | ) | 3,352 | (3,992 | ) | 194 | (1,053 | ) | |||||||||||||||
Balance at March 31, 2003 | 53,179 | 110,606 | 46,021 | 78,697 | 1,624 | 290,127 | ||||||||||||||||||
Goodwill acquired during year | 5,634 | — | 76 | 1,666 | 534 | 7,910 | ||||||||||||||||||
Impairment losses | (6,049 | ) | — | — | — | — | (6,049 | ) | ||||||||||||||||
Other * | (528 | ) | (244 | ) | (3,771 | ) | (9,574 | ) | (1 | ) | (14,118 | ) | ||||||||||||
Balance at March 31, 2004 | 52,236 | 110,362 | 42,326 | 70,789 | 2,157 | 277,870 | ||||||||||||||||||
Yen in millions | ||||||||||||||||||||||||
Financial | ||||||||||||||||||||||||
Electronics | Game | Pictures | Services | All Other | Total | |||||||||||||||||||
Balance at March 31, 2005 | 70,815 | 114,740 | 77,934 | 441 | 19,993 | 283,923 | ||||||||||||||||||
Goodwill acquired during year | 3,337 | 1,317 | 947 | 536 | 382 | 6,519 | ||||||||||||||||||
Reallocated from music business to Electronics segment | 634 | — | — | — | (634 | ) | — | |||||||||||||||||
Impairment losses | — | — | — | — | (534 | ) | (534 | ) | ||||||||||||||||
Other * | 1,577 | 207 | 7,031 | — | 301 | 9,116 | ||||||||||||||||||
Balance at March 31, 2006 | 76,363 | 116,264 | 85,912 | 977 | 19,508 | 299,024 | ||||||||||||||||||
Goodwill acquired during year | 371 | 301 | 8,595 | 698 | 1,068 | 11,033 | ||||||||||||||||||
Impairment losses | (5,620 | ) | — | — | — | (237 | ) | (5,857 | ) | |||||||||||||||
Other * | 155 | 80 | (321 | ) | — | 555 | 469 | |||||||||||||||||
Balance at March 31, 2007 | 71,269 | 116,645 | 94,186 | 1,675 | 20,894 | 304,669 | ||||||||||||||||||
* | Other |
F-32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
During the year ended March 31, 2004, Sony performed the annual impairment test for goodwill and recorded an impairment loss of 6,049534 million yen in a reporting unit included in All Other. During the fiscal year ended March 31, 2007, Sony recorded impairment losses of 5,620 million yen in reporting units in the Electronics business. Thissegment, of which 5,320 million yen was related to the CRT TV business which was downsized in the U.S., and an impairment chargeloss of 237 million yen in a reporting unit included in All Other. These impairment charges reflected the overall decline in the fair value of a subsidiary within the Electronics business.subsidiaries. The fair valuevalues of that reporting unit wasthe subsidiaries were estimated principally using the expected present value of future cash flows.
The amounts of statutory net equity of the subsidiaries as of March 31, 2003 and 2004 were 100,441 million yen and 146,540 million yen, respectively.
(1) Insurance policies:
F-33
(2) Deferred insurance acquisition costs:
F-33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Separate account assets are funds on which investment income and gains or losses accrue directly to certain policyholders. Separate account assets are legally segregated. They are not subject to the claims that may arise out of any other business of a life insurance subsidiary. Separate account assets, which consist primarily of debt and equity securities, are carried at fair value and included in securities investments and other (Note 6). The related liabilities are recognized as separate account liabilities and included in future insurance policy benefits and other. Fees earned for administrative and contract-holder services performed for the separate accounts are recognized as financial service revenue.
11. |
Short-term borrowings compriseand long-term debt
March 31 | ||||||||||
2003 | 2004 | |||||||||
(Yen in millions) | ||||||||||
Unsecured commercial paper: | ||||||||||
with weighted-average interest rate of 0.13% | 52,820 | — | ||||||||
Unsecured loans, principally from banks: | ||||||||||
with weighted-average interest rate of 3.55% | 36,840 | |||||||||
with weighted-average interest rate of 1.80% | 26,260 | |||||||||
Secured call money: | ||||||||||
with weighted-average interest rate of 0.01% | 34,700 | 65,000 | ||||||||
124,360 | 91,260 | |||||||||
Yen in millions | ||||||||
March 31 | ||||||||
2006 | 2007 | |||||||
Unsecured loans: | ||||||||
with a weighted-average interest rate of 3.63% | 32,066 | |||||||
with a weighted-average interest rate of 4.14% | 42,291 | |||||||
Secured call money: | ||||||||
with a weighted-average interest rate of 0.01% | 40,000 | |||||||
with a weighted-average interest rate of 0.21% | 10,000 | |||||||
Secured bills sold: | ||||||||
with a weighted-average interest rate of 0.01% | 70,700 | — | ||||||
142,766 | 52,291 | |||||||
F-34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
comprisesis comprised of the following: March 31 2003 2004 (Yen in millions) Secured loans, representing obligations principally to banks: Due 2004 to 2008 with interest ranging from 2.20% to 3.73% per annum — 58,786 Unsecured loans, representing obligations principally to banks: Due 2003 to 2018 with interest ranging from 1.26% to 5.66% per annum 43,260 Due 2004 to 2017 with interest ranging from 1.77% to 5.89% per annum 77,646 Medium-term notes of consolidated subsidiaries: Due 2003 to 2006 with interest ranging from 1.28% to 4.95% per annum 78,099 Due 2004 to 2006 with interest ranging from 1.09% to 4.95% per annum 60,537 Unsecured 1.4% convertible bonds, due 2003, convertible at 2,707.8 for one common share, redeemable before due date 8,058 — Unsecured 1.4% convertible bonds, due 2005, convertible currently at 3,995.5 yen for one common share, redeemable before due date 287,762 287,753 Unsecured zero coupon convertible bonds, due 2008, convertible currently at 5,605 yen for one common share, redeemable before due date — 250,000 Unsecured 0.03% bonds, due 2004 with detachable warrants, net of unamortized discount 3,919 3,981 Unsecured 0.1% bonds, due 2005 with detachable warrants, net of unamortized discount 3,867 3,924 Unsecured 1.55% bonds, due 2006 with detachable warrants 12,000 12,000 Unsecured 0.9% bonds, due 2007 with detachable warrants 7,300 7,300 Unsecured 0.9% bonds, due 2007 with detachable warrants of subsidiary tracking stock 150 150 Unsecured 1.42% bonds, due 2005, net of unamortized discount 99,990 99,994 Unsecured 0.64% bonds, due 2006, net of unamortized discount 99,992 99,994 Unsecured 2.04% bonds, due 2010, net of unamortized discount 49,978 49,981 Unsecured 1.52% bonds, due 2011, net of unamortized discount 49,996 49,996 Unsecured 2.0% bonds, due 2005 15,000 15,000 Unsecured 1.99% bonds, due 2007 15,000 15,000 Unsecured 2.35% bonds, due 2010 4,900 4,900 Capital lease obligations: Due 2003 to 2014 with interest ranging from 2.15% to 17.29% per annum 39,899 Due 2004 to 2014 with interest ranging from 2.15% to 22.93% per annum 42,689 Guarantee deposits received 22,654 21,775 841,824 1,161,406 Less — Portion due within one year 34,385 383,757 807,439 777,649 At March 31, 2004, buildings with a book value of 61,912 million yen and machinery and equipment with a book value of 4,883 million yen were pledged as collateral for secured loans, representing obligations principally to banks.F-35SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Yen in millions March 31 2006 2007 Unsecured loans, representing obligations principally to banks: Due 2006 to 2015, with interest rates ranging from 0.13% to 5.89% per annum 128,148 Due 2007 to 2018, with interest rates ranging from 0.51% to 5.89% per annum 374,091 Medium-term notes of consolidated subsidiaries: Due 2006 with an interest rate of 4.95% per annum 58,698 — Unsecured zero coupon convertible bonds, due 2008, convertible currently at 5,605 yen for one common share, redeemable before due date 250,000 250,000 Unsecured 1.55% bonds, due 2006 with detachable warrants 12,000 — Unsecured 0.9% bonds, due 2007 with detachable warrants 7,300 7,300 Unsecured 0.9% bonds, due 2007 with detachable warrants 150 150 Unsecured 0.64% bonds, due 2006, net of unamortized discount 99,999 — Unsecured 1.01% bonds, due 2010, net of unamortized discount 39,996 39,997 Unsecured 2.04% bonds, due 2010, net of unamortized discount 49,987 49,990 Unsecured 0.80% bonds, due 2010, net of unamortized discount 49,991 49,993 Unsecured 1.52% bonds, due 2011, net of unamortized discount 49,997 49,998 Unsecured 1.16% bonds, due 2012, net of unamortized discount 39,981 39,985 Unsecured 1.52% bonds, due 2013, net of unamortized discount 34,997 34,997 Unsecured 1.57% bonds, due 2015, net of unamortized discount 29,980 29,982 Unsecured 1.75% bonds, due 2015, net of unamortized discount 24,993 24,993 Unsecured 1.99% bonds, due 2007 15,000 15,000 Unsecured 2.35% bonds, due 2010 4,900 4,900 Capital lease obligations: Due 2006 to 2019, with interest rates ranging from 1.45% to 16.00% per annum 38,280 Due 2007 to 2020, with interest rates ranging from 1.50% to 17.57% per annum 49,403 Guarantee deposits received 24,056 23,396 958,453 1,044,175 Less — Portion due within one year 193,555 43,170 764,898 1,001,005
In accordance with the requirements of FAS No. 133, the hedged portion of Sony’s fixed-rate debt is reflected in the consolidated balance sheet at fair value, which reflects any adjustment in the value attributable to movements in related market interest and foreign exchange rates.
Exercise price | |||||||||||||
Issued on | Yen | ||||||||||||
December 21, 2001 | January 6, 2003 | 6,039 | 100 shares of | 11,459 warrants | |||||||||
through December | common stock of | ||||||||||||
F-35
Year ending March 31 | Yen in millions | |||
2005 | 383,757 | |||
2006 | 160,334 | |||
2007 | 168,878 | |||
2008 | 26,313 | |||
2009 | 284,594 |
Fiscal Year Ending March 31 | Yen in millions | |||
2008 | 43,170 | |||
2009 | 296,659 | |||
2010 | 165,419 | |||
2011 | 209,841 | |||
2012 | 69,008 |
In the United States of America, Sony has an accounts receivable securitization program which provides for the accelerated receipt of up to 52,825 million yen of cash on eligible trade accounts receivable of Sony’s U.S. electronics subsidiary. Through this program, Sony can securitize and sell a percentage of undivided interest in that pool of receivables to several multi-seller commercial paper conduits owned and operated by a bank.
The basic agreements with certain banks in Japan include provisions that collateral (including sums on deposit with such banks) or guarantors will be furnished upon the banks’ request and that any collateral furnished, pursuant to such agreements or otherwise, will be applicable to all present or future indebtedness to such banks.
F-36
outstanding at March 31, 2007.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
11.12. Deposits from customers in the banking Businessbusiness
as follows:
Fiscal Year Ending March 31 | Yen in millions | |||
2009 | 25,296 | |||
2010 | 15,143 | |||
2011 | 4,415 | |||
2012 | 6,570 | |||
2013 | 697 |
rates and changes in the fair value. These instruments are executed with creditworthy financial institutions, and virtually all foreign currency contracts are denominated in U.S. dollars, euros and other currencies of major countries. Although Sony may be exposed to losses in the event of nonperformance by counterparties or unfavorable interest and currency rate movements, it does not anticipate significant losses due to the nature of Sony’s counterparties or the hedging arrangements. These derivatives generally mature or expire within 6 months after the balance sheet date. Sony does not use these derivative financial
��
F-36
The
F-37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
For the fiscal year ended March 31, 2005, the amount of ineffectiveness of these cash flow hedges that was reflected in earnings was not material. For the fiscal years ended March 31, 20032006 and 2004,2007, these cash flow hedges were fully effective. In addition, there were no amounts excluded from the assessment of hedge effectiveness of cash flow hedges. At March 31, 2004,2007, amounts related to derivatives qualifying as cash flow hedges amounted to a net reduction of equity of 6001,075 million yen. Within the next twelve months, 1,212311 million yen is expected to be reclassified from equity into earnings as profit. For the year ended March 31, 2004, there were no forecasted transactions that failed to occur which resulted in the discontinuance of cash flow hedges.a loss.
bond future contracts, stock price index option contracts and other derivatives. Changes in the fair value of derivatives not designated as hedges are recognized in income.
Since July 1, 2002, In January, 2007, certain foreign currency option contracts havederivatives that had been previously designated as cash flow hedges of forecasted intercompany transactions in lineaccordance with changes in hedging schemes regarding Sony’s derivative activities, under which such derivative transactions meet the requirements for hedge accounting, including correlation, as stipulated under FAS No. 133, were no longer designated as cash flow hedges and, FAS No. 138.accordingly, changes in the fair value of those derivatives were recognized into income after January, 2007. At March 31, 2007, the notional amount and the
F-37
These derivatives generally mature or expire within four months afterexpenses.
F-38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The
F-38
See Note 2, for further details of the adoption of FAS No. 155.
March 31 | ||||||||||||||||||||||||
2003 | 2004 | |||||||||||||||||||||||
Notional | Carrying | Estimated | Notional | Carrying | Estimated | |||||||||||||||||||
amount | amount | fair value | amount | amount | fair value | |||||||||||||||||||
(Yen in millions) | ||||||||||||||||||||||||
Long-term debt including the current portion | — | (841,824 | ) | (924,665 | ) | — | (1,161,406 | ) | (1,235,669 | ) | ||||||||||||||
Foreign exchange forward contracts | 1,139,330 | (11,753 | ) | (11,753 | ) | 1,348,157 | (994 | ) | (994 | ) | ||||||||||||||
Currency option contracts purchased | 484,456 | 2,868 | 2,868 | 375,582 | 10,781 | 10,781 | ||||||||||||||||||
Currency option contracts written | 238,760 | (1,975 | ) | (1,975 | ) | 124,925 | (1,000 | ) | (1,000 | ) | ||||||||||||||
Interest rate swap agreements | 181,443 | (8,446 | ) | (8,446 | ) | 218,101 | (4,229 | ) | (4,229 | ) | ||||||||||||||
Interest rate and currency swap agreements | 24,588 | (1,330 | ) | (1,330 | ) | 8,574 | 384 | 384 | ||||||||||||||||
Embedded derivatives | 446,463 | 1,755 | 1,755 | 421,416 | 12,885 | 12,885 |
7.
Yen in millions | ||||||||||||||||||||||||
March 31 | ||||||||||||||||||||||||
2006 | 2007 | |||||||||||||||||||||||
Notional | Carrying | Estimated | Notional | Carrying | Estimated | |||||||||||||||||||
amount | amount | fair value | amount | amount | fair value | |||||||||||||||||||
Long-term debt including the current portion | — | (958,453 | ) | (981,006 | ) | — | (1,044,175 | ) | (1,075,359 | ) | ||||||||||||||
Foreign exchange forward contracts | 1,489,213 | 1,184 | 1,184 | 1,768,609 | (291 | ) | (291 | ) | ||||||||||||||||
Currency option contracts purchased | 457,380 | 2,540 | 2,540 | 287,833 | 2,404 | 2,404 | ||||||||||||||||||
Currency option contracts written | 163,746 | (2,576 | ) | (2,576 | ) | 67,180 | (462 | ) | (462 | ) | ||||||||||||||
Interest rate swap agreements | 172,430 | (165 | ) | (165 | ) | 272,608 | (1,512 | ) | (1,512 | ) | ||||||||||||||
Interest rate and currency swap agreements | 14,518 | (488 | ) | (488 | ) | 8,718 | (816 | ) | (816 | ) | ||||||||||||||
Interest rate future contracts | — | — | — | 115,291 | 9 | 9 | ||||||||||||||||||
Bond future contracts | 13,934 | 111 | 111 | 6,993 | 1 | 1 | ||||||||||||||||||
Bond option contracts written | — | — | — | 49,964 | 130 | 130 | ||||||||||||||||||
Stock price index option purchased | 26,650 | 40 | 40 | — | — | — | ||||||||||||||||||
Embedded derivatives | 411,252 | 70,712 | 70,712 | — | — | — |
F-39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Long-term debt including the current portion
F-39
In June, 2003, Sony adopted the new corporate governance system, “Company with Committees”, based on the revised Japanese commercial Code. Under the previous corporate governance system, with respect to directors’ and statutory auditors’ resignations, lump-sum severance indemnities are calculated using a similar formula aforementioned and are normally paid subject to the approval of Sony’s shareholders. Under the “Company with Committees” system, with respect to directors’, corporate executive officers’ and executive officers’ resignations, lump-sum severance indemnities calculated based on the compensation committee’s bylaw are paid subject to the approval of compensation committee.
July, 2004, Sony Corporation and mostcertain of its subsidiaries in Japan have contributory funded defined benefitamended their pension plans which are pursuant to the Japanese Welfare Pension Insurance Law. The contributory pension plans coverand introduced a portion of the governmental welfare pension program,point-based plan under which a point is added every year reflecting the contributions are made by the companies and their employees, and an additional portion representing the substituted noncontributory pension plans.individual employee’s performance over that year. Under the contributory pension plans,point-based plan, the defined benefits representingamount of payment is determined based on sum of cumulative points from past services and interest points earned on the noncontributory portioncumulative points regardless of whether or not the employee is voluntarily retiring.
