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Annual Report 2003
Year Ended March 31, 2003

Table of contents

  • Page 1
    Annual Report 2003 Year Ended March 31, 2003

  • Page 2
    Financial Highlight s Sony Corporation and Consolidated Subsidiaries Year ended M arch 31 Yen in millions except per share amounts and number of employees Percent change Dollars in millions* except per share amounts 2002 2003 2003/2002 2003 FOR THE YEAR Sales and operating revenue Operating ...

  • Page 3
    ... ...Sony World ...Research and Development ...Corporate Social Responsibility ...M anagement (Fiscal Year Ended M arch 31, 2003) ...Financial Section ...Fact Sheets...Stock Information ...Corporate Governance ...New M embers of the Board ...New Corporate Executive Officers ...Investor Information...

  • Page 4
    ... intensification of pricing pressure. Consolidated sales decreased 1.4% year on year to 7,473.6 billion yen, primarily due to low er sales in the core segment of Electronics, w hile sales in the Pictures segment increased significantly, reaching a record high. Consolidated operating income increased...

  • Page 5
    ... expenses increased and music product sales decreased. As for restructuring, w hich w e have been undertaking since the fiscal year ended M arch 31, 2000, on a consolidated basis, Sony recorded approximately 100 billion yen in charges during the fiscal year ended M arch 31, 2003, the brunt of...

  • Page 6
    ...a management system made possible by revisions to Japan's Commercial Code that became effective on April 1, 2003 (for more information see page 74). Through the implementation of such initiatives, w e aim to transform Sony into a 21 st Century enterprise, build a highly profitable business structure...

  • Page 7
    ...consumer brand - as w e promote the convergence of Electronics and Game, M usic and Pictures. At our Corporate Strategy M eeting in M ay 2003, w e set a target for 2006, the year in w hich w e w ill celebrate our 60 th anniversary. By that year, w e aim for Sony to have a highly profitable business...

  • Page 8
    ... new, exceptional products and by building a profit model that can consistently generate earnings in each of four core categories. The first is audio and visual (AV) products, w here w e plan to solidify our disk drive recorders, and digital imaging products such as video cameras and digital...

  • Page 9
    Our vision f or Sony remains t he same - t hat of being t he st rongest consumer brand - as w e promot e t he convergence of Elect ronics and Game, M usic and Pict ures. Nobuyuki Idei Chairman and Group CEO Sony Corporat ion A nnual Report 2003 7

  • Page 10
    While building a highly prof it able st ruct ure t hrough signif icant rest ruct uring, w e w ill w ork t o improve t he st rengt h of our product s and creat e new sources of grow t h. Kunitake Ando President and Group COO 8 Sony Corporat ion A nnual Report 2003

  • Page 11
    ... in demand in the recordable DVD market. At the E3 (Electronic Entertainment Exposition), the w orld's largest game exhibition, held in Los Angeles in M ay 2003, w e announced our plan to sell PSP , a portable entertainment system that is, in effect, a 21 st Century Walkman. PSP w ill be launched at...

  • Page 12
    ... so that new products can be launched faster and the company as a w hole can become more cost competitive. At a time w hen mobile phone industry players are w orking to add information and entertainment service functionality to the telephony capability of 10 Sony Corporat ion A nnual Report 2003

  • Page 13
    ... y of AV products, products which are at the center of t he Sony Group's core Elect ronics segment . By int roducing capt ivat ing product s in grow ing market s, w e aim t o solidif y our number one posit ion. Shizuo Takashino Executive Deputy President Sony Corporat ion A nnual Report 2003 11

  • Page 14
    ... yield a new line of high-grade digit al home appliances t hat have dramat ically accelerat ed processing capabilit y t hanks t o Game's advanced semiconduct or process t echnology and real t ime operat ing syst em. Ken Kutaragi Executive Deputy President 12 Sony Corporat ion A nnual Report 2003

  • Page 15
    ... devices and content to create new digital consumer offerings. Our entertainment companies are utilizing their content libraries in fresh and exciting w ays to develop new business opportunities. New revenue sources at Sony Pictures Entertainment (SPE) include selling dow nloads of television soap...

  • Page 16
    ...more than tw o hours of high definition video on a single disc, and SCE's PSP entertainment system, w hich w ill use the UM D format, and provide portable enjoyment of games, movies and music. ow n compilation CDs; and new commercial relationships w ith a variety of corporate partners such as Pepsi...

  • Page 17
    Our ent ert ainment companies are ut ilizing t heir cont ent libraries in f resh and excit ing w ays t o develop new business opport unit ies. How ard Stringer Vice Chairman Sony Corporat ion A nnual Report 2003 15

  • Page 18
    ... is essent ial t o t ransf orming Sony int o a 21st Cent ury ent erprise. This requires precise management of our balance sheet , not just a f ocus on prof it perf ormance. Teruhisa Tokunaka Executive Deputy President and Group CSO (Chief Strategy Officer) 16 Sony Corporat ion A nnual Report 2003

  • Page 19
    ...2003, w e plan to adopt the " Company w ith Committees" system, a new option under the Japanese Commercial Code, for the purpose of reforming the group's management structure in order to enhance corporate governance (for more information see page 74). The Sony Group has alw ays managed and invested...

  • Page 20
    ...an Internet-related business (So-net) conducted by Sony Communication Netw ork Corporation, an in-house oriented information system service business, an IC card business and other businesses. 03 02 01 250 -32 204 -17 207 -14 â- Sales â- Operat ing Loss 18 Sony Corporat ion A nnual Report 2003

  • Page 21
    ... value at Sony by utilizing the directto-customer uniqueness of this segment to offer new " out of the box" products and services. â- â- Sales increased 23% due to increased sales at NACS-related businesses* and increased sales at an advertising agency business subsidiary in Japan. Operating...

  • Page 22
    ... ajor Products Home audio, portable audio, car audio and car navigation systems. Video cameras, digital still cameras, video decks and DVD players/recorders. CRT televisions, projection televisions, plasma televisions, set-top boxes and PC projectors. Review of FY2002 Sales decreased 9% because...

  • Page 23
    ..., batteries, CRTs, audio/video/data recording media and data recording systems. Aiw a products, entertainment robots and products and services not included in other categories. Sales decreased 18% because sales of PCs, CRT computer displays and broadcast and professional use products decreased...

  • Page 24
    ... o lif e a w orld in w hich, anyt ime and anyw here, simply by connect ing digit al product s t o t he broadband net w ork, cust omers, w ho are at t he cent er of UVN, can enjoy cont ent and share t he cont ent t hey creat e w it h a mult it ude of people. 22 Sony Corporat ion A nnual Report 2003

  • Page 25
    ... people's lives more enjoyable. Through t he provision of broadband-ready home-use and mobile-use hardw are as w ell as t he cont ent and applicat ions cust omers act ually enjoy, Sony aims t o provide all cust omers w it h new value in t he broadband era. Sony Corporat ion A nnual Report 2003 23

  • Page 26
    ... television built around digital high definition LCD panels in its optics unit. Even in the netw ork era, Sony w ill continue to uphold the highest standards for picture quality in its televisions, the centerpiece of AV products in the home. Grand Wega 24 Sony Corporat ion A nnual Report 2003

  • Page 27
    ... Sony's Come On! M yCaster service online, recording settings can easily be entered w hile aw ay from home via a PC or mobile phone. A hard disk drive-equipped DVD digit al recorder and a 5.1-channel DVD home t heat er syst em w it h it s ow n hard disk drive are tw o other CoCoon products on sale...

  • Page 28
    ... of video recording in households. Indications also point to grow ing use of DVDs as a high-capacity PC storage medium. DVD/CD Rew ritable Drive DVD Recorder Blu-ray Disc As digital broadcasting gains momentum, high resolution television programs have become accessible to a grow ing number of...

