Sony 2000 Annual Report Download - page 54

SONY CORPORATION ANNUAL REPORT 2000
52
Other Income and Expenses
In consolidated results for the fiscal year ended March 31,
2000, other income decreased by 4.1 billion yen, or 2.7%, to
148.8 billion yen, while other expenses increased by 1.7 bil-
lion yen, or 1.4%, to 125.2 billion yen.
The decrease in other income was principally due to in-
clusion in the previous year of both a 58.7 billion yen gain
on securities contribution to an employee retirement benefit
trust and a 5.2 billion yen gain resulting from the merger of
the Theatrical exhibition group in the Pictures business with
Cineplex Odeon Corporation (refer to Note 7 of Notes to
Consolidated Financial Statements). This decrease was partly
offset by an increase in foreign exchange gain, net and by a
gain of approximately 28.1 billion yen on certain investment
securities during the fiscal year ended March 31, 2000. Inter-
est and dividends during the year was 17.7 billion yen, com-
pared with 23.3 billion yen in the previous year, principally
due to decrease in interest received at subsidiaries outside
Japan.
To hedge risks from exchange rate fluctuations, Sony pri-
marily employs foreign exchange forward contracts and for-
eign currency option contracts. Foreign exchange gain, net,
was 27.5 billion yen, compared with 2.9 billion yen in the
previous year. This was principally due to gains from foreign
exchange hedging in Sony Corporation.
The increase in other expenses was principally due to
loss on disposal of fixed assets related to the discontinuation
of the cellular phone business in North America. Interest
expense was 42.0 billion yen, compared with 48.3 billion
yen in the previous year. This was due to a decrease in the
average outstanding balances of debt outside Japan in addi-
tion to the yen’s appreciation. As a result, the balance of
interest and dividends income, less interest expense, improved
by 0.6 billion yen compared with the previous year and net
interest expense came to 24.3 billion yen.
Income before Income Taxes
Income before income taxes for the fiscal year ended March
31, 2000 decreased by 113.4 billion yen, or 30.0%, to 264.3
billion yen compared with the previous year. Excluding the
effect of the one-time gain on securities to an outside trust in
the previous year noted above, the decrease of income be-
fore income taxes would have been limited to 17.1%.
Income Taxes
Income taxes for the fiscal year ended March 31, 2000 de-
creased by 82.3 billion yen, or 46.5%, to 94.6 billion yen, and
the percentage of income taxes to income before income
taxes (the effective tax rate) decreased from 46.9% to 35.8%.
This was principally due to the performance improvement
in certain U.S. subsidiaries that had operating loss
carryforwards for tax purposes and a reduction in the Japa-
nese corporate statutory income tax rate effective April 1,
1999, which had the effect of lowering the effective tax rate
by approximately 6 percentage points.
Deferred tax assets are recognized on operating loss
carryforwards for tax purposes since these losses may reduce
future taxable income. However, a valuation allowance is es-
tablished against those deferred tax assets that are not ex-
pected to be realized because sufficient taxable income is not
expected to be generated before those loss carryforwards ex-
pire. Sony has recognized a valuation allowance for deferred
tax assets principally relating to operating loss carryforwards
of consolidated subsidiaries in the U.S.
Results of Affiliated Companies Accounted for
by the Equity Method
Equity affiliates include i) in the Electronics business - S.T.
Liquid Crystal Display Corp. (“ST-LCD”), an LCD joint ven-
ture in Japan, ii) in the Music business - The Columbia House
Company (“CHC”), a direct marketer of music and videos,
iii) in the Pictures business - Telemundo group, a U.S. based
Spanish language television network and station group and
Loews Cineplex Entertainment Corporation, a theatrical ex-
hibition company, and iv) in the Other business - several
satellite distribution services businesses in Japan and a loca-
tion-based entertainment complex in Europe.
During the fiscal year ended March 31, 2000, equity in net
losses of affiliated companies was 37.8 billion yen, compared
with 9.6 billion yen in the previous year, principally due to
losses in CHC, ST-LCD, the location-based entertainment
complex in Europe, Telemundo group, and several satellite
distribution services businesses in Japan. During the year,
the expansion of losses in CHC was largely due to approxi-
mately 7.6 billion yen of costs relating to shortened amorti-
zation periods for and an impairment of deferred advertising
and member acquisition expenses. Regarding the location-
based entertainment complex in Europe, which opens in
June 2000 in Berlin, Germany, additional expenses were in-
curred due to an approximately 5.1 billion yen devaluation
of real estate for sale. The total investment for this project
was approximately 1.5 billion German marks.