Many
F-40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Before After Adoption of Adoption of FAS No. 158 Adjustments FAS No. 158 Intangibles 114 (114 ) 0 Other assets 2,198 (1,711 ) 487 Deferred income tax assets 22,214 5,412 27,626 Other current liabilities 6,067 489 6,556 Accrued pension and severance costs 157,047 8,269 165,316 Other long term liabilities 14,138 2,850 16,988 Deferred income tax liabilities 41 1,487 1,528 Accumulated other comprehensive Income (loss) (61,951 ) (9,508 ) (71,459 ) pension and severanceperiodic benefit costs which exclude employee termination benefits paid in restructuring activities, for the fiscal years ended March 31, 2002, 20032005, 2006 and 20042007 were as follows:Japanese plans:
Year Ended March 31 | ||||||||||||
2002 | 2003 | 2004 | ||||||||||
(Yen in millions) | ||||||||||||
Service cost | 48,609 | 47,884 | 54,501 | |||||||||
Interest cost | 21,232 | 20,857 | 19,489 | |||||||||
Expected return on plan assets | (26,286 | ) | (25,726 | ) | (22,812 | ) | ||||||
Amortization of net transition asset | (375 | ) | (375 | ) | (375 | ) | ||||||
Recognized actuarial loss | 12,639 | 20,655 | 31,019 | |||||||||
Amortization of prior service cost | 611 | (939 | ) | (939 | ) | |||||||
Gains on curtailments and settlements | — | (1,380 | ) | — | ||||||||
Net periodic benefit cost | 56,430 | 60,976 | 80,883 | |||||||||
Year Ended March 31 | ||||||||||||
2002 | 2003 | 2004 | ||||||||||
(Yen in millions) | ||||||||||||
Service cost | 15,161 | 13,954 | 11,252 | |||||||||
Interest cost | 7,944 | 8,478 | 8,566 | |||||||||
Expected return on plan assets | (7,416 | ) | (7,319 | ) | (6,812 | ) | ||||||
Amortization of net transition asset | (87 | ) | (47 | ) | (27 | ) | ||||||
Recognized actuarial (gain) loss | (351 | ) | 1,452 | 1,569 | ||||||||
Amortization of prior service cost | 848 | (208 | ) | (117 | ) | |||||||
(Gains) losses on curtailments and settlements | — | (460 | ) | 5,574 | ||||||||
Net periodic benefit cost | 16,099 | 15,850 | 20,005 | |||||||||
Yen in millions | ||||||||||||
Fiscal Year Ended March 31 | ||||||||||||
2005 | 2006 | 2007 | ||||||||||
Service cost | 31,971 | 26,561 | 27,175 | |||||||||
Interest cost | 21,364 | 16,504 | 13,494 | |||||||||
Expected return on plan assets | (16,120 | ) | (17,290 | ) | (17,299 | ) | ||||||
Amortization of net transition asset | (375 | ) | (104 | ) | — | |||||||
Recognized actuarial loss | 20,236 | 14,393 | 10,072 | |||||||||
Amortization of prior service costs | (7,216 | ) | (10,229 | ) | (10,321 | ) | ||||||
Gains on curtailments and settlements | (876 | ) | — | — | ||||||||
Settlement loss resulting from the transfer of the substitutional portion | — | 59,850 | — | |||||||||
Net periodic benefit costs | 48,984 | 89,685 | 23,121 | |||||||||
F-41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Yen in millions Fiscal Year Ended March 31 2005 2006 2007 Service cost 6,419 6,852 7,664 Interest cost 8,091 8,318 10,179 Expected return on plan assets (6,712 ) (7,112 ) (9,123 ) Amortization of net transition asset (18 ) 21 27 Recognized actuarial loss 1,637 1,674 2,536 Amortization of prior service costs (114 ) (240 ) (295 ) Losses on curtailments and settlements 1,713 915 120 Net periodic benefit costs 11,016 10,428 11,108 Japanese plans Foreign plans March 31 March 31 2003 2004 2003 2004 (Yen in millions) (Yen in millions) Change in benefit obligation: Benefit obligation at beginning of the fiscal year 869,142 1,031,760 143,210 157,580 Service cost 47,884 54,501 13,954 11,252 Interest cost 20,857 19,489 8,478 8,566 Plan participants’ contributions 5,148 5,802 706 644 Amendments — — (23 ) 3,900 Actuarial (gain) loss 114,665 (81,873 ) 9,019 431 Foreign currency exchange rate changes — — (9,551 ) (17,082 ) Curtailments and settlements (1,010 ) — (1,092 ) (66 ) Benefits paid (24,926 ) (36,137 ) (7,121 ) (9,387 ) Benefit obligation at end of the fiscal year 1,031,760 993,542 157,580 155,838 Change in plan assets: Fair value of plan assets at beginning of the fiscal year 456,678 405,248 82,602 67,937 Actual return (loss) on plan assets (66,682 ) 93,154 (10,466 ) 13,065 Foreign currency exchange rate changes — — (3,287 ) (3,420 ) Employer contribution 21,296 23,243 5,235 16,475 Plan participants’ contributions 5,148 5,802 706 644 Benefits paid (11,192 ) (14,352 ) (6,853 ) (9,039 ) Fair value of plan assets at end of the fiscal year 405,248 513,095 67,937 85,662 Funded status 626,512 480,447 89,643 70,176 Unrecognized actuarial loss (513,012 ) (328,467 ) (38,702 ) (27,550 ) Unrecognized net transition asset 854 479 (180 ) (211 ) Unrecognized prior service cost 21,579 20,784 1,283 748 Net amount recognized 135,933 173,243 52,044 43,163 Amounts recognized in the consolidated balance sheet consist of: Accrued pension and severance costs, including current portion 444,636 322,677 72,048 58,843 Intangibles (22,433 ) (21,263 ) (128 ) (113 ) Accumulated other comprehensive income (286,270 ) (128,171 ) (19,876 ) (15,567 ) Net amount recognized 135,933 173,243 52,044 43,163 Japanese plans Foreign plans Yen in millions Yen in millions March 31 March 31 2006 2007 2006 2007 Change in benefit obligation: Benefit obligation at beginning of the fiscal year 901,726 619,869 153,598 194,169 Service cost 26,561 27,175 6,852 7,664 Interest cost 16,504 13,494 8,318 10,179 Plan participants’ contributions — — 609 557 Amendments (11,522 ) (1,693 ) 238 (898 ) Actuarial (gain) loss (3,200 ) (7,053 ) 20,183 4,693 Foreign currency exchange rate changes — — 17,506 9,040 Curtailments and settlements — — (4,465 ) — Benefits paid (18,630 ) (15,251 ) (8,670 ) (8,524 ) Transfer of the substitutional portion to the government (291,570 ) — — — Benefit obligation at end of the fiscal year 619,869 636,541 194,169 216,880
F-42
Japanese plans Foreign plans Yen in millions Yen in millions March 31 March 31 2006 2007 2006 2007 Change in plan assets: Fair value of plan assets at beginning of the fiscal year 534,451 489,328 92,025 104,394 Actual return on plan assets 51,766 4,199 11,209 14,393 Foreign currency exchange rate changes — — 5,059 13,268 Employer contribution 32,867 37,032 5,493 21,820 Plan participants’ contributions — — 609 557 Curtailments and settlements — — (4,006 ) (120 ) Benefits paid (11,911 ) (11,299 ) (5,995 ) (8,524 ) Transfer of the substitutional portion to the government (117,845 ) — — — Fair value of plan assets at end of the fiscal year 489,328 519,260 104,394 145,788 Funded status at end of year (130,541 ) (117,281 ) (89,775 ) (71,092 ) Unrecognized actuarial loss 169,915 — 41,587 — Unrecognized net transition asset — — 153 — Unrecognized prior service cost (135,733 ) — (911 ) — Net amount recognized (96,359 ) (117,281 ) (48,946 ) (71,092 )
Japanese plans | Foreign plans | |||||||||||||||
Yen in millions | Yen in millions | |||||||||||||||
March 31 | March 31 | |||||||||||||||
2006 | 2007 | 2006 | 2007 | |||||||||||||
Noncurrent assets | 2,650 | 14 | 1,383 | 473 | ||||||||||||
Current liabilities | — | — | — | (6,556 | ) | |||||||||||
Noncurrent liabilities | (134,849 | ) | (117,295 | ) | (70,986 | ) | (65,009 | ) | ||||||||
Accumulated other comprehensive income — Minimum pension liabilities | 35,840 | — | 20,657 | — | ||||||||||||
Ending Balance | (96,359 | ) | (117,281 | ) | (48,946 | ) | (71,092 | ) | ||||||||
Japanese plans | Foreign plans | |||||||||||||||
Yen in millions | Yen in millions | |||||||||||||||
March 31 | March 31 | |||||||||||||||
2006 | 2007 | 2006 | 2007 | |||||||||||||
Minimum pension liabilities | 35,840 | — | 20,657 | — | ||||||||||||
Prior service cost (credit) | — | (127,106 | ) | — | (1,403 | ) | ||||||||||
Net actuarial loss (gain) | — | 200,618 | — | 38,474 | ||||||||||||
Obligation (asset) existing at transition | — | — | — | 343 | ||||||||||||
Ending Balance | 35,840 | 73,512 | 20,657 | 37,414 | ||||||||||||
F-43
plan asplans follows: Japanese plans Foreign plans March 31 March 31 2003 2004 2003 2004 (Yen in millions) (Yen in millions) 855,116 830,898 118,387 129,879 Under FAS No. 87 Sony has recorded a pension liability to cover the amount of the projected benefit obligation in excess of plan assets, considering unrealized items and the minimum pension liability. The minimum pension liability represents the excess of the accumulated benefit obligation over plan assets and accrued pension and severance costs already recognized before recording the minimum pension liability. A corresponding amount was recognized as an intangible asset to the extent of the unrecognized prior service cost, and the balance was recorded as a component of accumulated other comprehensive income, net of tax. Japanese plans Foreign plans Yen in millions Yen in millions March 31 March 31 2006 2007 2006 2007 Accumulated benefit obligation 613,055 635,603 143,031 181,356 the fair value of plan assets for the pension plans which Sony has recognized the minimum pension liabilitywith accumulated benefit obligations in excess of plan assets were as follows: Japanese plans Foreign plans March 31 March 31 2003 2004 2003 2004 (Yen in millions) (Yen in millions) Projected benefit obligations 1,016,889 978,357 124,055 124,447 Accumulated benefit obligations 843,463 821,020 102,313 110,539 Fair value of plan assets 405,009 512,720 63,024 72,031 Japanese plans Foreign plans Yen in millions Yen in millions March 31 March 31 2006 2007 2006 2007 Projected benefit obligations 617,883 638,560 158,353 187,637 Accumulated benefit obligations 612,410 634,847 139,431 171,735 Fair value of plan assets 488,588 518,375 99,798 136,361 2002, 20032006 and 20042007 were as follows:Japanese plans:
March 31 | ||||||||||||
2002 | 2003 | 2004 | ||||||||||
Discount rate | 2.4 | % | 1.9 | % | 2.4 | % | ||||||
Rate of compensation increase | 3.0 | 3.0 | 3.0 |
March 31 | ||||||||||||
2002 | 2003 | 2004 | ||||||||||
Discount rate | 6.6 | % | 6.3 | % | 5.8 | % | ||||||
Rate of compensation increase | 4.5 | 4.1 | 4.0 |
March 31 2006 2007 Discount rate 2.2 % 2.3 % Rate of compensation increase 3.2 2.5 March 31 2006 2007 Discount rate 5.1 % 5.3 % Rate of compensation increase 3.7 3.6 pension and severanceperiodic benefit costs for the fiscal years ended March 31, 2002, 20032005, 2006 and 20042007 were as follows:Japanese plans:
Year Ended March 31 | ||||||||||||
2002 | 2003 | 2004 | ||||||||||
Discount rate | 2.7 | % | 2.4 | % | 1.9 | % | ||||||
Expected return on plan assets | 4.0 | 4.0 | 4.0 | |||||||||
Rate of compensation increase | 3.0 | 3.0 | 3.0 |
Fiscal Year Ended March 31 | ||||||||||||
2005 | 2006 | 2007 | ||||||||||
Discount rate | 2.4 | % | 2.3 | % | 2.2 | % | ||||||
Expected return on plan assets | 3.2 | 3.5 | 3.7 | |||||||||
Rate of compensation increase | 3.0 | 3.3 | 3.2 |
Fiscal Year Ended March 31 | ||||||||||||
2005 | 2006 | 2007 | ||||||||||
Discount rate | 5.8 | % | 5.4 | % | 5.1 | % | ||||||
Expected return on plan assets | 7.8 | 7.8 | 7.3 | |||||||||
Rate of compensation increase | 4.0 | 3.7 | 3.6 |
F-43
F-44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Year Ended March 31 | ||||||||||||
2002 | 2003 | 2004 | ||||||||||
Discount rate | 6.8 | % | 6.6 | % | 6.3 | % | ||||||
Expected return on plan assets | 7.7 | 8.1 | 8.3 | |||||||||
Rate of compensation increase | 4.6 | 4.5 | 4.1 |
As required under FAS No. 87, “Employers’ Accounting for Pensions”, the assumptions are reviewed in accordance with changes in circumstances.
March 31 | ||||||||
2003 | 2004 | |||||||
Equity securities | 53.0 | % | 39.0 | % | ||||
Debt securities | 34.4 | 14.7 | ||||||
Cash | 8.8 | 42.7 | ||||||
Other | 3.8 | 3.6 | ||||||
Total | 100 | % | 100 | % | ||||
March 31 | ||||||||
2003 | 2004 | |||||||
Equity securities | 66.0 | % | 63.2 | % | ||||
Debt securities | 25.1 | 26.6 | ||||||
Real estate | 1.6 | 3.2 | ||||||
Other | 7.3 | 7.0 | ||||||
Total | 100 | % | 100 | % | ||||
March 31 2006 2007 Equity securities 38.1 % 38.6 % Debt securities 47.7 48.6 Cash 6.0 5.3 Other 8.2 7.5 Total 100.0 % 100.0 %
March 31 | ||||||||
2006 | 2007 | |||||||
Equity securities | 69.1 | % | 69.0 | % | ||||
Debt securities | 20.8 | 18.4 | ||||||
Real estate | 6.8 | 6.3 | ||||||
Other | 3.3 | 6.3 | ||||||
Total | 100.0 | % | 100.0 | % | ||||
For Sony’s principal pension plans, the target allocation as of March 31, 2004,2007, is, as a result of our Asset Liability management, 67%34% of public equity, and 33%56% of fixed income securities. However, when the performancesecurities and 10% of public equity markets is considered to be below a certain level described in our investment guidelines, the allocation of assets to public equity securities is decreased to 51% of total assets.other. When determining an appropriate asset allocation, diversification among assets is duly considered. The actual asset allocation as of March 31, 2004 for Sony’s principal pension plans does not meet the aforementioned target allocation. As Sony’s investment policy including target allocation is currently being reviewed and revised aiming for the revision of the pension plan scheduled in the first half of the year ending March 31,
F-44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2005, actual asset allocation to cash, for example, as of March 31, 2004 is tentatively increased for transition purpose.
F-45
Japanese plans | ||||
(Yen in | ||||
millions) | ||||
Year ending March 31, | ||||
2005 | 22,168 | |||
2006 | 23,864 | |||
2007 | 24,093 | |||
2008 | 25,537 | |||
2009 | 29,243 | |||
2010 - 2014 | 190,312 |
14. Stockholders’ equity
Japanese plans | Foreign plans | |||||||
Yen in millions | Yen in millions | |||||||
Fiscal Year Ending March 31, 2008 | 19,204 | 9,310 | ||||||
2009 | 21,096 | 8,034 | ||||||
2010 | 25,443 | 8,893 | ||||||
2011 | 28,984 | 9,824 | ||||||
2012 | 30,357 | 10,337 | ||||||
2013 — 2017 | 169,549 | 68,489 |
15. | Stockholders’ equity |
The dividend on the All shares of this series of subsidiary tracking stock is payable only when the Boardwere converted to shares of Directors of SCN has resolved to pay to itsSony common stock holderson December 1, 2005. As a dividend in an amount per shareresult of the subsidiary tracking stock equal to the amount of SCN’s dividend per share of its common stock multiplied by the Standard Ratio (as defined in the articles of incorporation), subject to statutory restriction on Sony Corporation’s ability to pay dividends on its shares of capital stock and the maximum dividend amount (as defined in the articles of incorporation). If the amount of dividends paid to the subsidiary tracking stock holders is less than the amount, which should have been paid pursuant to the formula set forth above due to the statutory restriction referred to above or for any other reason, such shortfall will be accumulated and such cumulative amount will be paid to the subsidiary tracking stock holders for subsequent fiscal years. Any such dividend on the subsidiary tracking stock is payable in priority to the payment of dividends to the common stock holders. However, the subsidiary tracking stockholders have no right to participate in the dividends to common stock holders. Furthermore, even if the Board of Directors of SCN does not take a resolution for the payment of dividends to SCN’s common stock holders, Sony Corporation may decide to pay dividends to its common stock holders.
The subsidiary tracking stockholders have the same voting rights as those of the common stock holders and, thus, are entitled to participate and vote at any General Meeting of Shareholders in the same way as the common stock holders. In addition, as each series of subsidiary tracking stock is a separate class of stock different from common stock, if any resolution of the General Meeting of Shareholders
F-45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
would adversely affect the rights of the shareholders of a particular class of subsidiary tracking stock, the shareholders of each class of subsidiary tracking stock will have the right to approve or disapprove such resolution by a special resolution of the meeting of shareholders of that class of subsidiary tracking stock.
In the event of distribution of residual assets to the shareholders of Sony Corporation where, as long as such assets include shares of common stock of SCN,conversion, the number of shares of SCNSony common stock obtainedto be issued upon conversion was calculated by multiplying the number of shares of the subsidiary tracking stock heldas of November 30, 2005 by each holder by the Standard Ratio or the net proceeds from the sale of the shares of SCN common stock so to be distributed will be distributed to the holders of the subsidiary tracking stock.
The shares of subsidiary tracking stock may be subject to repurchase and retirement in the same manner and under the same restriction as the shares of common stock. In addition, at any time after the passage of three years from the date of the initial issuance of shares of a series of subsidiary tracking stock, it may retire the entire amount of all outstanding shares of that series of subsidiary tracking stock upon paying to the shareholders thereof an amount equal to the current market price of the subsidiary tracking stock out of Sony Corporation’s retained earnings available for dividend payments. Sony Corporation may also retire the shares of a series of subsidiary tracking stock in their entirety pursuant to the procedures prescribed by the Japanese Commercial Code for the reduction of capital upon payment to the subsidiary tracking stock holders an amount equal to the market value thereof as set forth above.