  • Page 29
    ... center of the home netw ork Sony is building. Simply by using the RoomLink netw ork media receiver, users can enjoy television programs, music, photos and other digital content stored on their VAIO's hard disk drive from remote locations, such as on their televisions or stereos in their living...

  • Page 30
    ...used chiefly for schedule management and e-mail. The model pictured here has a 2 mega pixel, high resolution CCD camera. Users can take still photos as w ell as record moving images w ith sound. The unit can also play music or video from data stored on a M emory Stick. The new CLIÉ boasts a variety...

  • Page 31
    ...over the Internet, a high-resolution photo printing service. CCD Commonly know n as " electronic eyes," CCDs (charge-coupled devices) are semiconductors used for photoelectric transfers. They are used not only in digital still cameras and video cameras, but also, and more recently, in mobile phones...

  • Page 32
    ... received in Japan, the U.S. and Europe. Sony has also introduced a Netw ork Walkman that enables users to enjoy music, transferred from their PC, to internal flash memory and IC recording media. The model pictured here, w hich w ent on sale in February 2003, can hold the equivalent of about 11 CDs...

  • Page 33
    ... w ith personal digital assistant, digital camera, music and video player and gaming capabilities. The T300 targeted the mass market w ith its color screen and M ultimedia M essaging capability. And the T100, w ith its attractive design, ranked among the best-selling models in several markets in the...

  • Page 34
    .... The number of hit titles is also increasing, and this has created a positive cycle in which the attractiveness of software titles prompts further penetration of hardware. http://global.scei.co.jp/ PlayStation 2 BB Pack went on sale in Japan in June 2003 32 Sony Corporation Annual Report 2003

  • Page 35
    .... In Europe and South Korea, a trial online game service using Netw ork Adaptor started in April 2003. Full-scale sales of Netw ork Adaptor are expected soon. Working together w ith game developers and publishers and other companies, SCE w ill continue to offer new forms of entertainment through...

  • Page 36
    ... and decoding) technologies, including M PEG-4, are also utilized, enabling delivery of picture quality equivalent to that of DVD-Video. The most advanced technologies are employed in this new portable entertainment platform, PSP. SCE positions PSP as a platform for the enjoyment of a broad range...

  • Page 37
    ...-to-the-Home) and mobile (w ireless connection) netw ork access. In the content domain, SCN started a number of services such as the provision of broadband content including EverQuest , a popular online game, and So-net TV, a 24-hour streaming video channel. Tie-ups w ith other Sony Group companies...

  • Page 38
    ... to reduce costs and streamline the organization. At the direction of its new ly appointed Chairman and CEO, Andrew Lack, these efforts w ere dramatically accelerated. SM EI has created a new shared services model for its various labels and business units by consolidating functions such as sales...

  • Page 39
    ...the sale of individual tracks. SM EI also authorized M uze, an entertainment product information service, to stream SM EI recordings as promotional sound samples to more than 14,000 retail locations and 250 online shopping sites. Sony Ericsson M obile Communications AB (SEM C) and SM EI developed an...

  • Page 40
    Sony M usic Ent ert ainment (Japan) (SM EJ) Even as Japan's recorded music market continued to shrink, SM EJ kept its number-one position. Highlighting the year's accomplishments w ere dramatic successes in the development of new artists. CHEM ISTRY's Second to None w as Japan's best-selling album ...

  • Page 41
    ... box office market share and a company record for w orldw ide box office w ith 2.88 billion U.S. dollars recorded in calendar 2002. Home entertainment capitalized on the success of the theatrical slate as w ell as the grow th of the w orldw ide DVD market to achieve its highest annual revenues ever...

  • Page 42
    .... Wheel of Fortune, celebrating its 20 th year, and Jeopardy! maintained their spots as the number-one and number-tw o U.S. syndicated game show s w hile Pyramid debuted as our latest syndicated game show . The Young & The Restless, celebrating 30 years on the air, and Days of Our Lives stayed...

  • Page 43
    ...w ork Relat ed Businesses Netw orked services are the basis of Sony Pictures Digital Netw orks, w hich develops and provides new forms of online content, games, interactive programming, open-access Video-on-Demand and w ireless entertainment to consumers w orldw ide on any enabled device. M ovielink...

  • Page 44
    ... of Lifeplanners, life insurance professionals armed w ith a broad array of specialized know ledge and superior consulting skills, and independent agencies that design and supply tailormade insurance plans that address the unique needs of each customer. During the year under review , Sony Life w as...

  • Page 45
    ... of goods and services over the Internet w ith a credit card. To protect credit card information from theft, the service requires no manual input of a credit card number to complete a transaction. In April 2002, the company began issuing a M y Sony Card that has all three of the follow ing payment...

  • Page 46
    ... protecting customers' personal information. It also forms the foundation for development of a business model that links all the products and services across the Sony Group. For more information, see the M y Sony home page at ht t ps://w w w.m y.sony.com / 44 Sony Corporat ion A nnual Report 2003

  • Page 47
    ...deploy, on a w ide scale, such devices as a next generation computer entertainment system and consumer electronics, Sony Corporation and Sony Computer Entertainment Inc. have w orked w ith IBM Corporation and Toshiba Corporation since the spring of 2001 to jointly develop Cell, w hich w ill form the...

  • Page 48
    ...yen and the ratio of R&D expenditures to sales (excluding Financial Services revenue) rose from 6.1% to 6.4% . M ajor elements of the expenditures w ere 380.3 billion yen in the Electronics segment (a 0.8% decrease year on year) and 61.5 billion yen in the Game segment (a 27.4% increase year on year...

  • Page 49
    ...development of the w orld's first highoutput, dual-w avelength laser on a single chip, compatible w ith both recordable DVDs and CDs. Sony is undertaking pioneering research in the field of optical technology including media technology. In the imaging field, Sony integrated its ow n know how in high...

  • Page 50
    ... that meet the needs of the local communities in w hich it operates and to build strong relationships w ith those communities as a responsible corporate citizen. Environment ally Sensit ive Product s and Recycling Init iat ives The Walkman product frames pictured here w ent on sale in Japan in...

  • Page 51
    ... Deputy President and Group CSO (Chief Strategy Officer), Representative Director M inoru M orio Vice Chairman, Sony Group East Asia Representative, Group CPO (Chief Production Officer), Director Teruo M asaki Corporate Senior Executive Vice President, Group General Counsel, Director How ard St...

  • Page 52
    ... Oki Senji Yamamot o M asao Tomioka Eiji Kishi Takeshi M at sunobu Akira Sat o Kenji Kit at ani Hiroyuki M at sumot o Hideki Komiyama Nobuhiro Hamasaki Tsugie M iyashit a Corporate Vice President and Group CFO (As of April 24, 2003) 50 Sony Corporat ion A nnual Report 2003

  • Page 53
    ...54 Consolidat ed St at ement s of Cash Flow s ...56 Consolidat ed St at ement s of Changes in St ockholders' Equit y ...58 Quart erly Financial and St ock Inf ormat ion ...61 Five-Year Summary of Select ed Financial Dat a ...63 Segment Inf ormat ion ...65 Sony Corporat ion A nnual Report 2003 51

  • Page 54
    ... Sony Corporation and Consolidated Subsidiaries M arch 31 Yen in millions 2002 Dollars in millions* 2003 2003 ASSETS Current assets: Cash and cash equivalents ...Time deposits ...M arketable securities ...Notes and accounts receivable, trade ...Allow ance for doubtful accounts and sales returns...