At any time after the passage of three years from the date of the initial issuance of shares of a series of subsidiary tracking stock, it may convert the entire amount of all outstanding shares of the subsidiary tracking stock into the shares of Sony Corporation’s common stock at the rate of the multiple of 1.1 of the market value (as defined in the articles of incorporation) of shares of the subsidiary tracking stock divided by the market value (as similarly defined) of the shares of Sony Corporation’s common stock.
If any events (as defined in the articles of incorporation) occur, the entire amount of all outstanding shares of the subsidiary tracking stock will be either retired or converted into shares of Sony Corporation’s common stock at the price or rate set forth above.
1.114. The number of shares of the subsidiary trackingSony common stock issued and outstanding at March 31, 2004upon conversion was 3,072,000. At March 31, 2004, 136,454 shares of the subsidiary tracking stock would be issued upon exercise of warrants and stock acquisition rights outstanding.
3,452,808. SCN subsequently changed its name toSo-net Entertainment Corporation(“So-net”) in October, 2006.
shares | |||||
Balance at March 31, 2004 | 926,418,280 | ||||
Conversion of convertible bonds | 70,765,533 | ||||
Exercise of stock acquisition rights | 27,400 | ||||
Balance at March 31, 2005 | 997,211,213 | ||||
Conversion of convertible bonds | 484,200 | ||||
Conversion of subsidiary tracking stock | 3,452,808 | ||||
Exercise of stock acquisition rights | 531,443 | ||||
Balance at March 31, 2006 | 1,001,679,664 | ||||
Conversion of convertible bonds | 197,700 | ||||
Exercise of stock acquisition rights | 1,019,900 | ||||
Balance at March 31, 2007 | 1,002,897,264 | ||||
F-46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
On October 1, 2002, Sony Corporation implemented a share exchange as a result of which Aiwa Co., Ltd. became a wholly-owned subsidiary. As a result of this share exchange, Sony Corporation issued 2,502,491 new shares, the minority interest in Aiwa Co., Ltd. was eliminated from the balance sheet, and additional paid-in capital increased 15,791 million yen.
F-46
On May 1, 2003, Sony Corporation implemented a share exchange as a result of which CIS Corporation became a wholly-owned subsidiary. As a result of this share exchange, Sony Corporation issued 1,088,304 new shares, and additional paid-in capital increased 5,409 million yen.
On November 20, 1991, Sony Corporation made a free share distribution of 33,908,621 shares in ratios of one share for each ten shares held for which no accounting entry was required in Japan. Had the distribution been accounted for in the manner adopted by companies in the United States of America, 201,078 million yen would have been transferred from retained earnings to the appropriate capital accounts. This has been the only free distribution of common stock where no accounting entry was required in Japan.
The Ordinary General Meeting of Shareholders held on June 27, 1997 authorized Sony Corporation, pursuant to the Japanese regulations, to acquire and retire up to a total not exceeding 30 million outstanding shares of its common stock with its profit, whenever deemed necessary by the Board of Directors in view of general economic conditions, Sony’s business performance and financial condition and other factors. Subsequently, the Ordinary General Meeting of Shareholders held on June 29, 2000 increased the maximum number of shares of its common stock up to 90 million shares on and after June 30, 2000 and the Extraordinary General Meeting of Shareholders held on January 25, 2001 authorized Sony Corporation to acquire and retire the subsidiary tracking stock as well as its common stock on and after January 26, 2001.
The Ordinary General Meeting of Shareholders held on June 26, 1998 approved that (a) in addition to the shares discussed in the preceding paragraph, Sony Corporation could, by a resolution of the Board of Directors, acquire and retire up to a total not exceeding 30 million outstanding shares of its common stock with its additional paid-in capital at prices in total not exceeding 400 billion yen and (b) Sony Corporation may grant share subscription rights to directors and/or employees pursuant to the Japanese regulations. Subsequently, the Extraordinary General Meeting of Shareholders held on January 25, 2001 authorized Sony Corporation to acquire and retire the subsidiary tracking stock as well as its common stock on and after January 26, 2001.
Prior to the amendments to the Japanese Commercial Code enacted on April 1, 2002, purchase and retirement by Sony Corporation of its own shares could be made at any time by resolution of the Board of Directors. No common stock and subsidiary tracking stock had been acquired under the approval during the year ended March 31, 2002.
Following the amendments to the Japanese Commercial Code enacted on April 1, 2002, purchase by Sony Corporation of its own shares was subject to the prior approval of shareholders at the Ordinary General Meeting of Shareholders, which included the maximum number of shares and the maximum total amount to be purchased for each class of stock. Once such approval of shareholders was obtained, Sony Corporation could purchase its own shares at any time during the period up to the conclusion of next Ordinary General Meeting of Shareholders.
F-47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Ordinary General Meeting of Shareholders held on June 20, 2002 approved that Sony Corporation acquire up to a total not exceeding 90 million outstanding shares of its common stock at an amount in a total not exceeding 650 billion yen and a total not exceeding 300 thousand outstanding shares of the subsidiary tracking stock at an amount in total not exceeding 1 billion yen until the conclusion of the General Meeting of Shareholders held for the year ended March 31, 2003. As a result, no common stock and subsidiary tracking stock had been acquired under this approval.
The Ordinary General Meeting of Shareholders held on June 20, 2003 approved that Sony Corporation acquire up to a total not exceeding 90 million outstanding shares of its common stock at an amount in a total not exceeding 400 billion yen and a total not exceeding 300 thousand outstanding shares of the subsidiary tracking stock at an amount in total not exceeding 1 billion yen. As a result, Sony Corporation had acquired 2 million outstanding shares of its common stock at an amount in 8,200 million yen. No subsidiary tracking stock had been acquired under this approval.
The Ordinary General Meeting of Shareholders held on June 22, 2004 approved to amend the articles of incorporation that Sony Corporation may purchase its own shares by a resolution of the Board of Directors, in accordance with the amendments to the Japanese Commercial code enacted on September 25, 2003. With the amendment of the articles of incorporation,
shareholders, in accordance with Japanese Company Law. No common stock and subsidiary tracking stock had been acquired by the resolution of the Board of Directors during the fiscal years ended March 31, 2006 and 2007.
Company Law.
F-48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Pre-tax | Tax | Net-of-tax | ||||||||||||||
amount | expense | amount | ||||||||||||||
(Yen in millions) | ||||||||||||||||
For the year ended March 31, 2002: | ||||||||||||||||
Unrealized gains on securities — | ||||||||||||||||
Unrealized holding gains or losses arising during the period | (24,857 | ) | 4,614 | (20,243 | ) | |||||||||||
Less: Reclassification adjustment for gains or losses included in net income | (2,594 | ) | 1,318 | (1,276 | ) | |||||||||||
Unrealized losses on derivative instruments — | ||||||||||||||||
Cumulative effect of an accounting change | 2,040 | (951 | ) | 1,089 | ||||||||||||
Unrealized holding gains or losses arising during the period | 5,470 | (3,033 | ) | 2,437 | ||||||||||||
Less: Reclassification adjustment for gains or losses included in net income | (7,200 | ) | 2,963 | (4,237 | ) | |||||||||||
Minimum pension liability adjustment | (38,391 | ) | 16,163 | (22,228 | ) | |||||||||||
Foreign currency translation adjustments | 101,483 | (4,051 | ) | 97,432 | ||||||||||||
Other comprehensive income | 35,951 | 17,023 | 52,974 | |||||||||||||
For the year ended March 31, 2003: | ||||||||||||||||
Unrealized gains on securities — | ||||||||||||||||
Unrealized holding gains or losses arising during the period | (18,575 | ) | 8,948 | (9,627 | ) | |||||||||||
Less: Reclassification adjustment for gains or losses included in net income | 3,421 | 867 | 4,288 | |||||||||||||
Unrealized losses on derivative instruments — | ||||||||||||||||
Unrealized holding gains or losses arising during the period | (6,268 | ) | 1,791 | (4,477 | ) | |||||||||||
Less: Reclassification adjustment for gains or losses included in net income | 682 | (287 | ) | 395 | ||||||||||||
Minimum pension liability adjustment | (181,725 | ) | 71,089 | (110,636 | ) | |||||||||||
Foreign currency translation adjustments — Translation adjustments arising during the period | (87,103 | ) | 3,110 | (83,993 | ) | |||||||||||
Less: Reclassification adjustment for losses included in net income | 7,665 | — | 7,665 | |||||||||||||
Other comprehensive income | (281,903 | ) | 85,518 | (196,385 | ) | |||||||||||
Yen in millions | ||||||||||||
Tax | Net-of-tax | |||||||||||
Pre-tax amount | benefit/(expense) | amount | ||||||||||
For the fiscal year ended March 31, 2005: | ||||||||||||
Unrealized gains on securities — | ||||||||||||
Unrealized holding gains (losses) arising during the period | 7,184 | (1,541 | ) | 5,643 | ||||||||
Less: Reclassification adjustment included in net income | (18,140 | ) | 5,216 | (12,924 | ) | |||||||
Unrealized losses on derivative instruments — | ||||||||||||
Unrealized holding gains (losses) arising during the period | (2,015 | ) | 1,806 | (209 | ) | |||||||
Less: Reclassification adjustment included in net income | (2,848 | ) | 1,167 | (1,681 | ) | |||||||
Minimum pension liability adjustment | (1,700 | ) | 931 | (769 | ) | |||||||
Foreign currency translation adjustments — | ||||||||||||
Translation adjustments arising during the period | 76,585 | (2,361 | ) | 74,224 | ||||||||
Other comprehensive income | 59,066 | 5,218 | 64,284 | |||||||||
F-49
F-47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Pre-tax | Tax | Net-of-tax | ||||||||||||||
amount | expense | amount | ||||||||||||||
(Yen in millions) | ||||||||||||||||
For the year ended March 31, 2004: | ||||||||||||||||
Unrealized gains on securities — | ||||||||||||||||
Unrealized holding gains or losses arising during the period | 89,861 | (31,890 | ) | 57,971 | ||||||||||||
Less: Reclassification adjustment for gains or losses included in net income | (7,371 | ) | 1,692 | (5,679 | ) | |||||||||||
Unrealized losses on derivative instruments — | ||||||||||||||||
Unrealized holding gains or losses arising during the period | 11,586 | (4,049 | ) | 7,537 | ||||||||||||
Less: Reclassification adjustment for gains or losses included in net income | (5,961 | ) | 2,617 | (3,344 | ) | |||||||||||
Minimum pension liability adjustment | 162,408 | (68,993 | ) | 93,415 | ||||||||||||
Foreign currency translation adjustments — | ||||||||||||||||
Translation adjustments arising during the period | (134,312 | ) | 5,199 | (129,113 | ) | |||||||||||
Less: Reclassification adjustment for losses included in net income | 1,232 | — | 1,232 | |||||||||||||
Other comprehensive income | 117,443 | (95,424 | ) | 22,019 | ||||||||||||
Yen in millions Tax Net-of-tax Pre-tax amount benefit/(expense) amount For the fiscal year ended March 31, 2006: Unrealized gains on securities — Unrealized holding gains (losses) arising during the period 125,263 (45,633 ) 79,630 Less: Reclassification adjustment included in net income (64,953 ) 23,458 (41,495 ) Unrealized losses on derivative instruments — Unrealized holding gains (losses) arising during the period 14,888 (7,023 ) 7,865 Less: Reclassification adjustment included in net income (12,597 ) 5,173 (7,424 ) Minimum pension liability adjustment 88,941 (38,735 ) 50,206 Foreign currency translation adjustments — Translation adjustments arising during the period 143,888 (3,415 ) 140,473 Less: Reclassification adjustment included in net income (17 ) — (17 ) Other comprehensive income 295,413 (66,175 ) 229,238 For the fiscal year ended March 31, 2007: Unrealized gains on securities — Unrealized holding gains (losses) arising during the period 6,242 721 6,963 Less: Reclassification adjustment included in net income (34,416 ) 12,745 (21,671 ) Unrealized losses on derivative instruments — Unrealized holding gains (losses) arising during the period 10,786 (3,879 ) 6,907 Less: Reclassification adjustment included in net income (10,056 ) 4,123 (5,933 ) Minimum pension liability adjustment (8,160 ) 5,406 (2,754 ) Foreign currency translation adjustments — Translation adjustments arising during the period 88,957 (2,644 ) 86,313 Other comprehensive income 53,353 16,472 69,825
15. Stock-based compensation plansF-48
16. | Stock-based compensation plans |
Fiscal Year Ended March 31 | ||||||||||||||||
2007 | ||||||||||||||||
Weighted- | Weighted- | Total | ||||||||||||||
Number of | average | average | Intrinsic | |||||||||||||
Shares | exercise price | remaining life | Value | |||||||||||||
Yen | Years | Yen in millions | ||||||||||||||
Outstanding at beginning of the fiscal year | 2,068,300 | 8,901 | ||||||||||||||
Expired | (922,400 | ) | 12,457 | |||||||||||||
Outstanding at end of the fiscal year | 1,145,900 | 6,039 | 0.75 | — | ||||||||||||
Exercisable at end of the fiscal year | 1,145,900 | 6,039 | 0.75 | — | ||||||||||||
F-50
F-49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Fiscal Year Ended March 31 | ||||||||||||||||
2007 | ||||||||||||||||
Weighted- | Weighted- | Total | ||||||||||||||
Number of | average | average | Intrinsic | |||||||||||||
Shares | exercise price | remaining life | Value | |||||||||||||
Yen | Years | Yen in millions | ||||||||||||||
Outstanding at beginning of the fiscal year | 2,493,500 | 8,133 | ||||||||||||||
Exercised | (197,700 | ) | 5,975 | |||||||||||||
Expired | (560,500 | ) | 6,186 | |||||||||||||
Outstanding at end of the fiscal year | 1,735,300 | 9,008 | 4.27 | — | ||||||||||||
Exercisable at end of the fiscal year | 1,735,300 | 9,008 | 4.27 | — | ||||||||||||
Presented below is a summary of the activity for common stock warrant, convertible bond and stock acquisition rights plans for the years shown:
Year Ended March 31 | ||||||||||||||||||||||||
2002 | 2003 | 2004 | ||||||||||||||||||||||
Weighted- | Weighted- | Weighted- | ||||||||||||||||||||||
average | average | average | ||||||||||||||||||||||
Number of | exercise | Number of | exercise | Number of | exercise | |||||||||||||||||||
Shares | price | Shares | price | Shares | price | |||||||||||||||||||
(Yen) | (Yen) | (Yen) | ||||||||||||||||||||||
Outstanding at beginning of the fiscal year | 2,800,270 | 9,911 | 5,853,892 | 8,648 | 9,640,892 | 7,832 | ||||||||||||||||||
Granted | 3,397,300 | 6,877 | 3,874,100 | 5,313 | 4,148,700 | 4,434 | ||||||||||||||||||
Exercised | (8,294 | ) | 6,264 | — | — | — | — | |||||||||||||||||
Forfeited | (335,384 | ) | 6,384 | (87,100 | ) | 8,306 | (556,700 | ) | 6,760 | |||||||||||||||
Outstanding at end of the fiscal year | 5,853,892 | 8,648 | 9,640,892 | 7,832 | 13,232,892 | 5,831 | ||||||||||||||||||
Exercisable at end of the fiscal year | 2,082,640 | 8,127 | 4,314,292 | 9,773 | 6,828,992 | 7,002 | ||||||||||||||||||
A summary of common stock warrants, convertible bond options and stock acquisition rights outstanding and exercisable at March 31, 2004 is as follows:
Outstanding | Exercisable | |||||||||||||||||||||
Weighted- | Weighted- | Weighted- | ||||||||||||||||||||
Exercise price | Number of | average | average | Number of | average | |||||||||||||||||
range | Shares | exercise price | remaining life | Shares | exercise price | |||||||||||||||||
(Yen) | (Yen) | (Years) | (Yen) | |||||||||||||||||||
3,864~7,000 | 10,534,192 | 4,777 | 7.78 | 4,329,092 | 5,191 | |||||||||||||||||
7,001~12,992 | 2,698,700 | 9,946 | 4.23 | 2,499,900 | 10,138 | |||||||||||||||||
3,864~12,992 | 13,232,892 | 5,831 | 7.05 | 6,828,992 | 7,002 | |||||||||||||||||
A summary of subsidiary tracking stock warrants and stock acquisition rights outstanding and exercisable at March 31, 2004 is as follows:
Outstanding | Exercisable | |||||||||||||||||||||
Weighted- | Weighted- | Weighted- | ||||||||||||||||||||
Exercise price | Number of | average | average | Number of | average | |||||||||||||||||
range | Shares | exercise price | remaining life | Shares | exercise price | |||||||||||||||||
(Yen) | (Yen) | (Years) | (Yen) | |||||||||||||||||||
815~3,300 | 136,454 | 1,702 | 7.40 | 45,100 | 2,533 |
As the exercise prices for the warrant, convertible bond and stock acquisition rights plans were determined based on the prevailing market price shortly before the date of grant, the compensation
F-51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
expense for these plans was not significant for the years ended March 31, 2002, 2003 and 2004, respectively.
for common stock warrants, convertible bond options andof stock acquisition rights granted during the fiscal years ended March 31, 2002, 20032005, 2006 and 20042007 were 2,5541,085 yen, 1,7071,585 yen and 1,2301,770 yen, respectively. The fair value of common stock warrants, convertible bond options and stock acquisition rights granted on the date of grant which is amortizedand used to recognize compensation expense overfor the vesting period in determiningfiscal year ended March 31, 2007, and the pro forma impact, ispro-forma impacts on net income for the fiscal years ended March 31, 2005 and 2006 were estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions: Year Ended March 31 Weighted-average assumptions 2002 2003 2004 Risk-free interest rate 2.58% 1.73% 1.27% Expected lives 3.28 years 3.30 years 3.56 years Expected volatility 50.81% 44.54% 43.70% Expected dividend 0.40% 0.49% 0.63% Fiscal Year Ended March 31 2005 2006 2007 Weighted-average assumptions Risk-free interest rate 2.04 % 2.90 % 3.28 % Expected lives 3.54 years 6.14 years 6.30 years Expected volatility 35.56 % 39.50 % 34.17 % Expected dividends 0.62 % 0.61 % 0.53 %
F-50
Fiscal Year Ended March 31 | ||||||||||||||||
2007 | ||||||||||||||||
Weighted- | Weighted- | Total | ||||||||||||||
Number of | average | average | Intrinsic | |||||||||||||
Shares | exercise price | remaining life | Value | |||||||||||||
Yen | Years | Yen in millions | ||||||||||||||
Outstanding at beginning of the fiscal year | 9,100,700 | 4,351 | ||||||||||||||
Granted | 2,519,300 | 4,693 | ||||||||||||||
Exercised | (1,019,900 | ) | 4,235 | |||||||||||||
Forfeited or expired | (301,500 | ) | 4,457 | |||||||||||||
Outstanding at end of the fiscal year | 10,298,600 | 4,461 | 7.97 | 15,606 | ||||||||||||
Exercisable at end of the fiscal year | 4,796,300 | 4,470 | 6.92 | 7,237 | ||||||||||||
Fiscal Year Ended March 31 | ||||||||
2007 | ||||||||
Weighted- | ||||||||
average | ||||||||
Number of | Grant-date | |||||||
Shares | Fair value | |||||||
Yen | ||||||||
Outstanding at beginning of the fiscal year | 5,964,500 | 1,437 | ||||||
Granted | 2,519,300 | 1,770 | ||||||
Vested | (2,734,500 | ) | 1,362 | |||||
Forfeited or expired | (247,000 | ) | 1,483 | |||||
Outstanding at end of the fiscal year | 5,502,300 | 1,625 | ||||||
F-51
Sony grants stock appreciationsStock appreciation rights (“SARs”) plan:
In December 2001, Sony
F-52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The status of the SAR plans is summarized as follows:
Year Ended March 31 | ||||||||||||||||||||||||
2002 | 2003 | 2004 | ||||||||||||||||||||||
Weighted- | Weighted- | Weighted- | ||||||||||||||||||||||
Number of | average | Number of | average | Number of | average | |||||||||||||||||||
SARs | exercise price | SARs | exercise price | SARs | exercise price | |||||||||||||||||||
(Yen) | (Yen) | (Yen) | ||||||||||||||||||||||
Outstanding at beginning of the fiscal year | 3,565,246 | 6,218 | 2,410,394 | 6,644 | 2,343,028 | 6,341 | ||||||||||||||||||
Granted | 141,525 | 7,813 | 28,750 | 6,323 | — | — | ||||||||||||||||||
Exercised | (91,330 | ) | 5,862 | (11,800 | ) | 5,727 | — | — | ||||||||||||||||
Cancelled | (1,192,672 | ) | 5,951 | — | — | — | — | |||||||||||||||||
Expired or forfeited | (12,375 | ) | 8,520 | (84,316 | ) | 7,274 | (816,460 | ) | 5,494 | |||||||||||||||
Outstanding at end of the fiscal year | 2,410,394 | 6,644 | 2,343,028 | 6,341 | 1,526,568 | 6,424 | ||||||||||||||||||
Exercisable at end of the fiscal year | 1,864,928 | 6,282 | 2,176,319 | 6,211 | 1,462,391 | 6,421 | ||||||||||||||||||
A summary of111,200 SARs outstanding and the weighted-average exercise price was 9,133 yen. All SARs were exercisable atas of March 31, 2004 is as follows:
Outstanding | Exercisable | |||||||||||||||||||||
Weighted- | Weighted- | Weighted- | ||||||||||||||||||||
Exercise price | Number of | average | average | Number of | average | |||||||||||||||||
range | SARs | exercise price | remaining life | SARs | exercise price | |||||||||||||||||
(Yen) | (Yen) | (Years) | (Yen) | |||||||||||||||||||
3,183~5,000 | 302,984 | 4,079 | 2.18 | 282,365 | 4,035 | |||||||||||||||||
5,001~10,000 | 1,199,459 | 6,886 | 1.70 | 1,155,901 | 6,868 | |||||||||||||||||
10,001~15,000 | 24,125 | 12,938 | 4.71 | 24,125 | 12,938 | |||||||||||||||||
3,183~15,000 | 1,526,568 | 6,424 | 1.84 | 1,462,391 | 6,421 | |||||||||||||||||
In accordance with APB2007.
16. Restructuring charges and asset impairments
17. | Restructuring charges and asset impairments |
F-53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
106,251 138,692 million yen and 168,09138,770 million yen, respectively. Significant restructuring charges and asset impairments include the following:
Electronics Segment
In the year ended March 31, 2002, as flat panel monitors became more popular in the marketplace, the demand for computer
In the year ended March 31, 2003, due to furtherworldwide market shrinkage and demand shift from CRT displays to LCDs,LCD panel displays, Sony has implemented a worldwide plan to rationalize production facilities of CRT TV display and has been downsizing its business over several years.
In the year ended March 31, 2004, due to market shrinkage and demand shift from CRT displays to plasma and LCD panel displays, Sony made a decision to discontinue certain TV display CRT manufacturing operations in Japan to rationalize production facilities and downsize its business. Restructuring charges totaling 8,478 million yen consisted of personnel related costs of 3,1391,962 million yen and non-cash equipment impairment, disposal and other costs of 5,33930,526 million yen. Of the total restructuring charges, 1586,982 million yen was recorded in cost of sales; 3,139 million yen was included in selling, generalsales, and administrative expense, and 5,18125,506 million yen was included in loss on sale, disposal or impairment of assets, net in the consolidated statements of income. This restructuring activity was completed asIn addition, Sony recorded a non-cash impairment charge of March 31, 2004 and no further costs are expected to be incurred for this restructuring activity. The remaining liability balance as of March 31, 2004 was 2,2272,856 million yen and will be paid or settled through the year ending March 31, 2005.for CRT TV display manufacturing facilities located in Southeast Asia.
F-54
F-52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Due to the continued decline in the operating results of Aiwa, theThese restructuring program that was initiated in the year endedprograms were all completed by March 31, 2002 was accelerated and additional restructuring charges of 23,007 million yen were recorded in the year ended March 31, 2003. Additional restructuring included further cuts in staffing levels and shutdown of remaining production facilities. These charges consisted of non-cash equipment impairment and disposal costs of 3,504 million yen, personnel related costs of 7,647 million yen, devaluation of inventory of 6,144 million yen, operating lease termination costs of 3,823 million yen and other costs of 1,889 million yen Among these charges 13,791 million yen was recorded in cost of sales; 5,712 million yen was included in selling, general and administrative expense, and 3,504 million yen was included in loss on sale, disposal or impairment of assets, net in the consolidated statements of income. The restructuring program was completed in the year ended March 31, 20032007 and no reserveliability existed as of March 31, 2003. Aiwa Co., Ltd. was merged into Sony Corporation as2007.
During the year ended March 31, 2004, Sony recorded net restructuring charges totaling 874 million yen which consisted of the accelerated depreciation and write-down of equipment of 1,982 million yen, gain on disposal of assets of 1,962 million yen, and 854 million yen of other costs including lease contract termination costs. Among these charges 1,760 million yen was recorded in cost of sales, while asset write-down and disposal costs of 1,076 million yen and the gain on asset disposals of 1,962 million yen were included in loss on sale, disposal or impairment of assets, net in the consolidated statements of income. This restructuring program is expected to beactivity was completed byin the endfiscal year ended March 31, 2005 and total restructuring charges of 4,936 million yen, net of the year endinggain on the sale of the facilities discussed above, have been incurred through March 31, 2005. TheNo liability existed as of March 31, 2007.
F-55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Retirement Programs -
F-53
In thefiscal year ended March 31, 2002,2005, in continuation of the worldwide restructuring program and in connection with the establishment of the joint venture with Bertelsmann AG (Note 5), Sony recorded restructuring charges totaling 8,5993,025 million yen.yen within the music business. Restructuring activities included the rationalizationshutdown of digital media initiatives and portfolio investment businesses in order to focus on core music activities and staff reductions. Charges incurred in the year ended March 31, 2002 consisted of personnel related costs of 5,100 million yen, non-cash asset impairment and disposal costs of 787 million yen, and other costs of 2,712 million yen including lease termination costs. Among these charges 7,812 million yen was included in selling, general and administrative expense, and 787 million yen was included in loss on sale, disposal or impairment of assets, net in the consolidated statements of income.
In the year ended March 31, 2003, restructuring charges related to the worldwide restructuringcertain distribution operations that were no longer required as a result of the Music segment totaled 22,350 million yen. Restructuring activities included the further consolidation of operations through the shutdown of a cassette and CD manufacturing and distribution center in Holland and a CD manufacturing facility in the U.S.recorded music joint venture with Bertelsmann AG as well as further staff reductions in other areas. The restructuring charges consisted of personnel related costs of 14,932 million yen, non-cash asset impairment
F-56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
and disposal costs of 3,256 million yen and other costs of 4,162 million yen including lease termination costs. Among these charges 19,094 million yen was recorded in selling, general and administrative expense, and 3,256 million yen was included in loss on sale, disposal or impairment of assets, net in the consolidated statements of income. Employees were eliminated across various employee levels, business functions, operating units, and geographic regions during this phase of the worldwide restructuring program.
During the year ended March 31, 2004, Sony broadened the scope of its worldwide restructuring of the Music segment, which resulted in restructuring charges totaling 10,691 million yen. Restructuring activities included the continuation of the shutdown of the CD manufacturing facility in the U.S. as well as the restructuring of music label operations and the further rationalization of overhead functions through staff reductions. The restructuring charges consisted of personnel related costs of 5,137 million yen, lease abandonment costs of 1,323883 million yen and other related costs of 4,2312,142 million yen including non-cash asset impairment and disposal costs. Mostyen.
In an effort to improve the performance of the Pictures segment, Sony has undergone a number of restructuringits efforts to reduce its operating costs. For the years endedrestructure and eliminate certain non-core businesses, Sony reached an agreement to sell a U.S. entertainment complex in March 31, 2002, 2003 and 2004, Sony recorded total restructuring charges of 8,452 million yen, 480 million yen and 4,611 million yen, respectively, within the Pictures segment. Significant restructuring activities are the following:
Due to changes within the television production and distribution business, the competition between network owned production companies and other production and distribution companies to license product to the major televisions networks is becoming more intense. This competitive environment has resulted in fewer opportunities to produce shows for the networks and a shorter lifespan for ordered shows that do not immediately achieve favorable ratings. This trend has resulted in an increase in the number of new programs being distributed yet canceled in their first or second season, which are generally less profitable, and a decrease in the number of network programs that are able to achieve syndication, which are generally more profitable.2006. As a result, in the year ended March 31, 2002, Sony decided to consolidate its television operations and downsize the network television production business in the Pictures segment. Sony recorded restructuring charges totaling 8,452an impairment charge of 8,522 million yen which consisted of personnel related costs of 1,753 million yen, non-cash assetyen. The impairment and disposal costs of 1,767 million yen, and other costs of 4,932 million yen including those relating tocharge was based on the buy-out of term deal commitments. These restructuring charges were all recorded in cost ofnegotiated sales in the consolidated statements of income. In the year ended March 31, 2003, additional restructuring charges totaling 480 million yen were recorded. These costs were included in cost of sales in the consolidated statements of income. No further costs are expected to be incurred for this restructuring activity. The remaining liability balance was 211 million yen as of March 31, 2004 and will be paid or settled through the year ending March 31, 2005. The restructuring plan is expected to be completed by the second quarterprice of the year ending March 31, 2005.
During the year ended March 31, 2004, the Pictures segment implemented a fixed cost reduction program to further reduce its operating costs. This restructuring program primarily related to the reduction of staffing levelscomplex, and the disposal of certain long-lived assets. The total estimated cost of this restructuring
F-57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
program is 4,928 million yen, of which 4,611 million yen has incurred through March 31, 2004. These restructuring charges consisted of personnel related costs of 993 million yen, non-cash asset impairment and disposal costs of 1,746 million yen, and other costs of 1,872 million yen including those relating to the buy-out of term deal commitments. Of the restructuring costs incurred, 1,525 million yen was included in cost of sales, 1,340 million yen was included in selling, general and administrative expense, and 1,746 million yen was includedrecorded in loss on sale, disposal or impairment of assets, net in the consolidated statements of income. This restructuring program is expected to be completed over the next year and 317 million yen is expected to be incurred
F-54
The following table displays the balance of the accrued restructuring charges recorded for the fiscal years ended March 31, 2002, 20032005, 2006 and 2004.
Employee | Non-cash | ||||||||||||||||
termination | write-downs | Other associated | |||||||||||||||
benefits | and disposals | costs | Total | ||||||||||||||
(Yen in millions) | |||||||||||||||||
Balance at March 31, 2001 | 1,261 | — | 1,088 | 2,349 | |||||||||||||
Restructuring costs | 38,123 | 39,598 | 29,253 | 106,974 | |||||||||||||
Non-cash charges | — | (39,598 | ) | — | (39,598 | ) | |||||||||||
Cash payments | (33,291 | ) | — | (16,907 | ) | (50,198 | ) | ||||||||||
Adjustments | 150 | — | 203 | 353 | |||||||||||||
Balance at March 31, 2002 | 6,243 | — | 13,637 | 19,880 | |||||||||||||
Restructuring costs | 46,953 | 42,768 | 16,530 | 106,251 | |||||||||||||
Non-cash charges | — | (42,240 | ) | — | (42,240 | ) | |||||||||||
Cash payments | (38,548 | ) | — | (23,172 | ) | (61,720 | ) | ||||||||||
Adjustments | 136 | (528 | ) | (1,208 | ) | (1,600 | ) | ||||||||||
Balance at March 31, 2003 | 14,784 | — | 5,787 | 20,571 | |||||||||||||
Restructuring costs | 133,367 | 19,170 | 15,554 | 168,091 | |||||||||||||
Non-cash charges | — | (19,170 | ) | — | (19,170 | ) | |||||||||||
Cash payments | (124,674 | ) | — | (13,686 | ) | (138,360 | ) | ||||||||||
Adjustments | 1,173 | 0 | 333 | 1,506 | |||||||||||||
Balance at March 31, 2004 | 24,650 | — | 7,988 | 32,638 | |||||||||||||
Yen in millions | ||||||||||||||||
Employee | Non-cash | |||||||||||||||
termination | write-downs and | Other associated | ||||||||||||||
benefits | disposals | costs | Total | |||||||||||||
Balance at March 31, 2004 | 24,650 | — | 7,988 | 32,638 | ||||||||||||
Restructuring costs | 53,563 | 25,564 | 10,836 | 89,963 | ||||||||||||
Non-cash charges | — | (25,564 | ) | — | (25,564 | ) | ||||||||||
Cash payments | (61,523 | ) | — | (10,427 | ) | (71,950 | ) | |||||||||
Adjustments* | (1,705 | ) | — | (3,096 | ) | (4,801 | ) | |||||||||
Balance at March 31, 2005 | 14,985 | — | 5,301 | 20,286 | ||||||||||||
Restructuring costs | 48,255 | 76,999 | 13,438 | 138,692 | ||||||||||||
Non-cash charges | — | (76,999 | ) | — | (76,999 | ) | ||||||||||
Cash payments | (42,152 | ) | — | (7,929 | ) | (50,081 | ) | |||||||||
Adjustments | (1,227 | ) | — | 3 | (1,224 | ) | ||||||||||
Balance at March 31, 2006 | 19,861 | — | 10,813 | 30,674 | ||||||||||||
Restructuring costs | 10,790 | 15,467 | 12,513 | 38,770 | ||||||||||||
Non-cash charges | — | (15,467 | ) | — | (15,467 | ) | ||||||||||
Cash payments | (23,052 | ) | — | (14,705 | ) | (37,757 | ) | |||||||||
Adjustments | (152 | ) | — | 1,277 | 1,125 | |||||||||||
Balance at March 31, 2007 | 7,447 | — | 9,898 | 17,345 | ||||||||||||
* | Adjustments primarily consist of the transfer of the accrued restructuring charges to SONY BMG, a joint venture with Bertelsmann AG (Note 5). |
Research and development costs, advertising costs and shipping and handling costs |
(1) Research and development costs:
F-58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2002, 20032005, 2006 and 20042007 were 98,800107,983 million yen, 98,195114,500 million yen and 106,590120,442 million yen, , respectively, which included the internal transfertransportation costs of finished goods.18.19. Gain on issuances of stock bychange in interest in subsidiaries and equity investees
Total gains on issuances
In January 2004, FeliCa Networks, Inc., whose field of business is Mobile FeliCa IC chip development and production/sales licensing and operationshare transfer of the Mobile FeliCa service platform, issued 115,000then existing shares at 100,000 yen perof Monex Inc. and Nikko Beans, Inc. At this establishment, 1 share valued at 11,500 million yen yen in connection with its private offering.of Monex Beans Holdings, Inc. was allotted to each share of Monex Inc. and 3.4 shares of Monex Beans Holdings, Inc. were allotted to each share of Nikko Beans, Inc. As a result of this issuance,
F-55
F-56
Income |
compriseis comprised of the following: Year Ended March 31 2002 2003 2004 (Yen in millions) Income (loss) before income taxes: Sony Corporation and subsidiaries in Japan (5,103 ) (7,998 ) (84,571 ) Foreign subsidiaries 97,878 255,619 228,638 92,775 247,621 144,067 Income taxes — Current: Sony Corporation and subsidiaries in Japan 55,641 69,311 22,286 Foreign subsidiaries 59,289 109,536 64,933 114,930 178,847 87,219 Income taxes — Deferred: Sony Corporation and subsidiaries in Japan (46,082 ) (90,016 ) (32,845 ) Foreign subsidiaries (3,637 ) (8,000 ) (1,600 ) (49,719 ) (98,016 ) (34,445 ) Sony is subjected to a number of different income taxes. Due to changes in Japanese income tax regulations, a consolidated tax filing system was introduced on April 1, 2002. Sony applied to file its return under the consolidated tax filing system beginning with the year ended March 31, 2004. Under the Japanese consolidated tax filing system, a 2% surtax was imposed only for the year ended March 31, 2004. As a result, the statutory tax rate was 43.9% for the year ended March 31, 2004.F-59SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
For the year ending March 31, 2005, a corporation size-based enterprise tax is introduced which supersedes the current enterprise tax. As a result, the statutory tax rate for the year ending March 31, 2005 is approximately 41% effective April 1, 2004. The newly enacted rate was used in calculating the future expected tax effects of temporary differences as of March 31, 2004. The effect of the changes in the tax rates on the balance of deferred tax assets and liabilities was insignificant.