  • Page 55
    ... 2003 2003 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrow ings ...Current portion of long-term debt ...Notes and accounts payable, trade ...Accounts payable, other and accrued expenses ...Accrued income and other taxes...Deposits from customers in the banking business...

  • Page 56
    ... ement s of Income Sony Corporation and Consolidated Subsidiaries Year ended M arch 31 Yen in millions 2001 2002 Dollars in millions* 2003 2003 Sales and operating revenue: Net sales...Financial service revenue ...Other operating revenue ...Costs and expenses: Cost of sales ...Selling, general...

  • Page 57
    ...income (loss) -Basic ...Cash dividends ...market rate as of M arch 31, 2003. - - (15.87) - (41.98) - (0.35) - * U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥120=U.S.$1, the approximate Tokyo foreign exchange Sony Corporat ion A nnual Report 2003 55

  • Page 58
    ... ...244,649 Accrual for pension and severance costs, less payments ...21,759 Loss on sale, disposal or impairment of long-lived assets, net ...24,304 Gain on securities contribution to employee retirement benefit trust ...(11,120) Gain on sales of securities investments, net . . (41,708) Gain on...

  • Page 59
    ... 2003 Cash flow s from investing activities: Payments for purchases of fixed assets ...Proceeds from sales of fixed assets ...Payments for investments and advances by financial service business...Payments for investments and advances (other than financial service business) ...Proceeds from sales...

  • Page 60
    ... in St ockholders' Equit y Sony Corporation and Consolidated Subsidiaries Year ended M arch 31 Yen in millions Subsidiary tracking stock Additional paid-in capital Accumulated other Treasury comprehensive stock, at income cost Common stock Retained earnings Total Balance at M arch 31, 2000...

  • Page 61
    Yen in millions Subsidiary tracking stock Additional paid-in capital Accumulated other Treasury comprehensive stock, at income cost Common stock Retained earnings Total Balance at M arch 31, 2002 ...Conversion of convertible bonds ...Stock issued under exchange offering . . ¥3,917 ¥472,189 ...

  • Page 62
    ...$(3,934) (15) 0 $(78) (0) (192) (15) 0 $19,007 Balance at M arch 31, 2003 ... * U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥120=U.S.$1, the approximate Tokyo foreign exchange market rate as of M arch 31, 2003. 60 Sony Corporat ion A nnual Report 2003

  • Page 63
    ... or Disposal of Long-Lived Assets." The adoption of the provision of FAS No. 144 did not have a material impact on Sony's results of operations and financial position for the year ended M arch 31, 2003. 2. In April 2002, the Financial Accounting Standards Board (" FASB" ) issued FAS No. 145...

  • Page 64
    ..., " Accounting for Consideration Given by a Vendor to a Customer or Reseller of the Vendor's Products," retroactive to April 1, 2001. As a result, Sony has restated sales and operating revenue for the first three quarters of the year ended M arch 31, 2002. 62 Sony Corporat ion A nnual Report 2003

  • Page 65
    ... of Select ed Financial Dat a Sony Corporation and Consolidated Subsidiaries Year ended M arch 31 Yen in millions except per share amounts 1999 2000 2001 2002 Dollars in millions except per share amounts 2003 2003 FOR THE YEAR Sales and operating revenue ...Operating income ...Income before...

  • Page 66
    ..., non-cash charge w ith no tax effect of ¥101.7 billion, primarily to reduce the carrying value of its film inventory. 6. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (" SAB" ) No. 101, " Revenue Recognition in Financial Statements." Sony adopted SAB No...

  • Page 67
    ... ormat ion Sony Corporation and Consolidated Subsidiaries Sales and Operating Revenue by Business Segment Yen in millions Year ended M arch 31 2001 2002 Dollars in millions* Year ended M arch 31 2003 2003 Electronics- Customers ...Intersegment ...Total ...Game- Customers ...Intersegment ...Total...

  • Page 68
    ... Sales and Operating Revenue to Customers by Product Category» Yen in millions Year ended M arch 31 2001 2002 Dollars in millions* Year ended M arch 31 2003 2003 Audio ...Video ...Televisions ...Information and Communications ...Semiconductors ...Components ...Other ...Total ...exchange market...

  • Page 69
    ... Other Significant Items by Business Segment Yen in millions Year ended M arch 31 2001 2002 Dollars in millions* Year ended M arch 31 2003 2003 Depreciation and amortization: Electronics ...Game ...M usic ...Pictures ...Financial Services, including deferred insurance acquisition costs Other...

  • Page 70
    ... only, at the rate of ¥120=U.S.$1, the approximate Tokyo foreign exchange Sales and Operating Revenue by Geographic Segment Yen in millions Year ended M arch 31 2001 2002 Dollars in millions* Year ended M arch 31 2003 2003 Japan ...U.S.A...Europe ...Other ...Total ...market rate as of M arch 31...

  • Page 71
    ... income by business segment (% ) 6 3 500 400 300 200 100 0 5.8% 6.3% 6.1% 6.1% 6.4% 10 8 6 4 2 0 12 10 Electronics 10 Game 17 M usic Pictures Financial Services 61 8 25 48 Other Outside: Sales and operating revenue Inside: Operating income 99 00 01 02 03 * Year ended M arch 31, 2003...

  • Page 72
    ... 0 -100 99 00 01 02 03 99 00 01 02 03 â- Financial Services revenue (left) â- Operating income (right) â- â- Sales (left) â- Operating income (right) â- Operating margin Operating margin * Year ended M arch 31 * Year ended M arch 31 70 Sony Corporat ion A nnual Report 2003

  • Page 73
    ... 1,000 500 29.0% 30 20 10 0 500 0 0 99 00 01 02 03 99 00 01 02 03 â- Short-term (Including the current portion of long-term debt) â- Long-term * As of M arch 31 â- Stockholders' equity â- Stockholders' equity ratio * As of M arch 31 Sony Corporat ion A nnual Report 2003 71

  • Page 74
    ... sheets) (Billion ¥) 400 300 200 500 400 300 200 100 0 100 0 99 00 01 02 03 99 00 01 02 03 * Year ended M arch 31 * Including amortization expenses for intangible assets and for deferred insurance acquisition costs * Year ended M arch 31 72 Sony Corporat ion A nnual Report 2003

  • Page 75
    ... 2003 Stock Price (¥) At year-end High Low Annual Increase/Decrease Number of Shares Outstanding at Year-end (thousands of shares) M arket Capitalization at Year-end (trillion ¥) Per Share of Common Stock Data (¥) Cash Dividends Applicable to the Year Net Income (Diluted) Stockholders' Equity...

  • Page 76
    ...own corporate executive officer ("Shikko-yakuin ") system. The previous Commercial Code was structured under the premise that directors would also serve as management in charge of certain business operations. An amendment to the Commercial Code, which took effect on April 1, 2003, gave companies the...

  • Page 77
    ... Officer with regard to investments, business alliances and other actions related to the execution of business operations. It is expected that this delegation of authority will enable the Sony Group to be managed in a more dynamic and speedy manner than in the past. Sony Corporation Annual Report...

  • Page 78
    ... Board of Direct ors (1) Determination of fundamental management policies for the Sony Group (2) Determination of Directors organizing each committee (3) Appointment and dismissal of Corporate Executive Officers (4) Supervision of execution of Sony Group's business operations Chairman of the Board...

  • Page 79
    ..., Advertising & Marketing Communication Strategy Group, Sony Corporation 1989 Director, Sony Corporation 1988 Senior General Manager, Home Video Group, Sony Corporation 1960 Entered Sony Corporation 1999 Senior Managing Director and CFO, Sony Corporation 1995 President, Sony Computer Entertainment...