Yen in millions Fiscal Year Ended March 31 2005 2006 2007 Income (loss) before income taxes: Sony Corporation and subsidiaries in Japan 5,005 243,927 174,689 Foreign subsidiaries 152,202 42,402 (72,652 ) 157,207 286,329 102,037 Income taxes — Current: Sony Corporation and subsidiaries in Japan 23,497 55,154 51,395 Foreign subsidiaries 62,013 41,246 15,686 85,510 96,400 67,081 Income taxes — Deferred: Sony Corporation and subsidiaries in Japan 4,976 105,938 27,331 Foreign subsidiaries (74,442 ) (25,823 ) (40,524 ) (69,466 ) 80,115 (13,193 ) Total income tax expense 16,044 176,515 53,888 Year Ended March 31 2002 2003 2004 Statutory tax rate 42.0 % 42.0 % 43.9 % Increase (reduction) in taxes resulting from: Income tax credits (2.1 ) (1.9 ) (2.4 ) Change in valuation allowances 55.5 5.5 6.5 Decrease in deferred tax liabilities on undistributed earnings of foreign subsidiaries (21.6 ) (14.8 ) (9.2 ) Reversal of foreign tax reserves (6.5 ) — — Other 3.0 1.8 (2.2 ) Effective income tax rate 70.3 % 32.6 % 36.6 % Fiscal Year Ended March 31 2005 2006 2007 Statutory tax rate 41.0 % 41.0 % 41.0 % Increase (reduction) in taxes resulting from: Non deductible expenses 1.5 0.9 12.2 Income tax credits (0.1 ) (1.3 ) (28.8 ) Change in valuation allowances (22.7 ) 21.6 (2.9 ) Increase (decrease) in deferred tax liabilities on undistributed earnings of foreign subsidiaries and affiliates (4.0 ) 4.5 12.8 Lower tax rate applied to life and non-life insurance business in Japan (1.9 ) (3.2 ) (4.0 ) Foreign income tax differential (3.1 ) (1.4 ) 13.1 Adjustments to tax accrual and reserves 3.1 (1.2 ) 4.9 Other (3.6 ) 0.7 4.5 Effective income tax rate 10.2 % 61.6 % 52.8 %
F-57
March 31 | ||||||||||
2003 | 2004 | |||||||||
(Yen in millions) | ||||||||||
Deferred tax assets: | ||||||||||
Operating loss carryforwards for tax purposes | 130,473 | 196,308 | ||||||||
Accrued pension and severance costs | 213,284 | 150,073 | ||||||||
Film costs | 33,907 | 54,194 | ||||||||
Warranty reserve and accrued expenses | 64,094 | 45,664 | ||||||||
Accrued bonus | 32,694 | 36,285 | ||||||||
Future insurance policy benefits | 34,734 | 35,855 | ||||||||
Inventory — intercompany profits and write-down | 34,423 | 30,241 | ||||||||
Depreciations | 15,724 | 14,108 | ||||||||
Reserve for doubtful accounts | 20,256 | 14,005 | ||||||||
Tax credit carryforwards | 33,762 | 13,740 | ||||||||
Other | 119,671 | 141,731 | ||||||||
Gross deferred tax assets | 733,022 | 732,204 | ||||||||
Less: Valuation allowance | (116,068 | ) | (127,577 | ) | ||||||
Total deferred tax assets | 616,954 | 604,627 | ||||||||
F-60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
March 31 | ||||||||||
2003 | 2004 | |||||||||
(Yen in millions) | ||||||||||
Deferred tax liabilities: | ||||||||||
Insurance acquisition costs | (118,689 | ) | (125,768 | ) | ||||||
Unbilled accounts receivable in the Pictures business | (68,462 | ) | (71,586 | ) | ||||||
Unrealized gains on securities | (15,041 | ) | (45,239 | ) | ||||||
Undistributed earnings of foreign subsidiaries | (46,449 | ) | (44,778 | ) | ||||||
Intangible assets acquired through exchange offerings | (38,882 | ) | (36,490 | ) | ||||||
Gain on securities contribution to employee retirement benefit trust | (17,438 | ) | (16,899 | ) | ||||||
Other | (9,543 | ) | (39,435 | ) | ||||||
Gross deferred tax liabilities | (314,504 | ) | (380,195 | ) | ||||||
Net deferred tax assets | 302,450 | 224,432 | ||||||||
Yen in millions March 31 2006 2007 Deferred tax assets: Operating loss carryforwards for tax purposes 146,206 174,685 Accrued pension and severance costs 95,226 97,791 Film costs 51,937 54,881 Warranty reserve and accrued expenses 52,008 87,775 Future insurance policy benefits 24,785 40,784 Accrued bonus 27,353 24,723 Inventory — intercompany profits and write-down 47,578 80,580 Depreciation 34,052 31,519 Tax credit carryforwards 39,443 54,075 Reserve for doubtful accounts 7,479 6,312 Impairment of investments 52,658 50,582 Deferred revenue in the Pictures segment 16,713 28,476 Other 144,337 92,069 Gross deferred tax assets 739,775 824,252 Less: Valuation allowance (150,899 ) (174,408 ) Total deferred tax assets 588,876 649,844 Deferred tax liabilities: Insurance acquisition costs (136,919 ) (143,329 ) Unbilled accounts receivable in the Pictures segment (49,953 ) (55,680 ) Unrealized gains on securities (63,739 ) (50,273 ) Intangible assets acquired through stock exchange offerings (34,627 ) (33,067 ) Undistributed earnings of foreign subsidiaries and affiliates (66,719 ) (97,429 ) Gain on securities contribution to employee retirement benefit trust (3,992 ) (5,315 ) Other (65,151 ) (80,156 ) Gross deferred tax liabilities (421,100 ) (465,249 ) Net deferred tax assets 167,776 184,595
As discussed
F-58
assets.
March 31 | |||||||||
2003 | 2004 | ||||||||
(Yen in millions) | |||||||||
Current assets — Deferred income taxes | 143,999 | 125,532 | |||||||
Other assets — Deferred income taxes | 328,091 | 203,203 | |||||||
Current liabilities — Other | (10,561 | ) | (8,110 | ) | |||||
Long-term liabilities — Deferred income taxes | (159,079 | ) | (96,193 | ) | |||||
Net deferred tax assets | 302,450 | 224,432 | |||||||
Yen in millions | ||||||||
March 31 | ||||||||
2006 | 2007 | |||||||
Current assets — Deferred income taxes | 221,311 | 243,782 | ||||||
Other assets — Deferred income taxes | 178,751 | 216,997 | ||||||
Current liabilities — Other | (15,789 | ) | (15,082 | ) | ||||
Long-term liabilities — Deferred income taxes | (216,497 | ) | (261,102 | ) | ||||
Net deferred tax assets | 167,776 | 184,595 | ||||||
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can not be determined.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
F-59
Reconciliation of the differences between basic and diluted net income per share |
(1) | Income before cumulative effect of accounting changes and net income allocated to each class of stock: |
Year Ended March 31 | ||||||||||||
2002 | 2003 | 2004 | ||||||||||
(Yen in millions) | ||||||||||||
Income before cumulative effect of accounting changes allocated to the common stock | 9,381 | 115,648 | 90,756 | |||||||||
Income before cumulative effect of accounting changes allocated to the subsidiary tracking stock | (49 | ) | (129 | ) | (128 | ) | ||||||
Income before cumulative effect of accounting changes | 9,332 | 115,519 | 90,628 | |||||||||
Net income allocated to the common stock | 15,359 | 115,648 | 88,639 | |||||||||
Net income allocated to the subsidiary tracking stock | (49 | ) | (129 | ) | (128 | ) | ||||||
Net income | 15,310 | 115,519 | 88,511 | |||||||||
Yen in millions | ||||||||||||
Fiscal Year Ended March 31, | ||||||||||||
2005 | 2006 | 2007 | ||||||||||
Income before cumulative effect of an accounting change allocated to common stock | 168,498 | 122,308 | 126,328 | |||||||||
Income allocated to subsidiary tracking stock | 53 | 1,308 | — | |||||||||
Income before cumulative effect of an accounting change | 168,551 | 123,616 | 126,328 | |||||||||
Net income allocated to common stock | 163,785 | 122,308 | 126,328 | |||||||||
Net income allocated to subsidiary tracking stock | 53 | 1,308 | — | |||||||||
Net income | 163,838 | 123,616 | 126,328 | |||||||||
The statutory retained earningsaccumulated losses of SCN (the subsidiary tracking stock entity as discussed in Note 14) available15) used for dividendscomputation of net income per share attributable to the shareholderssubsidiary tracking stock were 2091,358 million yen as of March 31, 2002, which decreased by 374 million yen during2005.
earnings allocated to the subsidiary tracking stock for the eight months ended November 30, 2005. The accumulated lossesgains of SCN used for computation of net income per share attributable to subsidiary tracking stock were 779 million yen and 1,7648,578 million yen as of March 31, 2003 and 2004, respectively.
F-62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(2) | EPS attributable to common stock: |
2002, 20032005, 2006 and 20042007 is as follows: Year Ended March 31 2002 2003 2004 (Yen in millions) Income before cumulative effect of accounting changes allocated to the common stock 9,381 115,648 90,756 Effect of dilutive securities: Convertible bonds — 2,398 2,260 Income before cumulative effect of accounting changes allocated to the common stock for diluted EPS computation 9,381 118,046 93,016 Thousands of shares Weighted-average shares 918,462 919,706 923,650 Effect of dilutive securities: Warrants 108 12 48 Convertible bonds 2,664 78,873 76,517 Weighted-average shares for diluted EPS computation 921,234 998,591 1,000,215 Yen Basic EPS 10.21 125.74 98.26 Diluted EPS 10.18 118.21 93.00 Yen in millions Fiscal Year Ended March 31 2005 2006 2007 Income before cumulative effect of an accounting change allocated to common stock 168,498 122,308 126,328 Effect of dilutive securities: Convertible bonds 1,209 — — Subsidiary tracking stock (0 ) (29 ) — Income before cumulative effect of an accounting change allocated to common stock for diluted EPS computation 169,707 122,279 126,328
For the year ended March 31, 2002, 75,201 thousand
F-60
Thousands of shares Weighted-average shares 931,125 997,781 1,001,403 Effect of dilutive securities: Warrants and stock acquisition rights 61 915 2,413 Convertible bonds 112,589 47,468 46,355 Weighted-average shares for diluted EPS computation 1,043,775 1,046,164 1,050,171
Yen | ||||||||||||
Basic EPS | 180.96 | 122.58 | 126.15 | |||||||||
Diluted EPS | 162.59 | 116.88 | 120.29 | |||||||||
44,603 thousand shares of potential common stock upon the conversion of 250,000 million yen convertible bond issued dated December 18, 2003 were excluded from the computation of the number of weighted-average shares for diluted EPS since the conditions to exercise the stock acquisition rights were not met during the year ended March 31, 2004 after the date of issuance.
Potential common stock upon the exercise of warrants and stock acquisition rights, which were excluded from the computation of diluted EPS since they have an exercise price in excess of the average market value of Sony’s common stock during theeach fiscal year, were 2,6657,987 thousand shares, 4,14110,483 thousand shares and 6,79610,541 thousand shares for the fiscal years ended March 31, 2002, 20032005, 2006 and 2004,2007, respectively.
Warrants and stock acquisition rights of subsidiary tracking stock for the years ended March 31, 2002, 2003 and 2004, which have a potentially dilutive effect by decreasing net income allocated to common stock, were excluded from the computation of diluted EPS since they did not have a dilutive effect.
F-63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
On October 1, 2002, Sony implemented a share exchange as a result of which Aiwa became a wholly-owned subsidiary. As a result of this share exchange, Sony issued 2,502 thousand shares. The shares were included in the computation of basic and diluted EPS.
(3) | EPS attributable to subsidiary tracking stock: |
yearsfiscal year ended March 31, 2002, 2003 and 20042005 were 3,072 thousand shares.in Note 2, there were no potentially dilutive securities for EPSall shares of subsidiary tracking stock outstanding atwere converted to shares of Sony common stock on December 1, 2005. As a result of the conversion, net income per share of the subsidiary tracking stock for the fiscal year ended March 31, 2002, 2003 and 2004.2006 was not presented.21.22. Variable interest entities
U.S. dollars. There is no recourse to the creditors outside of Sony.
F-61
F-64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
certain minimum returns to the third party equity investors. See Note 22 for more information on the contingent liability on this agreement.
Sony has utilized a VIE to erect and operate a multi-use real estate complex in Berlin, Germany, which had been accounted for under the equity method by Sony until June 30, 2003. On July 1, 2003, Sony consolidated this entity. Upon consolidation of the VIE, assets and liabilities increased by 61,320investors’ investment was 5 million yen and 60,329 million yen, respectively. However, there was no impact to Sony’s net income. The VIE was capitalized with 89,650 million yen of total funding, 32,343 million yen was provided by equity investors with the remaining funding of 57,307 million yen being provided through a syndicated bank loan which matures in November 2004. The syndicated bank loan is secured by the multi-use real estate complex, of which book value was 61,912 million yen at March 31, 2004. Creditors of the VIE have no recourse to the general credit of Sony.
U.S. dollars.
There is no VIEU.S. dollars.
F-62
Commitments and contingent liabilities |
B. | Purchase Commitments and other |
Certain subsidiaries in the Music business have entered into long-term contracts with recording artists and companies for the production and/or distribution of prerecorded music and videos. These contracts cover various periods mainly through March 31, 2007. As of March 31, 2004, these subsidiaries were committed to make payments under such long-term contracts of 39,073 million yen.
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F-65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
portion of the production cost and is responsible for all distribution and marketing expenses. As of March 31, 2004, 262007, 38 films have been released or funded by the subsidiary. The subsidiary’s estimated commitment to fund the production of the remaining films under this agreement is 63,02011,250 million yen.
On March 8, 2004,
yen.
Year ending March 31, | Yen in millions | ||||
2005 | 184,734 | ||||
2006 | 65,890 | ||||
2007 | 36,175 | ||||
2008 | 8,930 | ||||
2009 | 1,661 | ||||
Thereafter | 18,676 | ||||
Total | 316,066 | ||||
In December 2003, Sony and Bertlesmann AG signed a binding agreement to combine their recorded music businesses in a joint venture. The newly formed company will be 50% owned by each parent company. The merger is subject to regulatory approvals in the U.S. and European Union.
Yen in millions 2008 176,943 2009 53,947 2010 10,057 2011 7,704 2012 6,841 Thereafter 40,588 Total 296,080
As discussed in Note 21, a subsidiary in2007.
F-64
this regulation.
2007.
F-66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
believes that damages from such lawsuits or inquiries, if any, wouldare not likely to have a material effect on Sony’s consolidated financial statements.
Year Ended March 31, | ||||||||
2003 | 2004 | |||||||
(Yen in millions) | ||||||||
Balance at beginning of the fiscal year | 53,671 | 51,892 | ||||||
Provision for warranty reserve | 47,260 | 51,569 | ||||||
Settlements (in cash or in kind) | (46,628 | ) | (46,971 | ) | ||||
Changes in estimate for pre-existing warranty reserve | (2,032 | ) | (2,970 | ) | ||||
Translation adjustment | (379 | ) | (2,850 | ) | ||||
Balance at end of the fiscal year | 51,892 | 50,670 | ||||||
24. Business |
Effective for the year ended March 31, 2004, Sony has partly changed its business segment configuration as described below.
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. Sony Music Entertainment, (Japan), Inc. (“SMEJ”), which is a subsidiary focused on Music business in Japan, has transferred those business operations not part of its core Music business to Sony Culture Entertainment, Inc. (“SCU”) The separation of these business operation which include such businesses as media, animation, character, cosmetics etc., will allow the management of SMEJ to focus on its core Music business and more quickly react to the changes in the Music industry on a worldwide level. The businesses now integrated under SCU have been moved from the Music segment to the Other segment.
In accordance with these realignments, business segment information for the years ended March 31, 2002 and 2003 have been restated to conform to the presentation for the year ended March 31, 2004.