  • Page 80
    ... Board, Sony Corporation Officer in charge of Game Business Group and Broadband Network Company 2001 President and CEO, Sony Computer Entertainment Inc. (to present) 2000 Director, Sony Corporation 1999 Executive President, Sony Computer Entertainment Inc. 1991 Manager, PS Project, Video Disc Player...

  • Page 81
    ...., Ltd.) Regional Managing Chairman and CEO, Financial Group, Inc.) Director- Japan, Korn / ORIX Corporation) Chairman of the Audit Chairman of the Ferry International) Committee Nominating Committee Hirobumi Kaw ano (Born: January 1, 1946) 2003 Member of the Board, Sony Corporation 2002 Executive...

  • Page 82
    ... charge of Entertainment Business Group Sony Group Europe Representative and Chairman of Sony Group in Europe, Corporate Executive Officer Shizuo Takashino Executive Deputy President, Corporate Executive Officer, Officer in charge of IT and Mobile Solutions Network Company and Home Network Company...

  • Page 83
    ...Com m ission, or Annual Report t o shareholders, please direct your request t o: Contact Address: JPM organ Service Center JPM organ Chase Bank P.O. Box 43013 Providence, RI 02940-3013, U.S.A. Phone: U.S. International 800-360-4522 1-781-575-4328 Japan SONY CORPORATION IR Office 7-35, Kitashinagaw...

  • Page 84
    Sony Corporation Print ed in Japan

  • Page 85
    Consolidated Financial Information 2003 Consolidated Financial Information 2003 Year Ended March 31, 2003 Year Ended March 31, 2003

  • Page 86

  • Page 87
    ... Financial Information 2003 Contents Operating and Financial Review and Prospects ...Quarterly Financial and Stock Information ...Five-Year Summary of Selected Financial Data ...Segment Information ...Consolidated Balance Sheets ...Consolidated Statements of Income ...Consolidated Statements...

  • Page 88
    ... the Electronics segment, and also increased price competition in certain markets, including the PC, DVD-Video player and home-use video camera markets. However, operating income increased 37.7 percent compared with the previous fiscal year due to the beneficial effect of the depreciation of the yen...

  • Page 89
    ... due to the decrease in demand, had been suffering from low utilization ratios at manufacturing facilities, higher ratios of fixed costs to sales and lower operating income margins, Sony decided to close under-utilized manufacturing facilities. The resulting charges totaled 6.9 billion yen, of which...

  • Page 90
    .... Total restructuring charges in the Music segment, including Sony Music Entertainment (Japan) Inc. ("SMEJ"), were 23.9 billion yen. Note that losses on sales, disposal or impairment of long-lived assets are recorded in selling, general and administrative expenses. Refer to "Cost of Sales and...

  • Page 91
    ... in PlayStation 2 hardware production costs. These improvements occurred despite declining sales in the Electronics and Game segments. The cost of sales ratio in the Pictures segment improved due to increased revenue resulting from the strong worldwide performance, both theatrically and in home...

  • Page 92
    ... 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...

  • Page 93
    ...Business Segment Information Sales and Operating revenue Electronics ...Game ...Music ...Pictures ...Financial Services ...Other ...Elimination ...Consolidated ...Operating income (loss) Electronics ...Game ...Music ...Pictures ...Financial Services ...Other ...Elimination and unallocated corporate...

  • Page 94
    ... sales of digital still cameras, home-use video cameras and PCs increased while sales of Aiwa products and broadcast- and professional-use products decreased. The transfer of Sony's mobile phone business to Sony Ericsson Mobile Communications, AB ("SEMC"), an affiliate accounted for under the equity...

  • Page 95
    ... 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. "Televisions" sales increased by 3.8 billion yen, or 0.4 percent...

  • Page 96
    ... year ended March 31, 2003, Sony's cumulative shipments of Memory Stick had reached 39,000,000 units. Regarding batteries, the growing market for lithium-ion batteries led to strong revenue growth despite declines in the average selling price. On the other hand, sales of CD-R/RW drives decreased...

  • Page 97
    ...Information 2003 compared with the previous fiscal year. After-sales service expenses decreased by 36.5 billion yen, partially because of the absence of mobile phone-related after-sales service expenses recorded in the previous fiscal year. Loss on sales, disposal or impairment of long-lived assets...

  • Page 98
    ...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 currency basis while portable audio and batteries, which all recorded increases in sales on a yen basis, were flat year on year on a local currency basis...

  • Page 99
    ...under Sony licenses. 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 the previous fiscal year. In terms of profitability, operating...

  • Page 100
    ... 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...

  • Page 101
    ... significantly, increased operating income in the television business due to higher revenues from the game show, Wheel of Fortune. The primary benefit of the restructuring undertaken in the previous fiscal year was a reduction in losses recorded on the production of new network television shows and...

  • Page 102
    ... the business put pressure on profitability. These investments were for advertising and for computer systems necessary to develop new products and establish customer claims service centers. However, an increase in insurance revenue and a decrease in the expense ratio (the ratio of operating expenses...

  • Page 103
    ... includes SCN, an Internet-related service business subsidiary operating mainly in Japan, an in-house oriented information system service business and an IC card business, and an advertising agency business in Japan. Sales for the fiscal year ended March 31, 2003 increased by 46.5 billion yen, or 22...

  • Page 104
    ... of 6.0 billion yen in April 2003. Gains were also recorded on the sale of the equity interest in Sony Tektronix Inc., which develops, manufactures and sells electronic measuring instruments and related devices, and Columbia House Company ("CHC"), a direct marketer of music and videos. Other income...

  • Page 105
    Consolidated Financial Information 2003 Inc., a marketer of digital video recorders, and Transmeta Corporation, a chip manufacturer. Income before Income Taxes Income before income taxes for the fiscal year ended March 31, 2003 increased by 154.8 billion yen, or 167 percent, to 247.6 billion yen ...

  • Page 106
    ... 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 until June 2002. In August 2003, Crosswave, 23.9 percent of the equity of which Sony Corporation owns, applied for commencement of...

  • Page 107
    ... to monthly local currency-denominated sales, cost of sales, and selling, general and administrative expenses for the fiscal year ended March 31, 2003, as if the value of the yen had remained constant. In the Music segment, Sony consolidates the yen-translated results of SMEI (a U.S. based operation...

  • Page 108
    ... (from October 1 to December 31), Sony believes that this policy satisfies Sony's working capital requirements throughout the year. On March 31, 2003, the total amount of liquidity sources for Sony Group excluding Sony Life, Sony Assurance and Sony Bank was 1,060.3 billion yen which was comprised of...

  • Page 109
    ...'s Investors Services, Inc. ("Moody's") and Standard and Poor's Rating Services ("S&P"). In addition, Sony maintains a rating from Rating and Investment Information, Inc. ("R&I"), a rating agency in Japan, for access to the Japanese capital market. Sony's current debt ratings (long-term/short-term...

  • Page 110
    ... of March 31, 2003, such outstanding commitments totaled 30.8 billion yen. Most of these assets will be used for general operating purposes. Certain subsidiaries in the Music segment have entered into long-term contracts with recording artists and companies for the production and/or distribution of...

  • Page 111
    ... Financial Information 2003 payments regarding these long-term contracts was 54.5 billion yen as of March 31, 2003. A subsidiary in the Pictures segment has committed to fund a portion of the production cost of completed films and is responsible for all distribution and marketing expenses relating...

  • Page 112
    ... million U.S. dollars. Sony guarantees all of the financial obligations of SPE under this financing arrangement. Sony does not reflect in its balance sheet the production costs of the films acquired by the VIE, the VIE's bank credit facility debt, or the third-party equity investment. Upon adoption...