F-67
F-65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Business segments -Sales and operating revenue:
Year Ended March 31 | |||||||||||||||
2002 | 2003 | 2004 | |||||||||||||
(Yen in millions) | |||||||||||||||
Sales and operating revenue: | |||||||||||||||
Electronics — | |||||||||||||||
Customers | 4,772,550 | 4,543,313 | 4,758,400 | ||||||||||||
Intersegment | 513,631 | 397,137 | 138,995 | ||||||||||||
Total | 5,286,181 | 4,940,450 | 4,897,395 | ||||||||||||
Game — | |||||||||||||||
Customers | 986,529 | 936,274 | 753,732 | ||||||||||||
Intersegment | 17,185 | 18,757 | 26,488 | ||||||||||||
Total | 1,003,714 | 955,031 | 780,220 | ||||||||||||
Music — | |||||||||||||||
Customers | 541,418 | 512,908 | 487,457 | ||||||||||||
Intersegment | 58,633 | 84,598 | 72,431 | ||||||||||||
Total | 600,051 | 597,506 | 559,888 | ||||||||||||
Pictures — | |||||||||||||||
Customers | 635,841 | 802,770 | 756,370 | ||||||||||||
Intersegment | 0 | 0 | 0 | ||||||||||||
Total | 635,841 | 802,770 | 756,370 | ||||||||||||
Financial Services — | |||||||||||||||
Customers | 480,190 | 509,398 | 565,752 | ||||||||||||
Intersegment | 28,932 | 27,878 | 27,792 | ||||||||||||
Total | 509,122 | 537,276 | 593,544 | ||||||||||||
Other — | |||||||||||||||
Customers | 161,730 | 168,970 | 174,680 | ||||||||||||
Intersegment | 99,733 | 137,323 | 155,712 | ||||||||||||
Total | 261,463 | 306,293 | 330,392 | ||||||||||||
Elimination | (718,114 | ) | (665,693 | ) | (421,418 | ) | |||||||||
Consolidated total | 7,578,258 | 7,473,633 | 7,496,391 | ||||||||||||
Yen in millions | ||||||||||||
Fiscal Year Ended March 31 | ||||||||||||
2005 | 2006 | 2007 | ||||||||||
Sales and operating revenue: | ||||||||||||
Electronics — | ||||||||||||
Customers | 4,827,663 | 4,782,173 | 5,421,384 | |||||||||
Intersegment | 266,874 | 394,206 | 629,087 | |||||||||
Total | 5,094,537 | 5,176,379 | 6,050,471 | |||||||||
Game — | ||||||||||||
Customers | 702,524 | 918,252 | 974,218 | |||||||||
Intersegment | 27,230 | 40,368 | 42,571 | |||||||||
Total | 729,754 | 958,620 | 1,016,789 | |||||||||
Pictures — | ||||||||||||
Customers | 733,677 | 745,859 | 966,260 | |||||||||
Intersegment | — | — | — | |||||||||
Total | 733,677 | 745,859 | 966,260 | |||||||||
Financial Services — | ||||||||||||
Customers | 537,715 | 720,566 | 624,282 | |||||||||
Intersegment | 22,842 | 22,649 | 25,059 | |||||||||
Total | 560,557 | 743,215 | 649,341 | |||||||||
All Other — | ||||||||||||
Customers | 389,746 | 343,747 | 309,551 | |||||||||
Intersegment | 81,201 | 82,297 | 68,087 | |||||||||
Total | 470,947 | 426,044 | 377,638 | |||||||||
Elimination | (398,147 | ) | (539,520 | ) | (764,804 | ) | ||||||
Consolidated total | 7,191,325 | 7,510,597 | 8,295,695 | |||||||||
Music intersegment amounts primarily consist of transactions with the Gamesegment, Pictures segment and Pictures businesses.
All Other.
F-68
F-66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Year Ended March 31 | |||||||||||||||
2002 | 2003 | 2004 | |||||||||||||
(Yen in millions) | |||||||||||||||
Operating income (loss): | |||||||||||||||
Electronics | (1,158 | ) | 41,380 | (35,298 | ) | ||||||||||
Game | 82,915 | 112,653 | 67,578 | ||||||||||||
Music | 22,132 | (7,867 | ) | 18,995 | |||||||||||
Pictures | 31,266 | 58,971 | 35,230 | ||||||||||||
Financial Services | 21,822 | 22,758 | 55,161 | ||||||||||||
Other | (18,249 | ) | (24,983 | ) | (10,030 | ) | |||||||||
Total | 138,728 | 202,912 | 131,636 | ||||||||||||
Elimination | 17,148 | 15,897 | 14,530 | ||||||||||||
Unallocated amounts: | |||||||||||||||
Corporate expenses | (21,245 | ) | (33,369 | ) | (47,264 | ) | |||||||||
Consolidated operating income | 134,631 | 185,440 | 98,902 | ||||||||||||
Other income | 96,328 | 157,528 | 122,290 | ||||||||||||
Other expenses | (138,184 | ) | (95,347 | ) | (77,125 | ) | |||||||||
Consolidated income before income taxes | 92,775 | 247,621 | 144,067 | ||||||||||||
Yen in millions | ||||||||||||
Fiscal Year Ended March 31 | ||||||||||||
2005 | 2006 | 2007 | ||||||||||
Operating income (loss): | ||||||||||||
Electronics | 2,881 | 6,913 | 156,745 | |||||||||
Game | 43,170 | 8,748 | (232,325 | ) | ||||||||
Pictures | 63,899 | 27,436 | 42,708 | |||||||||
Financial Services | 55,490 | 188,323 | 84,142 | |||||||||
All Other | 5,063 | 20,525 | 32,417 | |||||||||
Total | 170,503 | 251,945 | 83,687 | |||||||||
Elimination | 3,782 | 1,187 | 4,802 | |||||||||
Unallocated amounts: | ||||||||||||
Corporate expenses | (28,657 | ) | (26,716 | ) | (16,739 | ) | ||||||
Consolidated operating income | 145,628 | 226,416 | 71,750 | |||||||||
Other income | 65,914 | 118,455 | 95,182 | |||||||||
Other expenses | (54,335 | ) | (58,542 | ) | (64,895 | ) | ||||||
Consolidated income before income taxes | 157,207 | 286,329 | 102,037 | |||||||||
In the quarter beginning October 1, 2003, the recognition method for insurance premiums received on certain products by Sony Life was changed from being recorded as revenues to being offset against the related provision for future insurance policy benefits, reducing revenue in the Financial Services segment in the year ended March 31, 2004, by approximately 30.8 billion yen. This change did not have a material effect on operating income.
March 31 | ||||||||||||||
2002 | 2003 | 2004 | ||||||||||||
(Yen in millions) | ||||||||||||||
Total assets: | ||||||||||||||
Electronics | 3,089,791 | 2,848,492 | 2,876,490 | |||||||||||
Game | 722,021 | 673,208 | 684,226 | |||||||||||
Music | 675,186 | 604,311 | 575,276 | |||||||||||
Pictures | 960,266 | 868,395 | 856,517 | |||||||||||
Financial Services | 2,482,536 | 2,897,119 | 3,475,039 | |||||||||||
Other | 315,984 | 350,521 | 393,291 | |||||||||||
Total | 8,245,784 | 8,242,046 | 8,860,839 | |||||||||||
Elimination | (268,416 | ) | (261,407 | ) | (313,245 | ) | ||||||||
Corporate assets | 208,427 | 389,906 | 543,068 | |||||||||||
Consolidated total | 8,185,795 | 8,370,545 | 9,090,662 | |||||||||||
F-69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Yen in millions March 31 2006 2007 Total assets: Electronics 3,529,363 4,049,712 Game 520,394 832,791 Pictures 1,029,907 1,024,591 Financial Services 4,568,128 4,977,642 All Other 630,232 599,517 Total assets 10,278,024 11,484,253 Elimination (361,841 ) (435,432 ) Corporate assets 691,570 667,541 Consolidated total 10,607,753 11,716,362 marketable securities investments and property, plant and equipment maintained for general corporate purposes.Other significant items:
Year Ended March 31 | ||||||||||||||
2002 | 2003 | 2004 | ||||||||||||
(Yen in millions) | ||||||||||||||
Depreciation and amortization: | ||||||||||||||
Electronics | 211,910 | 190,836 | 196,185 | |||||||||||
Game | 49,655 | 53,496 | 57,256 | |||||||||||
Music | 33,388 | 32,605 | 30,826 | |||||||||||
Pictures | 10,619 | 8,552 | 7,844 | |||||||||||
Financial Services, including deferred insurance acquisition costs | 37,227 | 52,041 | 56,586 | |||||||||||
Other | 8,015 | 10,157 | 13,455 | |||||||||||
Total | 350,814 | 347,687 | 362,152 | |||||||||||
Corporate | 3,321 | 4,238 | 4,117 | |||||||||||
Consolidated total | 354,135 | 351,925 | 366,269 | |||||||||||
Capital expenditures for segment assets: | ||||||||||||||
Electronics | 220,032 | 170,323 | 242,696 | |||||||||||
Game | 47,822 | 40,986 | 100,360 | |||||||||||
Music | 20,882 | 20,284 | 12,935 | |||||||||||
Pictures | 11,501 | 7,138 | 6,013 | |||||||||||
Financial Services | 16,023 | 3,655 | 4,618 | |||||||||||
Other | 5,861 | 16,993 | 10,124 | |||||||||||
Total | 322,121 | 259,379 | 376,746 | |||||||||||
Corporate | 4,613 | 1,862 | 1,518 | |||||||||||
Consolidated total | 326,734 | 261,241 | 378,264 | |||||||||||
F-67
Yen in millions | ||||||||||||
Fiscal Year Ended March 31 | ||||||||||||
2005 | 2006 | 2007 | ||||||||||
Depreciation and amortization: | ||||||||||||
Electronics | 276,704 | 304,561 | 310,575 | |||||||||
Game | 16,504 | 5,087 | 7,947 | |||||||||
Pictures | 5,598 | 7,401 | 8,464 | |||||||||
Financial Services, including deferred insurance acquisition costs | 52,788 | 47,736 | 56,068 | |||||||||
All Other | 17,012 | 12,755 | 11,406 | |||||||||
Total | 368,606 | 377,540 | 394,460 | |||||||||
Corporate | 4,259 | 4,303 | 5,549 | |||||||||
Consolidated total | 372,865 | 381,843 | 400,009 | |||||||||
Capital expenditures for segment assets: | ||||||||||||
Electronics | 312,216 | 328,625 | 351,482 | |||||||||
Game | 18,824 | 8,405 | 16,770 | |||||||||
Pictures | 5,808 | 10,097 | 10,970 | |||||||||
Financial Services | 3,845 | 4,456 | 6,836 | |||||||||
All Other | 7,928 | 4,186 | 5,617 | |||||||||
Total | 348,621 | 355,769 | 391,675 | |||||||||
Corporate | 8,197 | 28,578 | 22,463 | |||||||||
Consolidated total | 356,818 | 384,347 | 414,138 | |||||||||
F-70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
“Televisions” to “Video”“Components”. Accordingly, sales and operating revenue for the fiscal years ended March 31, 20022005 and 20032006 have been restated to conform to the presentation for the fiscal year ended March 31, 2004.
Year Ended March 31 | |||||||||||||
2002 | 2003 | 2004 | |||||||||||
(Yen in millions) | |||||||||||||
Audio | 747,469 | 682,517 | 623,582 | ||||||||||
Video | 847,311 | 851,064 | 948,111 | ||||||||||
Televisions | 984,290 | 950,166 | 917,207 | ||||||||||
Information and Communications | 998,773 | 836,724 | 834,757 | ||||||||||
Semiconductors | 182,276 | 204,710 | 253,237 | ||||||||||
Components | 511,579 | 527,782 | 623,799 | ||||||||||
Other | 500,852 | 490,350 | 557,707 | ||||||||||
Total | 4,772,550 | 4,543,313 | 4,758,400 | ||||||||||
Yen in millions | ||||||||||||
Fiscal Year Ended March 31 | ||||||||||||
2005 | 2006 | 2007 | ||||||||||
Audio | 571,864 | 536,187 | 522,879 | |||||||||
Video | 1,036,328 | 1,021,325 | 1,143,120 | |||||||||
Televisions | 921,195 | 927,769 | 1,226,971 | |||||||||
Information and Communications | 816,150 | 842,537 | 950,461 | |||||||||
Semiconductors | 184,235 | 172,249 | 205,757 | |||||||||
Components | 751,097 | 800,716 | 852,981 | |||||||||
Other | 546,794 | 481,390 | 519,215 | |||||||||
Total | 4,827,663 | 4,782,173 | 5,421,384 | |||||||||
F-68
Year Ended March 31 | ||||||||||||||
2002 | 2003 | 2004 | ||||||||||||
(Yen in millions) | ||||||||||||||
Sales and operating revenue: | ||||||||||||||
Japan | 2,248,115 | 2,093,880 | 2,220,747 | |||||||||||
U.S.A. | 2,461,523 | 2,403,946 | 2,121,110 | |||||||||||
Europe | 1,609,111 | 1,665,976 | 1,765,053 | |||||||||||
Other | 1,259,509 | 1,309,831 | 1,389,481 | |||||||||||
Total | 7,578,258 | 7,473,633 | 7,496,391 | |||||||||||
March 31 | ||||||||||||||
2002 | 2003 | 2004 | ||||||||||||
(Yen in millions) | ||||||||||||||
Long-lived assets: | ||||||||||||||
Japan | 1,462,709 | 1,365,160 | 1,430,443 | |||||||||||
U.S.A. | 812,309 | 713,524 | 671,534 | |||||||||||
Europe | 156,560 | 164,459 | 211,147 | |||||||||||
Other | 174,070 | 148,616 | 133,640 | |||||||||||
Total | 2,605,648 | 2,391,759 | 2,446,764 | |||||||||||
Yen in millions | ||||||||||||
Fiscal Year Ended March 31 | ||||||||||||
2005 | 2006 | 2007 | ||||||||||
Sales and operating revenue: | ||||||||||||
Japan | 2,132,462 | 2,203,812 | 2,127,841 | |||||||||
U.S.A. | 1,977,310 | 1,957,644 | 2,232,453 | |||||||||
Europe | 1,612,576 | 1,715,775 | 2,037,658 | |||||||||
Other | 1,468,977 | 1,633,366 | 1,897,743 | |||||||||
Total | 7,191,325 | 7,510,597 | 8,295,695 | |||||||||
Yen in millions | ||||||||
March 31 | ||||||||
2006 | 2007 | |||||||
Long-lived assets: | ||||||||
Japan | 1,449,997 | 1,469,652 | ||||||
U.S.A. | 757,055 | 685,255 | ||||||
Europe | 165,352 | 187,768 | ||||||
Other | 159,647 | 171,639 | ||||||
Total | 2,532,051 | 2,514,314 | ||||||
F-71
2007.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2002, 20032005, 2006 and 2004.2007. In addition to the disclosure requirements under FAS No. 131, Sony discloses this supplemental information in accordance with disclosure requirements of the Japanese Securities and Exchange Law, to which Sony, as a Japanese public company, is subject. Year Ended March 31 2002 2003 2004 (Yen in millions) Sales and operating revenue: Japan — Customers 2,498,641 2,247,030 2,352,923 Intersegment 2,312,718 2,433,998 2,514,698 Total 4,811,359 4,681,028 4,867,621 U.S.A. — Customers 2,637,861 2,632,176 2,341,304 Intersegment 184,966 189,502 198,450 Total 2,822,827 2,821,678 2,539,754 Europe — Customers 1,440,281 1,520,930 1,647,694 Intersegment 91,329 121,598 66,950 Total 1,531,610 1,642,528 1,714,644 Other — Customers 1,001,475 1,073,497 1,154,470 Intersegment 853,324 789,444 813,798 Total 1,854,799 1,862,941 1,968,268 Elimination (3,442,337 ) (3,534,542 ) (3,593,896 ) Consolidated total 7,578,258 7,473,633 7,496,391 Operating income: Japan 36,188 11,444 (70,029 ) U.S.A. 30,704 98,762 85,290 Europe 24,460 62,206 78,822 Other 76,061 63,773 70,543 Corporate and elimination (32,782 ) (50,745 ) (65,724 ) Consolidated total 134,631 185,440 98,902 Yen in millions Fiscal Year Ended March 31 2005 2006 2007 Sales and operating revenue: Japan — Customers 2,281,217 2,288,365 2,242,861 Intersegment 2,576,629 3,265,747 4,349,915 Total 4,857,846 5,554,112 6,592,776 U.S.A. — Customers 2,166,323 2,197,304 2,553,834 Intersegment 235,362 279,203 319,666 Total 2,401,685 2,476,507 2,873,500
F-72
F-69
Yen in millions Fiscal Year Ended March 31 2005 2006 2007 Europe — Customers 1,524,222 1,575,849 1,843,559 Intersegment 52,417 50,400 60,486 Total 1,576,639 1,626,249 1,904,045 Other — Customers 1,219,563 1,449,079 1,655,441 Intersegment 804,721 1,038,827 1,738,602 Total 2,024,284 2,487,906 3,394,043 Elimination (3,669,129 ) (4,634,177 ) (6,468,669 ) Consolidated total 7,191,325 7,510,597 8,295,695 Operating income: Japan 28,527 230,473 167,448 U.S.A. 72,414 11,291 (94,005 ) Europe 12,226 (25,101 ) (62,425 ) Other 58,554 41,953 76,282 Corporate and elimination (26,093 ) (32,200 ) (15,550 ) Consolidated total 145,628 226,416 71,750
F-70
Additions | |||||||||||||||||||||
Charged | |||||||||||||||||||||
Balance at | to Costs | Balance | |||||||||||||||||||
Beginning | and | Deductions | Other | at End | |||||||||||||||||
of Period | Expenses | (Note 1) | (Note 2) | of Period | |||||||||||||||||
(Yen in millions) | |||||||||||||||||||||
Year ended March 31, 2002: | |||||||||||||||||||||
Allowance for doubtful accounts and sales returns | 109,648 | 68,434 | (64,657 | ) | 7,401 | 120,826 | |||||||||||||||
Year ended March 31, 2003: | |||||||||||||||||||||
Allowance for doubtful accounts and sales returns | 120,826 | 87,330 | (89,284 | ) | (8,378 | ) | 110,494 | ||||||||||||||
Year ended March 31, 2004: | |||||||||||||||||||||
Allowance for doubtful accounts and sales returns | 110,494 | 78,323 | (65,281 | ) | (10,862 | ) | 112,674 | ||||||||||||||
Yen in millions | ||||||||||||||||||||
Additions | ||||||||||||||||||||
Balance | charged to | Balance | ||||||||||||||||||
at beginning | costs and | Deductions | Other | at end | ||||||||||||||||
of period | expenses | (Note 1) | (Note 2) | of period | ||||||||||||||||
Fiscal Year Ended March 31, 2005: | ||||||||||||||||||||