  • Page 113
    ... price that Sony acquired the treasury stock for at the time of settlement of the stock option plan, Sony is required to reimburse the VIE for repayment of the bank loan. At March 31, 2003, the balance of the bank loan was 6.9 billion yen. Assets, Liabilities and Stockholders' Equity Assets Total...

  • Page 114
    Consolidated Financial Information 2003 worldwide efforts to strengthen inventory control. On a product category basis, inventories decreased in the Televisions, Video and Audio categories. In the Game segment, overall inventories increased 24.4 billion yen, or 20.5 percent, to 143.4 billion yen ...

  • Page 115
    ...Yen in Millions Cost March 31, 2003 Unrealized Unrealized gain Loss Fair market Value Financial Services Business: Available for sale Debt securities Sony Life Other Equity securities Sony Life Other Held to maturity Debt securities Sony Life Other Total Financial Services Non-Financial Services...

  • Page 116
    ...the Financial Services segment, respectively. Sony Life's basic investment policy is to take both expected returns and investment risks into account in order to maintain sound asset quality, structuring its asset management portfolio to ensure steady medium- and long-term returns by investing assets...

  • Page 117
    ... investments related to the construction of device manufacturing facilities, principally for semiconductors, were recorded in the previous fiscal year. Capital expenditures in the Financial Services segment decreased year on year because investments related to the start-up of Sony Bank were recorded...

  • Page 118
    ... yen. The decrease in notes and accounts payable, trade was primarily due to a decrease in purchases that resulted from adjustments in production in the Electronics segment in the fourth quarter of the fiscal year ended March 31, 2003. Current liabilities on March 31, 2003 in the Financial Services...

  • Page 119
    ... liability that was recorded due to decreases in the current value of pension plan assets held by Sony Corporation, reflecting sluggish stock market conditions in Japan during the fiscal year. Long-term liabilities on March 31, 2003 in the Financial Services segment increased by 245.4 billion yen...

  • Page 120
    ... and stockholders' equity Current liabilities ...Short-term borrowings ...Notes and accounts payable, trade ...Deposits from customers in the banking business Other ...Long-term liabilities ...Long-term debt ...Accrued pension and severance costs ...Future insurance policy benefits and other...

  • Page 121
    ...2003 activities compared with the previous fiscal year. The Financial Services segment generated 316.0 billion yen of net cash from operating activities. While cash declined primarily as a result of an increase in deferred insurance acquisition costs, an increase in future insurance policy benefits...

  • Page 122
    ...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...

  • Page 123
    ... ratio of research and development expenses to sales (excluding the Financial Services segment) increased from 6.1 percent to 6.4 percent. The bulk of research and development expenses were incurred in the Electronics and Game segments; expenses in the Electronics segment decreased 3.1 billion yen...

  • Page 124
    ... in the worldwide consumer AV products market, price competition has increased further across a wide range of products including CRT televisions and DVD players which have been commoditized, as well as products previously considered to have comparatively high added value, such as video cameras. To...

  • Page 125
    ... Financial Information 2003 supplying more attractive new products to the consumer, Sony's goal is to increase its competitive edge by strengthening the in-house production of semiconductors and other devices to raise the added value of its products. In the television business and home video...

  • Page 126
    ...and moving images from digital still and video cameras as well as enjoy music CDs and video games. The unit accepts a variety of home-use disc-based media as well as the Memory Stick, and it can be linked to an Ethernet network. PSX is slated to go on sale in Japan late in 2003 and in Europe and the...

  • Page 127
    Consolidated Financial Information 2003 Also, SCEI plans to introduce a new, all-in-one portable entertainment platform, PSP, which utilizes a newly developed small optical disc, scheduling a release for the third quarter ending December 31, 2004. The foundation of this new platform is the ...

  • Page 128
    ... of 66.5 billion yen recorded in the fiscal year ended March 31, 2003, due to the sale of Sony's equity interest in Telemundo. Electronics Although sales from plasma televisions, LCD televisions, digital still cameras, personal digital assistants, CCDs, and other products are expected to increase...

  • Page 129
    ... 2003 Financial Services Although increased revenue is anticipated in the life and automobile insurance businesses, due to the planned expansion of these businesses, increased expenses, such as expenses resulting from the planned expansion of Sony Finance International Inc.'s credit card business...

  • Page 130
    ... following represent critical accounting policies of the company that require significant management judgments and estimates. Impairment of long-lived assets Sony reviews the carrying value of its long-lived assets held and used and long-lived assets to be disposed of whenever events or changes in...

  • Page 131
    ...intangible assets in the future. As of March 31, 2003, a 10% decrease in the fair value of each of Sony's reporting units would not have resulted in a material impairment charge. Investments Sony's investments are comprised of debt and equity securities accounted for under both the cost and equity...

  • Page 132
    ... long-term rate of return on plan assets and other factors. Specifically, the discount rate and expected long-term rate of return on assets are two critical assumptions in the determination of periodic pension costs and pension liabilities. Assumptions are evaluated at least annually, and events...

  • Page 133
    ... reflects market interest rate conditions. For Japanese plans, a 50 basis point decrease in the discount rate would increase pension expenses by approximately 12.0 billion yen, compared to the year ended March 31, 2003. To determine the expected long-term rate of return on pension plan assets, Sony...

  • Page 134
    ... power of the lead actors and actresses, the expected number of theaters at which the film will be released, anticipated performance in the home entertainment, television and other ancillary markets, and agreements for future sales. Management updates such estimates based on the actual results to...

  • Page 135
    ... business. FAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. FAS No. 144 establishes a single accounting model for long-lived assets to be disposed of by sale and modifies the accounting and disclosure rules for discontinued operations. The...

  • Page 136
    ... on Sony's results of operations and financial position as at and for the fiscal year ended March 31, 2003. The disclosure provisions, which increase the required disclosure related to guarantees, have been adopted in the consolidated financial statements. Accounting for Stock-Based Compensation...

  • Page 137
    ... FASB issued FAS No. 143, "Accounting for Asset Retirement Obligations". This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. Sony adopted FAS No. 143 on April 1, 2003. The...

  • Page 138
    ... of the year ending March 31, 2004. The adoption of FAS No. 150 did not have an impact on Sony's results of operations and financial position. August 26, 2003 Teruhisa Tokunaka Executive Deputy President and Group CSO, Representative Corporate Executive Officer, Director Takao Yuhara Senior...

  • Page 139
    Consolidated Financial Information 2003 53

  • Page 140
    ...the Impairment or Disposal of Long-Lived Assets." The adoption of the provision of FAS No.144 did not have a material impact on Sony's results of operations and financial position for the year ended March 31, 2003. 2. In April 2002, the Financial Accounting Standards Board ("FASB") issued FAS No.145...

  • Page 141
    ... with other similar issues into EITF Issue No.01-09, "Accounting for Consideration Given by a Vendor to a Customer or Reseller of the Vendor's Products," retroactive to April 1, 2001. As a result, Sony has restated sales and operating revenue for the first three quarters of the year ended March 31...

  • Page 142
    ... for intangible assets and for deferred insurance acquisition costs. Notes: 1. U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥120=U.S.$1, the approximate Tokyo foreign exchange market rate as of March 31, 2003. 2. Per share data prior to the year ended...

  • Page 143
    ...-time, non-cash charge with no tax effect of ¥101.7 billion, primarily to reduce the carrying value of its film inventory. 6. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." Sony adopted SAB No...

  • Page 144
    ... Financial Information 2003 Segment Information Sony Corporation and Consolidated Subsidiaries - Year ended March 31 Sales and Operating Revenue by Business Segment Yen in millions Year ended March 31 2002 Dollars in millions* Year ended March 31 2003 2001 2003 Electronics- Customers...