Allowance for doubtful accounts and sales returns | 112,674 | 56,863 | (84,507 | ) | 2,679 | 87,709 | ||||||||||||||
Fiscal Year Ended March 31, 2006: | ||||||||||||||||||||
Allowance for doubtful accounts and sales returns | 87,709 | 52,422 | (56,772 | ) | 6,204 | 89,563 | ||||||||||||||
Fiscal Year Ended March 31, 2007: | ||||||||||||||||||||
Allowance for doubtful accounts and sales returns | 89,563 | 83,440 | (55,711 | ) | 3,383 | 120,675 | ||||||||||||||
Balance at | Balance | ||||||||||||||||||||
Beginning | Other | at End | |||||||||||||||||||
of Period | Additions | Deductions | (Note 1) | of Period | |||||||||||||||||
Year ended March 31, 2002: | |||||||||||||||||||||
Valuation allowance — Deferred tax assets | 198,613 | 77,519 | (35,147 | ) | 11,223 | 252,208 | |||||||||||||||
Year ended March 31, 2003: | |||||||||||||||||||||
Valuation allowance — Deferred tax assets | 252,208 | 72,303 | (189,843 | ) | (18,600 | ) | 116,068 | ||||||||||||||
Year ended March 31, 2004: | |||||||||||||||||||||
Valuation allowance — Deferred tax assets | 116,068 | 63,936 | (39,199 | ) | (13,228 | ) | 127,577 | ||||||||||||||
Balance | Balance | |||||||||||||||||||
at beginning | Other | at end | ||||||||||||||||||
of period | Additions | Deductions | (Note 1) | of period | ||||||||||||||||
Fiscal Year Ended March 31, 2005: | ||||||||||||||||||||
Valuation allowance - Deferred tax assets | 127,577 | 67,889 | (104,670 | ) | (1,686 | ) | 89,110 | |||||||||||||
Fiscal Year Ended March 31, 2006: | ||||||||||||||||||||
Valuation allowance - Deferred tax assets | 89,110 | 72,340 | (11,234 | ) | 683 | 150,899 | ||||||||||||||
Fiscal Year Ended March 31, 2007: | ||||||||||||||||||||
Valuation allowance - Deferred tax assets | 150,899 | 42,910 | (20,002 | ) | 601 | 174,408 | ||||||||||||||
1. | Translation adjustment. |
F-73
F-71
A-1
A-2
A-4 | ||||
A-5 | ||||
A-6 | ||||
A-7 |
A-3
Notes | 2006 | 2005 | 2004 | |||||||||||
Net sales | 2 | 10,959,233 | 7,268,149 | 6,524,498 | ||||||||||
Cost of sales | (7,775,448 | ) | (5,259,893 | ) | (4,712,325 | ) | ||||||||
GROSS PROFIT | �� | 3,183,785 | 2,008,256 | 1,812,173 | ||||||||||
Selling expenses | (861,482 | ) | (654,588 | ) | (614,398 | ) | ||||||||
General and Administration expenses | 26 | 224,648 | (147,049 | ) | (142,851 | ) | ||||||||
Research and Development expenses | (905,811 | ) | (740,000 | ) | (582,923 | ) | ||||||||
Other operating revenues | 3 | 72,126 | 39,759 | 18,656 | ||||||||||
Other operating expenses | 3 | (7,436 | ) | (5,463 | ) | (4,587 | ) | |||||||
OPERATING INCOME | 6, 7, 24, 25 | 1,256,534 | 500,915 | 486,070 | ||||||||||
Result from securities and receivables accounted for as fixed assets | 4 | — | — | 970 | ||||||||||
Interest income and similiar profit items | 4 | 42,288 | 17,964 | 13,290 | ||||||||||
Interest expense and similiar loss items | 4 | (1,118 | ) | (6,840 | ) | (12,555 | ) | |||||||
NET INCOME BEFORE TAXES | 1,297,704 | 512,039 | 487,775 | |||||||||||
Income taxes for the year | 5 | (267,056 | ) | (134,587 | ) | (149,436 | ) | |||||||
Minority interest | (33,329 | ) | (27,110 | ) | (16,320 | ) | ||||||||
NET INCOME | 997,319 | 350,342 | 322,019 |
A-4
Notes | 2006 | 2005 | ||||||||||
ASSETS | ||||||||||||
Fixed assets: | ||||||||||||
Intangible assets | 6 | 47,235 | 34,683 | |||||||||
Tangible assets | 7 | 126,252 | 101,333 | |||||||||
Financial assets: | ||||||||||||
Securities held as fixed assets | 8 | 91,942 | 81,683 | |||||||||
Other non current assets | 9 | 203,248 | 56,050 | |||||||||
Total fixed and financial assets | 468,677 | 273,749 | ||||||||||
Current assets: | ||||||||||||
Inventories | 11 | 437,462 | 306,105 | |||||||||
Accounts receivable | 12 | 1,652,754 | 851,710 | |||||||||
Other assets | 13 | 309,766 | 178,368 | |||||||||
Other short-term cash investments | 14 | 1,580,077 | 900,272 | |||||||||
Cash and bank | 692,622 | 637,004 | ||||||||||
Total current assets | 4,672,681 | 2,873,459 | ||||||||||
Total assets | 5,141,358 | 3,147,208 | ||||||||||
SHAREHOLDERS’ EQUITY AND LIABILITIES | ||||||||||||
Shareholders’ equity: | 15 | |||||||||||
Share capital | 100,000 | 100,000 | ||||||||||
Restricted reserves | 722,889 | 720,422 | ||||||||||
Non-restricted reserves | (39,599 | ) | (100,869 | ) | ||||||||
Net income for the year | 997,319 | 350,342 | ||||||||||
Total equity | 1,780,609 | 1,069,895 | ||||||||||
Minority interest | 45,148 | 46,488 | ||||||||||
Provisions | ||||||||||||
Pensions and other similar commitments | 16 | 19,409 | 18,418 | |||||||||
Other provisions | 17 | 421,226 | 295,312 | |||||||||
Total provisions | 440,635 | 313,730 | ||||||||||
LIABILITIES | ||||||||||||
Long-term liabilities | ||||||||||||
Liabilities to financial institutions | — | 576 | ||||||||||
Other long-term liabilities | 677 | 455 | ||||||||||
Total long-term liabilities | 18 | 677 | 1,031 | |||||||||
Current liabilities: | ||||||||||||
Liabilities to financial institutions | 511 | 6,911 | ||||||||||
Advances from customers | 2,919 | 13,112 | ||||||||||
Accounts payable | 1,276,478 | 807,065 | ||||||||||
Income tax liabilities | 427,975 | 93,932 | ||||||||||
Other current liabilities | 19 | 1,166,406 | 795,044 | |||||||||
Total current liabilities | 2,874,289 | 1,716,064 | ||||||||||
Total shareholders’ equity and liabilities: | 5,141,358 | 3,147,208 | ||||||||||
Assets pledged as collateral | 20 | 3,973 | 158 | |||||||||
Contingent liabilities | 21 | 12,428 | 12,383 | |||||||||
A-5
Notes | 2006 | 2005 | 2004 | |||||||||||||
OPERATIONS | ||||||||||||||||
Operating income | 1,256,534 | 500,915 | 486,070 | |||||||||||||
Depreciation | 85,029 | 70,884 | 65,822 | |||||||||||||
Other non cash items | 22 | 112,688 | 34,186 | 85,749 | ||||||||||||
1,454,251 | 605,985 | 637,641 | ||||||||||||||
Interest, obtained | 42,288 | 17,964 | 13,290 | |||||||||||||
Dividends received | — | — | 970 | |||||||||||||
Interest paid | (38,386 | ) | (6,840 | ) | (12,555 | ) | ||||||||||
Income taxes, paid | (34,357 | ) | (52,839 | ) | (55,720 | ) | ||||||||||
1,423,796 | 564,270 | 583,626 | ||||||||||||||
Change in inventories | (117,207 | ) | (122,435 | ) | (68,659 | ) | ||||||||||
Change in accounts receivables | (764,993 | ) | 39,787 | (191,969 | ) | |||||||||||
Change in other receivables | (180,662 | ) | 7,423 | (6,966 | ) | |||||||||||
Change in accounts payable | 463,955 | 109,753 | 113,452 | |||||||||||||
Change in other liabilities | 352,115 | 131,655 | 7,131 | |||||||||||||
Cash flow from operating activities | 1,182,004 | 730,453 | 436,615 | |||||||||||||
INVESTMENTS | ||||||||||||||||
Investments in intangible assets | (29,311 | ) | (25,792 | ) | (18,545 | ) | ||||||||||
Sales of intangible assets | 161 | 869 | 243 | |||||||||||||
Investments in tangible assets | (96,105 | ) | (70,712 | ) | (74,108 | ) | ||||||||||
Sales of tangible assets | 19,198 | 6,281 | 4,912 | |||||||||||||
Investment in subsidiary | 22 | (15,501 | ) | — | (12,752 | ) | ||||||||||
Investments / Sales of other financial assets | (12,462 | ) | (5,715 | ) | (67,113 | ) | ||||||||||
Sales/Amortization of other financial assets | 177 | — | — | |||||||||||||
Cash flow from investing activities | (133,843 | ) | (95,069 | ) | (167,363 | ) | ||||||||||
FINANCING | ||||||||||||||||
Borrowing | 245 | 183 | 1,218 | |||||||||||||
Repayment of debt | (576 | ) | (1,294 | ) | (694 | ) | ||||||||||
Change in current financial liabilities | — | (19,096 | ) | 11,462 | ||||||||||||
Dividend to minority | (30,427 | ) | (19,219 | ) | — | |||||||||||
Dividend paid | (247,000 | ) | — | — | ||||||||||||
Cash flow from financing activities | (277,758 | ) | (39,426 | ) | 11,986 | |||||||||||
Net change in cash | 770,403 | 595,958 | 281,238 | |||||||||||||
Cash, beginning of period | 1,537,275 | 915,931 | 640,393 | |||||||||||||
Translation difference in Cash | (34,980 | ) | 25,386 | (5,700 | ) | |||||||||||
Cash, end of period | 2,272,698 | 1,537,275 | 915,931 | |||||||||||||
A-6
Contents | ||||||
Accounting Principles | A-8 | |||||
Net sales by market area | A-12 | |||||
Other operating revenues and other operating expenses | A-12 | |||||
Interest income and similar profit items and interest expense and similar loss items | A-13 | |||||
Income taxes for the year | A-13 | |||||
Intangible assets | A-14 | |||||
Tangible assets | A-15 | |||||
Other securities held as fixed assets | A-16 | |||||
Other non current assets | A-17 | |||||
Group companies | A-17 | |||||
Inventory | A-17 | |||||
Accounts Receivables — Trade | A-17 | |||||
Other current assets | A-18 | |||||
Short term cash investments | A-18 | |||||
Shareholders’ equity | A-18 | |||||
Pensions | A-19 | |||||
Provisions | A-19 | |||||
Long-term liabilities | A-20 | |||||
Other liabilities | A-20 | |||||
Assets pledged as collateral | A-20 | |||||
Contingent liabilities | A-20 | |||||
Cash flow analysis | A-20 | |||||
Translation to SEK | A-21 | |||||
Leasing | A-21 | |||||
Wages, salaries and social security expenses | A-21 | |||||
Fees to auditors | A-23 | |||||
Financial risks | A-24 | |||||
Reconciliation to accounting principles generally accepted in the United States | A-24 |
A-7
1. | Accounting Principles |
A-8
A-9
A-10
A-11
2006 | 2005 | 2004 | ||||||||||
Europe, Middle East & Africa | 5,865,030 | 3,957,567 | 3,397,384 | |||||||||
America | 1,550,179 | 923,647 | 873,375 | |||||||||
Asia | 3,544,024 | 2,386,935 | 2,253,739 | |||||||||
Total | 10,959,233 | 7,268,149 | 6,524,498 |
2006 | 2005 | 2004 | ||||||||||
Other operating revenues | ||||||||||||
Gains on sales of intangible and tangible assets | 16,409 | 151 | 854 | |||||||||
Commissions, license fees and other operating revenues | 53,227 | 30,945 | 9,919 | |||||||||
Other income | 2,490 | 7,714 | 7,098 | |||||||||
Gains on foreign exchange | — | 949 | 785 | |||||||||
Total other operating revenues | 72,126 | 39,759 | 18,656 | |||||||||
Other operating expenses | ||||||||||||
Losses on sales of intangible and tangible assets | (341 | ) | (144 | ) | (177 | ) | ||||||
Other expenses | (3,312 | ) | (2,255 | ) | (3,978 | ) | ||||||
Losses on foreign exchange | (3,783 | ) | (3,064 | ) | (432 | ) | ||||||
Total other operating expenses | (7,436 | ) | (5,463 | ) | (4,587 | ) |
A-12
2006 | 2005 | 2004 | ||||||||||
Interest income and similar profit items | ||||||||||||
Interest income external and similar items | 42,288 | 17,964 | 13,290 | |||||||||
Total | 42,288 | 17,964 | 13,290 | |||||||||
Interest expense and similar loss items | ||||||||||||
Interest expenses external and similar items | (1,118 | ) | (6,840 | ) | (12,555 | ) | ||||||
Total | (1,118 | ) | (6,840 | ) | (12,555 | ) | ||||||
Result from securities and receivables accounted for as a fixed assets | ||||||||||||
Group dividends | — | �� | — | 970 | ||||||||
— | — | 970 | ||||||||||
Financial Net | 41,170 | 11,124 | 1,705 |
2006 | 2005 | 2004 | ||||||||||
Current income taxes for the period | (368,308 | ) | (114,810 | ) | (63,108 | ) | ||||||
Deferred income/expense (-) taxes related to temporary differences | 101,252 | (15,134 | ) | 39,832 | ||||||||
Deferred income/expense (-) taxes related to tax loss carryforwards | — | (4,643 | ) | (126,160 | ) | |||||||
Income taxes for the period | (267,056 | ) | (134,587 | ) | (149,436 | ) |
2006 | 2005 | 2004 | ||||||||||
Income before taxes | 1,297,704 | 512,039 | 487,775 | |||||||||
Tax rate in Sweden (28%) | (363,357 | ) | (143,371 | ) | (136,577 | ) | ||||||
Effect of foreign tax rates | 29,020 | 21,687 | (2,094 | ) | ||||||||
Current income taxes related to prior years | (876 | ) | 745 | 1,435 | ||||||||
Tax effect of expenses that are non deductible for tax purpose | (4,858 | ) | (1,839 | ) | (3,210 | ) | ||||||
Tax effect of income that are non-taxable for tax purpose | 10,014 | 4,775 | 646 | |||||||||
Tax effect of changes in tax rates | 19 | (16,584 | ) | 5,500 | ||||||||
Release of valuation allowance* | 62,982 | — | — | |||||||||
Tax effect of tax losses carryforwards, net | — | — | (15,136 | ) | ||||||||
Income taxes for the year | (267,056 | ) | (134,587 | ) | (149,436 | ) |
* | The release of valuation allowance mainly refers to temporary differences in Japan and US. |
A-13
2006 | 2005 | |||||||
Deferred tax assets | 139,621 | 41,455 | ||||||
Deferred tax liabilities | (13 | ) | 643 |
Licenses, software | ||||||||||||
trademarks and | ||||||||||||
2006 | similar rights | Patents | Total | |||||||||
Accumulated acquisition costs | ||||||||||||
Opening balance January 1, 2006 | 81,504 | — | 81,504 | |||||||||
Acquisitions | 25,333 | 3,978 | 29,311 | |||||||||
Balances regarding acquired and sold companies | 1,316 | — | 1,316 | |||||||||
Sales/disposals | (714 | ) | — | (714 | ) | |||||||
Translation difference for the year | (4,019 | ) | — | (4,019 | ) | |||||||
Closing balance December 31, 2006 | 103,420 | 3,978 | 107,398 | |||||||||
Accumulated depreciation | ||||||||||||
Opening balance January 1, 2006 | (46,821 | ) | — | (46,821 | ) | |||||||
Depreciation | (15,381 | ) | (341 | ) | (15,722 | ) | ||||||
Balances regarding acquired and sold companies | (593 | ) | — | (593 | ) | |||||||
Sales/disposals | 553 | — | 553 | |||||||||
Translation difference for the year | 2,420 | — | 2,420 | |||||||||
Closing balance December 31, 2006 | (59,822 | ) | (341 | ) | (60,163 | ) | ||||||
Net carrying value | 43,598 | 3,637 | 47,235 |
A-14
Licenses, software trademarks and similar rights Patents Total 56,516 — 56,516 Acquisitions 25,792 — 25,792 Sales/disposals (1,994 ) — (1,994 ) Translation difference for the year 1,190 — 1,190 81,504 — 81,504 (34,799 ) — (34,799 ) Depreciation (12,571 ) — (12,571 ) Sales/disposals 1,125 — 1,125 Translation difference for the year (576 ) — (576 ) (46,821 ) — (46,821 ) 34,683 — 34,683
7. | Tangible assets |
Land and | Other | |||||||||||||||
2006 | buildings | Machinery | equipment | Total | ||||||||||||
Accumulated acquisition costs | ||||||||||||||||
Opening balance January 1, 2006 | 9,283 | 52,120 | 171,568 | 232,971 | ||||||||||||
Acquisitions | 3,646 | 19,103 | 68,147 | 90,896 | ||||||||||||
Balances regarding acquired and sold companies | 5,363 | 17,796 | 764 | 23,923 | ||||||||||||
Sales/disposals | (8 | ) | (8,647 | ) | (7,601 | ) | (16,256 | ) | ||||||||
Translation difference for the year | (597 | ) | (6,045 | ) | (12,257 | ) | (18,899 | ) | ||||||||
Closing balance December 31, 2006 | 17,687 | 74,327 | 220,621 | 312,635 | ||||||||||||
Accumulated depreciation | ||||||||||||||||
Opening balance January 1, 2006 | (2,685 | ) | (25,731 | ) | (102,967 | ) | (131,383 | ) | ||||||||
Depreciation | (939 | ) | (12,824 | ) | (55,544 | ) | (69,307 | ) | ||||||||
Balances regarding acquired and sold companies | (1,639 | ) | (8,116 | ) | (621 | ) | (10,376 | ) | ||||||||
Sales/disposals | 2 | 6,268 | 6,856 | 13,126 | ||||||||||||
Translation difference for the year | 125 | 3,167 | 8,371 | 11,663 | ||||||||||||
Closing balance December 31, 2006 | (5,136 | ) | (37,236 | ) | (143,905 | ) | (186,277 | ) | ||||||||
Accumulated writedowns | ||||||||||||||||
Opening balance January 1, 2006 | — | (245 | ) | (10 | ) | (255 | ) | |||||||||
Write down | — | (61 | ) | (311 | ) | (372 | ) | |||||||||