  • Page 145
    ..., Sony has partly realigned its product category configuration in the Electronics business. In accordance with this change, results of the previous year have been reclassified to conform to the presentations for the current year. Sales of mobile phones are no longer recorded in the "Information and...

  • Page 146
    ... 2003 Profit or Loss by Business Segment Yen in millions Year ended March 31 2002 Dollars in millions* Year ended March 31 2003 2001 2003 Operating income (loss): Electronics ...Â¥ 251,146 Game ...(51,118) Music ...20,502 Pictures...4,315 Financial Services ...17,432 Other ...(13,715) Total...

  • Page 147
    Consolidated Financial Information 2003 Assets by Business Segment Yen in millions March 31 2002 Dollars in millions* March 31 2003 2001 2003 Total assets: Electronics ...¥3,421,624 ¥3,089,791 ¥2,848,492 673,208 Game ...690,737 722,021 668,702 Music ...747,360 739,283 868,395 Pictures...887,...

  • Page 148
    ... and accounts receivable, trade (Notes 6 and 7) ... Allowance for doubtful accounts and sales returns ...Inventories (Note 4) ...Deferred income taxes (Note 21) ...Prepaid expenses and other current assets Total current assets ... ... Film costs (Note 5) ... 313,054 287,778 2,398 Investments and...

  • Page 149
    ... 6) ...Accounts payable, other and accrued expenses (Notes 5 and 15). Accrued income and other taxes ...Deposits from customers in the banking business (Note 13) Other (Notes 21 and 24) ... Total current liabilities ...Long-term liabilities: Long-term debt (Notes 9, 12 and 14) ...Accrued pension and...

  • Page 150
    ... Statements of Income Sony Corporation and Consolidated Subsidiaries - Year ended March 31 Yen in millions 2002 Dollars in millions (Note 3) 2003 2001 2003 Sales and operating revenue: Net sales (Note 6) ...Financial service revenue ...Other operating revenue ...Costs and expenses: Cost of sales...

  • Page 151
    Consolidated Financial Information 2003 2001 Yen 2002 2003 Dollars (Note 3) 2003 Per share data (Note 22): Common stock Income before cumulative effect of accounting changes - Basic ...- Diluted ...Cumulative effect of accounting changes - Basic ...- Diluted ...Net income - Basic ...- Diluted ...

  • Page 152
    ... costs ...Accrual for pension and severance costs, less payments ...Loss on sale, disposal or impairment of long-lived assets, net . Gain on securities contribution to employee retirement benefit trust (Note 8) ...Gain on sales of securities investments, net ...Gain on issuances of stock by equity...

  • Page 153
    ... Financial Information 2003 2001 Yen in millions 2002 2003 Dollars in millions (Note 3) 2003 Cash flows from investing activities: Payments for purchases of fixed assets ...Proceeds from sales of fixed assets ...Payments for investments and advances by financial service business ...Payments...

  • Page 154
    ... Financial Information 2003 Consolidated Statements of Changes in Stockholders' Equity Sony Corporation and Consolidated Subsidiaries - Year ended March 31 Yen in millions Accumulated other Retained comprehensive earnings income Common stock Additional paid-in capital Treasury stock, at cost...

  • Page 155
    Consolidated Financial Information 2003 Yen in millions Subsidiary tracking stock Additional paid-in capital Accumulated other comprehensive income Treasury stock, at cost Common stock Retained earnings Total Balance at March 31, 2001 ...Exercise of stock purchase warrants Conversion of ...

  • Page 156
    Consolidated Financial Information 2003 Yen in millions Subsidiary tracking stock Additional paid-in capital Accumulated other comprehensive income Treasury stock, at cost Common stock Retained earnings Total Balance at March 31, 2002 ...Conversion of convertible bonds ...Stock issued under ...

  • Page 157
    ... Financial Information 2003 Dollars in millions (Note 3) Subsidiary tracking stock Additional paid-in capital Accumulated other comprehensive income Treasury stock, at cost Common stock Retained earnings Total Balance at March 31, 2002...Conversion of convertible bonds ...Stock issued...

  • Page 158
    ... 97 11. Insurance-related accounts ...101 12. Short-term borrowings and long-term debt ...102 13. Deposits from customers in the banking business ...105 14. Financial instruments ...105 15. Pension and severance plans ...109 16. Stockholders' equity ...113 17. Stock-based compensation plans ...120...

  • Page 159
    ... image-based software, including film, video and television. Further, Sony is engaged in various financial service businesses including insurance operations through a Japanese life insurance subsidiary and non-life insurance subsidiaries, banking operations through a Japanese internet-based banking...

  • Page 160
    Consolidated Financial Information 2003 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. FAS No. 144 establishes a single accounting model for long-lived assets to be disposed of by sale and modifies the accounting and disclosure rules for ...

  • Page 161
    ... effect on Sony's results of operations and financial position as at and for the year ended March 31, 2003. The disclosure provisions, which increase the required disclosure related to guarantees, have been adopted in the consolidated financial statements. Accounting for Stock-Based Compensation...

  • Page 162
    ... of accounting changes in the consolidated statement of income. This after-tax gain was primarily attributable to fair value adjustments of convertible rights embedded in convertible bonds held by Sony's life insurance subsidiary as available-for-sale debt securities. Goodwill and other intangible...

  • Page 163
    ... compares to Sony's previous policy of first capitalizing and then expensing advertising costs for theatrical and television product over the related revenue streams. In addition, SOP 00-2 requires development costs for abandoned projects and certain indirect overhead costs to be charged directly to...

  • Page 164
    Consolidated Financial Information 2003 completed when products were shipped and recognized revenues at that time. In accordance with SAB No. 101, Sony has recorded a one-time non-cash charge of ¥2,821 million, including ¥491 million income tax expense, which represents the net impact of sales ...

  • Page 165
    ... Financial Information 2003 management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting...

  • Page 166
    Consolidated Financial Information 2003 Inventories Inventories in electronics, game and music as well as non-film inventories for pictures are valued at cost, not in excess of market, cost being determined on the "average cost" basis except for the cost of finished products carried by certain ...

  • Page 167
    ..., and accordingly, Sony expenses software development costs for the Game business as incurred as a part of research and development in cost of sales. Deferred insurance acquisition costs Costs that vary with and are primarily related to acquiring new insurance policies are deferred as long as they...

  • Page 168
    ... of. Long-lived assets that are to be disposed of by sale are reported at the lower of their carrying value or fair value less cost to sell. Reductions in carrying value are recognized in the period in which the long-lived assets are classified as held for sale. Derivative financial instruments All...

  • Page 169
    Consolidated Financial Information 2003 activities. Sony links all hedges that are designated as fair value or cash flow hedges to specific assets or liabilities on the balance sheet or to the specific forecasted transaction. Sony also assesses, both at the inception of the hedge and on an on-going...

  • Page 170
    ... Dollars in millions 2001 Year ended March 31 2002 Yen in millions 2003 Income before cumulative effect of accounting changes allocated to the common stock: As reported Deduct: Total stock-based compensation expense determined under fair value based method, net of related tax effects Pro forma...

  • Page 171
    ... consolidated financial statements as the Japanese Commercial Code prohibits charging such stock issue costs to capital accounts which is the prevailing practice in the United States of America. Revenue recognition In accordance with SAB No. 101, revenues from electronics, game and music sales are...

  • Page 172
    ... sales, marketing and administrative divisions, a provision for doubtful accounts and amortization of intangible assets. Financial service expenses Financial service expenses include provision for policy reserves and amortization of deferred insurance acquisition cost, and all other operating costs...

  • Page 173
    ...Information 2003 Shipping and handling costs The majority of shipping and handling, warehousing and internal transfer costs for finished goods are included in selling, general and administrative expenses. An exception to this is in the Pictures business where such costs are charged to cost of sales...

  • Page 174
    ... statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement shall be effective for fiscal years beginning after June 15, 2002. Sony adopted FAS No. 143 on April 1, 2003...

  • Page 175
    ...not have an impact on Sony's results of operations and financial position. (4) Reclassifications: Certain reclassifications of the financial statements for the years ended March 31, 2001 and 2002 have been made to conform to the presentation for the year ended March 31, 2003. 3. U.S. dollar amounts...

  • Page 176
    ... accounted for under the equity method. Such investments include but are not limited to Sony's interest in Sony Ericsson Mobile Communications, AB (50%), American Video Glass Company (50%), ST Liquid Crystal Display Corporation (50%), BE-ST Bellevuestrasse Development GmbH & Co. First Real Estate...

  • Page 177
    ...292 $3,120 1,079 1,093 $5,292 Yen in millions March 31 2002 2003 Current assets Property, plant and equipment Other assets Total assets Current liabilities Long-term liabilities Stockholders' equity Total liabilities and stockholders' equity Number of companies at end of year ¥379,747 253,370 244...

  • Page 178
    ... 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. Under the terms of the sale agreement, Sony received cash proceeds of ¥17...

  • Page 179
    ... sold in the securitization. Sony has assumed that the fair value of the retained interest is equivalent to its carrying value as the receivables are short-term in nature, high quality and have appropriate reserves for bad debt incidence. The initial sale of the receivables was in October 2001 and...

  • Page 180
    ... Financial Information 2003 8. Marketable securities and securities investments and other Marketable securities and securities investments and other include debt and equity securities of which the aggregate cost, gross unrealized gains and losses and fair value pertaining to available-for-sale...

  • Page 181
    ... of business, Sony maintains long-term investment securities, included in securities investments and other, issued by a number of non-public companies. The aggregate carrying amounts of the investments in non-public companies at March 31, 2002 and 2003, which were valued at the lower of cost or...

  • Page 182
    ... present value of the net minimum lease payments as of March 31, 2003: Yen in millions Year ending March 31: 2004 2005 2006 2007 2008 Later years Total minimum lease payments Less - Amount representing interest Present value of net minimum lease payments Less - Current obligations Long-term capital...

  • Page 183
    ... Financial Information 2003 10. Goodwill and intangible assets As discussed in Note 2, Sony elected early adoption of FAS No. 142, retroactive to April 1, 2001. Upon the adoption of this statement, Sony reassessed the useful lives of its intangible assets and determined that certain intangible...

  • Page 184
    Consolidated Financial Information 2003 Intangible assets subject to amortization comprise the following: Yen in millions March 31 2002 Gross carrying amount Artist contracts Music catalog Acquired patent rights Software to be sold, leased or otherwise marketed PlayStation format Other Total ¥97,...

  • Page 185
    ... to/from other accounts. During the year ended March 31, 2003, Sony realized tax benefits from operating loss carryforwards that were acquired in connection with Sony's acquisition of companies within the Electronics, Music and Pictures businesses. Under FAS No. 109, "Accounting for Income Taxes...

  • Page 186
    Consolidated Financial Information 2003 Yen in millions Year ended March 31, 2001 Reported income before cumulative effect of accounting changes Add back: Goodwill amortization Intangible assets amortization Adjusted income before cumulative effect of accounting changes Reported net income Add back...

  • Page 187
    ... policies: Life insurance policies that the life insurance subsidiary writes, most of which are categorized as long-duration contracts, mainly consist of whole life, term life and accident and health insurance contracts. The life insurance revenues for the years ended March 31, 2001, 2002 and 2003...

  • Page 188
    ... 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. 12. Short-term borrowings and long-term debt Short-term borrowings comprise the following: Yen in millions...

  • Page 189
    Consolidated Financial Information 2003 Long-term debt comprises the following: Yen in millions March 31 2002 2003 Unsecured loans, representing obligations principally to banks: Due 2002 to 2018 with interest ranging from 1.46% to 5.67% per annum ¥ 45,055 Due 2003 to 2018 with interest ranging ...

  • Page 190
    Consolidated Financial Information 2003 A summary of the exercise rights of the detachable warrants as of March 31, 2003 is as follows: Exercise price Yen Dollars Number of shares per warrant Issued on Exercisable during Status of exercise August 17, 1998 September 1, 1999 ¥ 6,264 through ...

  • Page 191
    Consolidated Financial Information 2003 furnished, pursuant to such agreements or otherwise, will be applicable to all present or future indebtedness to such banks. 13. Deposits from customers in the banking business All deposits from customers in the banking business are interest bearing deposits...

  • Page 192
    ... option contracts primarily to fix the cash flows from intercompany accounts receivable and payable and forecasted transactions denominated in functional currencies (Japanese yen, U.S. dollars and euros) of Sony's major operating units. The majority of written foreign currency option contracts are...

  • Page 193
    ...For example, the convertible rights included in convertible bonds held by Sony's life insurance subsidiary, which are classified as available-for-sale debt securities, are considered embedded derivatives and are marked-to-market with changes in value recognized in financial service revenue. - 107 -

  • Page 194
    ... and accounts receivable, trade, short-term borrowings, notes and accounts payable, trade and deposits from customers in the banking business that are carried at amounts which approximate fair value. The summary also excludes debt and equity securities which are disclosed in Note 8. Yen in millions...

  • Page 195
    Consolidated Financial Information 2003 which will be acquired by the exercise. 15. Pension and severance plans Upon terminating employment, employees of Sony Corporation and its subsidiaries in Japan are entitled, under most circumstances, to lump-sum indemnities or pension payments as described ...

  • Page 196
    Consolidated Financial Information 2003 The components of net pension and severance costs, which exclude employee termination benefits paid in restructuring activities, for the years ended March 31, 2001, 2002 and 2003 were as follows: Japanese plans: Yen in millions Year ended March 31 2002 2003 ...

  • Page 197
    ... in plan assets: Fair value of plan assets at beginning of year Actual return (loss) on plan assets Foreign currency exchange rate changes Employer contribution Plan participants' contributions Benefits paid Fair value of plan assets at end of year Foreign plans Yen in millions March 31 2002 2003...

  • Page 198
    ... 2003 6.3% 8.3% 4.1% As required under FAS No. 87, "Employers' Accounting for Pensions", the assumptions are reviewed in accordance with changes in circumstances. Under FAS No. 87, Sony has recorded a pension liability to cover the amount of the projected benefit obligation in excess of plan assets...

  • Page 199
    ... Financial Information 2003 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...

  • Page 200
    ... 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...

  • Page 201
    ...new shares were distributed from the portion of previously issued shares accounted for as excess of par value in the common stock account in accordance with the Japanese Commercial Code. On November 20, 1991, Sony Corporation made a free share distribution of 33,908,621 shares in ratios of one share...

  • Page 202
    ... 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 and (b) Sony Corporation may grant share subscription rights to directors and/or employees pursuant...

  • Page 203
    ... accompanying consolidated financial statements. This appropriation of retained earnings was approved at the Ordinary General Meeting of Shareholders held on June 20, 2003. Retained earnings include Sony's equity in undistributed earnings of affiliated companies accounted for by the equity method in...

  • Page 204
    Consolidated Financial Information 2003 (4) Other comprehensive income Other comprehensive income for the years ended March 31, 2001, 2002 and 2003 were as follows: Yen in millions Tax expense Pre-tax amount For the year ended March 31, 2001: Unrealized gains on securities Unrealized holding gains...