Sales/disposal | — | 194 | 312 | 506 | ||||||||||||
Translation difference for the year | — | 14 | 1 | 15 | ||||||||||||
Closing balance December 31, 2006 | — | (98 | ) | (8 | ) | (106 | ) | |||||||||
Net carrying value | 12,551 | 36,993 | 76,708 | 126,252 |
A-15
Land and Other buildings Machinery equipment Total 8,492 37,740 154,787 201,019 Acquisitions — 20,456 50,256 70,712 Sales/disposals — (10,774 ) (36,218 ) (46,992 ) Translation difference for the year 791 4,698 2,743 8,232 9,283 52,120 171,568 232,971 (2,055 ) (17,007 ) (90,836 ) (109,898 ) Depreciation (544 ) (16,289 ) (41,480 ) (58,313 ) Sales/disposals — 9,835 30,732 40,567 Translation difference for the year (86 ) (2,270 ) (1,383 ) (3,739 ) (2,685 ) (25,731 ) (102,967 ) (131,383 ) — (410 ) (604 ) (1,014 ) Write down — — (8 ) (8 ) Sales/disposal — 221 603 824 Translation difference for the year — (56 ) (1 ) (57 ) — (245 ) (10 ) (255 ) 6,598 26,144 68,591 101,333
8. | Other securities held as fixed assets |
2006 | 2005 | |||||||
Accumulated acquisition costs | ||||||||
Opening balance | 83,652 | 77,820 | ||||||
Acquisitions | 12,462 | 5,205 | ||||||
Translation difference for the year | (301 | ) | 639 | |||||
Reclassifications | (3,871 | ) | (12 | ) | ||||
Closing balance | 91,942 | 83,652 | ||||||
Accumulated write-downs | ||||||||
Opening balance | (1,969 | ) | (1,667 | ) | ||||
Translation difference for the year | 142 | (302 | ) | |||||
Reclassification | 1,827 | — | ||||||
Closing balance | — | (1,969 | ) | |||||
Net carrying value | 91,942 | 81,683 |
A-16
9. | Other non current assets |
2006 | 2005 | |||||||
Deferred tax assets | 139,621 | 41,455 | ||||||
External development projects | — | 14,085 | ||||||
Other non current assets | 63,627 | 510 | ||||||
Total | 203,248 | 56,050 |
10. | Group companies |
Percentage of | ||||||
Company | Domicile | ownership | ||||
Sony Ericsson Mobile Communications AB | Sweden | |||||
Sony Ericsson Mobile Communications International AB | Sweden | 100% | ||||
Sony Ericsson Mobile Communications Management Ltd. | United Kingdom | 100% | ||||
Sony Ericsson Mobile Communications S.p.A. | Italy | 100% | ||||
Sony Ericsson Mobile Communications Iberia S.L | Spain | 100% | ||||
Sony Ericsson Mobile Communications Hellas S.A. | Greece | 100% | ||||
Sony Ericsson Hungary Mobile Communications Ltd. | Hungary | 100% | ||||
Sony Ericsson Mobile Communications do Brazil Ltd. | Brasil | 100% | ||||
Sony Ericsson Mobile Communications S.A. de C.V. | Mexico | 100% | ||||
Sony Ericsson Servicios Móviles S.A. de C.V. | Mexico | 100% | ||||
Sony Ericsson Mobile Communications Japan Inc. | Japan | 100% | ||||
Sony Ericsson Mobile Communications (USA) Inc. | USA | 100% | ||||
Sony Ericsson Mobile Communications (Thailand) Co. Limited | Thailand | 100% | ||||
Sony Ericsson Mobile Communications (China) Co. Ltd. | China | 100% | ||||
Beijing Suohong Electronics Co. Ltd (BSE) | China | 100% | ||||
Beijing SE Putian Mobile Communications Co. Ltd (BMC) | China | 51% |
2006 | 2005 | |||||||
Manufacturing work in process | 143,076 | 64,516 | ||||||
Finished products and goods for resale | 294,386 | 241,589 | ||||||
Inventories, net | 437,462 | 306,105 |
12. | Accounts Receivables — Trade |
2006 | 2005 | |||||||
Trade receivables | 1,657,111 | 854,130 | ||||||
Provision for doubtful debts* | (4,357 | ) | (2,420 | ) | ||||
Trade receivables, net | (1,652,754 | ) | (851,710 | ) |
* | Provisions for doubtful debts has been estimated based on commercial risk evaluations. |
A-17
13. | Other current assets |
2006 | 2005 | |||||||
Prepaid,expenses | 55,232 | 38,786 | ||||||
Prepaid, tooling | 15,927 | 14,693 | ||||||
Other, receivables* | 238,607 | 124,889 | ||||||
Total | 309,766 | 178,368 |
* | The major part of other receivables are related to withholding tax and VAT. |
14. | Short term cash investments |
2006 | 2005 | |||||||
Net book value | 1,580,077 | 900,272 | ||||||
Market value | 1,581,671 | 901,430 |
Non- | ||||||||||||||||
restricted | ||||||||||||||||
reserves and | Total | |||||||||||||||
Share | Restricted | net profit/loss | shareholders’ | |||||||||||||
capital* | receives | for the year | equity | |||||||||||||
Shareholder’s equity December 31, 2003 | 100,000 | 712,619 | (434,733 | ) | 377,886 | |||||||||||
Changes in accumulated translation differences | — | (12,760 | ) | 6,090 | (6,670 | ) | ||||||||||
Net income for the year | — | — | 322,019 | 322,019 | ||||||||||||
Shareholder’s equity December 31, 2004 | 100,000 | 699,859 | (106,624 | ) | 693,235 | |||||||||||
Changes in cumulative translation adjustments | — | 20,563 | 4,131 | 24,694 | ||||||||||||
Fair value reserve | — | — | 1,624 | 1,624 | ||||||||||||
Net income for the year | — | — | 350,342 | 350,342 | ||||||||||||
Shareholder’s equity December 31, 2005 | 100,000 | 720,422 | 249,473 | 1,069,895 | ||||||||||||
Changes in cumulative translation adjustments**** | — | (14,534 | ) | (18,027 | ) | (32,561 | ) | |||||||||
Fair value reserve** | — | — | (7,044 | ) | (7,044 | ) | ||||||||||
Transfer between non-restricted and restricted reserves*** | — | 17,001 | (17,001 | ) | — | |||||||||||
Net income for the year | — | — | 997,319 | 997,319 | ||||||||||||
Dividend | — | — | (247,000 | ) | (247,000 | ) | ||||||||||
Shareholder’s equity December 31, 2006 | 100,000 | 722,889 | 957,720 | 1,780,609 |
* | Share capital consists of 100 000 200 shares at a quota value of EUR 1 per share. | |
** | The fair value reserve is related to the effective portion of changes in the fair value of hedging instruments that is recognized in equity. Amounts accumulated in equity are recycled in the income statement in the periods in which the hedged item affects profit or loss, for example, when the forecasted sale which is hedged takes place. | |
*** | The transfer between non-restricted and restricted reserves is in accordance with the proposals of the respective companies’ boards of directors. In evaluating the consolidated financial position, it should be |
A-18
noted that earnings in foreign companies may be subject to taxation when transferred to Sweden and, in some instances, such transfer of earnings may be limited by currency restrictions. | ||
**** | Cumulative translation adjustments have been distributed among unrestricted and restricted stockholders equity. |
• | Defined contribution plans, where the Company’s only obligation is to pay fixed pension premiums into a separate entity (a fund or insurance company) on behalf of the employee. No provision for pensions is recognized in the balance sheet other than accruals for premium pensions earned, but not yet paid. | |
• | Defined benefit plans, where the Company’s undertaking is to provide pension benefits that the employees will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. |
Consolidated | ||||||||
2006 | 2005 | |||||||
Pensions and similar commitments | 19,409 | 18,418 |
2006 | Sweden | UK | Japan | Others | Total | |||||||||||||||
Pension cost for defined benefit plans | — | 592 | 3,780 | — | 4,372 | |||||||||||||||
Pension cost for defined contributions plans | 24,436 | 415 | — | 5,007 | 29,858 | |||||||||||||||
Total | 24,436 | 1,007 | 3,780 | 5,007 | 34,230 |
2006 | Sweden | UK | Japan | Others | Total | |||||||||||||||
Provision for post-employment benefits | — | 4,204 | 12,734 | — | 16,938 | |||||||||||||||
Other employee benefits | — | — | — | 2,471 | 2,471 | |||||||||||||||
Total | — | 4,204 | 12,734 | 2,471 | 19,409 |
2006 | 2005 | |||||||
Warranty commitments* | 378,074 | 254,563 | ||||||
Other provisions | 43,152 | 40,749 | ||||||
Total | 421,226 | 295,312 |
* | Warranty commitments include provisions for faulty products based on estimated return rates and costs. The best estimate is based on sales, contractual warranty periods and historical failure data of products sold. |
A-19
2006 | 2005 | |||||||
Accrued personnel related expenses | 141,851 | 85,053 | ||||||
Accrued sales related expenses* | 679,485 | 468,572 | ||||||
Other accrued expenses | 252,452 | 190,148 | ||||||
Other short term liabilities | 92,618 | 51,271 | ||||||
Total | 1,166,406 | 795,044 |
* | Accrued sales related expenses includes sales bonuses, such as cash discounts, quarterly and yearly bonuses, quality bonus, co-op and stock protection. |
Liabilities | Advances | Liabilities | Advances | |||||||||||||||||||||
to financial | from | Total | to financial | from | Total | |||||||||||||||||||
institutions | customers | 2006 | institutions | customers | 2005 | |||||||||||||||||||
Bank deposits* | 3,950 | — | 3,950 | — | — | — | ||||||||||||||||||
Other | 23 | — | 23 | 158 | — | 158 | ||||||||||||||||||
Total | 3,973 | — | 3,973 | 158 | — | 158 |
* | Bank deposits are collateral for hedging activities. |
2006 | 2005 | |||||||
Other contingent liabilities* | 12,428 | 12,383 | ||||||
Total | 12,428 | 12,383 |
* | Other contingent liabilities mainly include guarantees for loans and other types of guarantees. |
2006 | 2005 | 2004 | ||||||||||
Change in provisions (note 16,17) | 126,905 | 26,786 | 77,253 | |||||||||
Write down of tangible assets | 134 | 8 | 450 | |||||||||
Gains on disposal of equipment | (16,068 | ) | 144 | 177 | ||||||||
Other | 1,717 | 7,248 | 7,869 | |||||||||
Total | 112,688 | 34,186 | 85,749 |
A-20
2006 | 2005 | 2004 | ||||||||||
Fixed assets | 14,272 | — | 11,533 | |||||||||
Other assets | 53,746 | — | 189,614 | |||||||||
Other liabilities | (46,874 | ) | — | (166,711 | ) | |||||||
Minority interest | — | — | (18,765 | ) | ||||||||
Net book value of pre owned share in subsidiary | (2,203 | ) | — | (2,919 | ) | |||||||
Total acquisition | 18,941 | — | 12,752 | |||||||||
Cash in acquired subsidiaries | (3,440 | ) | — | — | ||||||||
Cash flow effect from acquisitions in subsidiaries | 15,501 | — | 12,752 | |||||||||
Total cash flow effect from acquisitions in subsidiaries | 15,501 | — | 12,752 |
2006 | ||||
Future payments for operating leases and rents | ||||
2007 | 38,835 | |||
2008 | 36,788 | |||
2009 | 32,052 | |||
2010 | 30,623 | |||
2011 | 25,041 | |||
2012 and future | 60,005 |
25. | Wages, salaries and social security expenses |
2006 | 2005 | 2004 | ||||||||||
Wages and salaries | 390,556 | 327,937 | 268,672 | |||||||||
Social security expenses | 114,872 | 100,429 | 89,490 | |||||||||
Of which pension costs | 34,230 | 28,239 | 17,481 | |||||||||
Of which CO compensation | 1,082 | 999 | 901 | |||||||||
CO pension costs | 190 | 142 | 577 | |||||||||
bonus & similar to CO | 268 | 269 | 1,002 |
A-21
2006 | 2005 | 2004 | ||||||||||
Calculated future payments for synthetic option plan charged to operating costs | 20,826 | 12,018 | 17,300 |
Wages and salaries by geographical area | 2006 | 2005 | 2004 | |||||||||
Europe* and | ||||||||||||
Middle East & Africa | 224,702 | 179,713 | 151,167 | |||||||||
North America | 67,504 | 65,481 | 41,855 | |||||||||
Latin America | 4,267 | 3,698 | 2,624 | |||||||||
China | 26,041 | 16,296 | 13,664 | |||||||||
Japan | 58,369 | 55,534 | 52,285 | |||||||||
Asia Pacific | 9,673 | 7,215 | 7,077 | |||||||||
Total | 390,556 | 327,937 | 268,672 | |||||||||
* Of which Sweden | 157,416 | 121,605 | 96,899 | |||||||||
* Of which EU excl. Sweden | 35,122 | 37,720 | 38,093 |
A-22
2006 | 2005 | |||||||||||||||
Men | Women | Men | Women | |||||||||||||
Europe * and | ||||||||||||||||
Middle East & Africa | 2,245 | 842 | 1,967 | 748 | ||||||||||||
North America | 528 | 176 | 521 | 175 | ||||||||||||
Latin America | 41 | 16 | 32 | 13 | ||||||||||||
China | 942 | 1,168 | 590 | 441 | ||||||||||||
Japan | 839 | 205 | 776 | 183 | ||||||||||||
Asia Pacific | 102 | 71 | 90 | 63 | ||||||||||||
Total | 4,697 | 2,478 | 3,976 | 1,623 | ||||||||||||
* Of which Sweden | 1,696 | 593 | 1,473 | 551 | ||||||||||||
* Of which EU excl. Sweden | 395 | 163 | 363 | 131 |
2006 | 2005 | |||||||||||||||
Number on | whereof | Number on | whereof | |||||||||||||
balance day | men | balance day | men | |||||||||||||
Consolidated (including subsidiaries) | ||||||||||||||||
Members of the board | 86 | 91.9% | 71 | 94.4% | ||||||||||||
Presidents and Executive Vice presidents | 13 | 100% | 12 | 100% | ||||||||||||
Parent Company | ||||||||||||||||
Members of the board | 10 | 100% | 10 | 100% | ||||||||||||
President and Executive Vice president | 2 | 100% | 2 | 100% |
Jan. 1 2006- | Jan. 1 2005- | |||||||
Dec. 31 2006 | Dec. 31 2005 | |||||||
% of total ordinary worktime | ||||||||
Total absence due to illness | 1.6 | 1.8 | ||||||
— long term absence due to illness | 0.8 | 1.8 | ||||||
— absence due to illness for men | 1.1 | 1.2 | ||||||
— absence due to illness for women | 2.9 | 3.4 | ||||||
— employees — 29 years | 0.8 | 0.9 | ||||||
— employees 30 — 49 years | 1.7 | 2.0 | ||||||
— employees 50 years- | 2.3 | 1.7 |
26. | Fees to auditors |
2006 | 2005 | 2004 | ||||||||||
PricewaterhouseCoopers | ||||||||||||
Audit fees | 916 | 881 | 696 | |||||||||
Fees for other services | 897 | 1,291 | 1,083 | |||||||||
Total | 1,813 | 2,172 | 1,779 |
A-23
27. | Financial risks |
28. | Reconciliation to accounting principles generally accepted in the United States |
A-24
A-25
2006 | 2005 | |||||||
Net income per Swedish GAAP | 997,319 | 350,342 | ||||||
US GAAP adjustments before taxes: | ||||||||
Business Combination | 918 | 918 | ||||||
Synthetic Option Plan | 1,472 | 906 | ||||||
Tax effect of US GAAP adjustment | (522 | ) | (364 | ) | ||||
Net income in accordance with US GAAP | 999,186 | 351,802 |
2006 | 2005 | |||||||
Net income in accordance with US GAAP | 999,186 | 351,802 | ||||||
Other comprehensive income Gain/loss on cash flow hedges | (9,544 | ) | 2,260 | |||||
Translation adjustment | (32,561 | ) | 24,694 | |||||
Deferred tax | 2,499 | (636 | ) | |||||
Total other comprehensive income | (39,605 | ) | 26,318 | |||||
Comprehensive income in accordance with US GAAP | 959,581 | 378,119 |
2006 | 2005 | |||||||
Equity as reported per Swedish GAAP | 1,780,609 | 1,069,895 | ||||||
US GAAP adjustments before taxes: | ||||||||
Business Combination | (964 | ) | (1,882 | ) | ||||
Synthetic Option Plan | 2,377 | 906 | ||||||
Deferred tax effect of US GAAP adjustment | (550 | ) | (28 | ) | ||||
Stockholders’ equity in accordance with US GAAP | 1,781,472 | 1,068,891 | ||||||
Swedish GAAP | US GAAP | |||||||||||||||
Dec. 31 | Dec. 31 | Dec. 31 | Dec. 31 | |||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Non-current assets | 468,677 | 273,749 | 328,207 | 230,638 | ||||||||||||
Current assets | 4,672,681 | 2,873,459 | 4,811,636 | 2,914,660 | ||||||||||||
Total Assets | 5,141,358 | 3,147,208 | 5,139,844 | 3,145,298 | ||||||||||||
Stockholders equity | 1,780,609 | 1,069,895 | 1,781,472 | 1,068,891 | ||||||||||||
Minority interest | 45,148 | 46,488 | 45,148 | 46,488 | ||||||||||||
Provisions | 440,635 | 313,730 | 440,635 | 313,730 | ||||||||||||
Non-current liabilities | 677 | 1,031 | 677 | 1,031 | ||||||||||||
Current liabilities | 2,874,289 | 1,716,064 | 2,871,912 | 1,715,158 | ||||||||||||
Total stockholders’ equity and liabilities | 5,141,358 | 3,147,208 | 5,139,844 | 3,145,298 | ||||||||||||
A-26
A-27
A-28