  • Page 205
    ...losses included in net income Minimum pension liability adjustment Foreign currency translation adjustments ... During the year ended March 31, 2003, ¥7,665 million ($64 million) of foreign currency translation adjustments was transferred from other comprehensive income and charged to income ...

  • Page 206
    ... Financial Information 2003 17. Stock-based compensation plans Sony has four types of stock-based compensation plans as incentive plans for directors and selected employees. (1) Warrant plan: Upon issuance of unsecured bonds with detachable warrants which are described in Note 12, Sony Corporation...

  • Page 207
    Consolidated Financial Information 2003 Presented below is a summary of the activity for common stock warrant, convertible bond and stock acquisition rights plans for the years shown: Year ended March 31 2001 Weightedaverage exercise price Yen ¥6,456 12,788 5,341 12,544 ¥9,911 2002 ...

  • Page 208
    ...SAR plan: Sony grants stock appreciations rights ("SARs") in Japan, Europe and the United States of America for selected employees. Under the terms of these plans, employees on exercise receive cash equal to the amount that the market price of Sony Corporation's common stock exceeds the strike price...

  • Page 209
    ... to improve the performance of the various businesses, Sony has undertaken a number of restructuring initiatives within the Electronics, Music and Pictures businesses. For the years ended March 31, 2001, 2002 and 2003, Sony recorded total restructuring charges of ¥34,718 million, ¥106,974 million...

  • Page 210
    ... Financial Information 2003 Electronics Segment In an effort to improve the performance of the Electronics segment, Sony has undergone a number of restructuring efforts to reduce its operating costs. For the years ended March 31, 2001, 2002 and 2003, Sony recorded total restructuring charges...

  • Page 211
    ... has undergone several headcount reduction programs to further reduce operating costs in the Electronics segment. As a result of these programs, Sony recorded restructuring charges totaling ¥14,440 million, ¥12,252 million and ¥10,932 million ($91 million) for the years ended March 31, 2001, 2002...

  • Page 212
    ... Financial Information 2003 Music segment has undergone a worldwide restructuring program to reduce staffing and other costs through the consolidation and rationalization of facilities worldwide. For the years ended March 31, 2001, 2002 and 2003, Sony recorded total restructuring charges...

  • Page 213
    ... decided to consolidate its television operations and downsize the network television production business in the Pictures segment. Sony recorded restructuring charges totaling ¥8,452 million which consisted of personnel related costs of ¥1,753 million, non-cash asset write-downs and disposals of...

  • Page 214
    ... Communications Inc., which provides high-capacity/high-speed network services in Japan, issued 101,960 shares at ¥304,360 per share valued at ¥28,958 million after the deduction of stock issue costs in connection with its initial public offering. As a result of this issuance, Sony recorded...

  • Page 215
    ... Financial Information 2003 interest from 30.0% to 23.9%. In October 2000, SKY Perfect Communications Inc., which provides satellite broadcasting services in Japan, issued 400,000 shares at ¥304,000 per share valued at ¥121,600 million in connection with its initial public offering. In connection...

  • Page 216
    Consolidated Financial Information 2003 under the consolidated tax filing system beginning with the year ending March 31, 2004. Under the Japanese consolidated tax filing system, a 2% surtax will be imposed only for the year ending March 31, 2004. As a result, the statutory tax rate will be ...

  • Page 217
    ..., 2003 Yen in millions March 31 2002 2003 Deferred tax assets: Accrued pension and severance costs Operating loss carryforwards for tax purposes Warranty reserve and accrued expenses Future insurance policy benefits Inventory - intercompany profits and write-down Film costs Tax credit carryforwards...

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    ... acquired in connection with Sony's acquisition of companies within the Electronics, Music and Pictures businesses. The reversal of the valuation allowance upon realization of tax benefit from operating loss carryforwards resulted in the reduction of goodwill. During the year ended March 31, 2003...

  • Page 219
    ... between basic and diluted net income per share ("EPS") (1) Income before cumulative effect of accounting changes and net income allocated to each class of stock: Year ended March 31, 2003 Dollars in millions 2001 Year ended March 31 2002 Yen in millions 2003 Income before cumulative effect of...

  • Page 220
    ...the average market value of Sony's common stock during the fiscal year, were 1,329 thousand shares, 2,665 thousand shares, and 4,141 thousand shares for the years ended March 31, 2001, 2002 and 2003, respectively. Warrants and stock acquisition rights of subsidiary tracking stock for the years ended...

  • Page 221
    ... of film production, the development and operation of a multi-use real estate complex and the implementation of a stock option plan for Japanese selected employees. As discussed below, certain of these entities are currently not consolidated by Sony. As described in Note 2, the FASB issued FIN No...

  • Page 222
    ... real estate complex. Should the VIE be unable to meet its obligations under the syndicated bank loan, Sony would be exposed to the potential impairment of its investment in the VIE which was ¥12,840 million ($107 million) at March 31, 2003. Sony has utilized a VIE to implement a stock option plan...

  • Page 223
    ... subsidiaries in the Music business have entered into long-term contracts with recording artists and companies for the production and/or distribution of prerecorded music and videos. These contracts cover various periods mainly through March 31, 2006. As of March 31, 2003, these subsidiaries were...

  • Page 224
    ...31, 2003. The major components of the contingent liabilities are as follows: Sony has issued loan guarantees to related parties comprised of affiliated companies accounted for under the equity method and unconsolidated subsidiaries. The terms of these guarantees are mainly up to 3 years. Sony would...

  • Page 225
    ..., 2003. The Electronics segment designs, develops, manufactures and distributes audio-visual, informational and communicative equipment, instruments and devices throughout the world. The Game segment designs, develops and sells PlayStation and PlayStation 2 game consoles and related software mainly...

  • Page 226
    ...: Yen in millions Year ended March 31 2002 Dollars in millions Year ended March 31, 2003 2001 Sales and operating revenue: Electronics Customers Intersegment Total Game Customers Intersegment Total Music Customers Intersegment Total Pictures Customers Intersegment Total Financial Services Customers...

  • Page 227
    ...is sales and operating revenue less costs and operating expenses. corporate expenses include stock-based compensation expenses (Note 17). Assets: Yen in millions March 31 2002 Unallocated 2001 Total assets: Electronics Game Music Pictures Financial Services Other Total Elimination Corporate assets...

  • Page 228
    ... Financial Information 2003 Other significant items: Yen in millions Year ended March 31 2002 Dollars in millions Year ended March 31, 2003 2001 Depreciation and amortization: Electronics Game Music Pictures Financial Services, including deferred insurance acquisition costs Other Total Corporate...

  • Page 229
    ...location of customers for the years ended March 31, 2001, 2002 and 2003 and long-lived assets as of March 31, 2001, 2002 and 2003 are as follows: Dollars in millions Year ended March 31, 2003 Yen in millions Year ended March 31 2002 2001 Sales and operating revenue: Japan U.S.A. Europe Other Total...

  • Page 230
    ... Financial Information 2003 There are not any individually material countries with respect to the sales and operating revenue and long-lived assets included in Europe and Other areas. Transfers between reportable business or geographic segments are made at arms-length prices. There are no sales...

  • Page 231
    Consolidated Financial Information 2003 Report of Independent Accountants Kasumigaseki Bldg., 32nd Floor 3-2-5, Kasumigaseki, Chiyoda-ku Tokyo 100-6088, Japan To the Stockholders and Board of Directors of Sony Corporation (Sony Kabushiki Kaisha) In our opinion, the accompanying consolidated ...

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    Printed on 100% recycled paper

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    Consolidated Financial Information 2003 Year Ended March 31, 2003 Sony Corporation Printed in Japan