Sony 2003 Annual Report Download - page 101

Consolidated Financial Information 2003
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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.
On a yen basis, 72 percent of the Music segment’s sales were generated by SMEI while 28 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 802.8 billion
yen compared with the previous fiscal year. Operating income increased by 27.7 billion yen, or 88.6 percent, to 59.0
billion yen and the operating income margin increased from 4.9 percent to 7.3 percent. The results in the Pictures
segment consist of the results of Sony Pictures Entertainment (“SPE”), a U.S. based subsidiary.
On a U.S. dollar basis, sales for the fiscal year in the Pictures segment increased approximately 30 percent and
operating income increased approximately 92 percent. The increase in sales was due to the strong worldwide
performance, both theatrically and in home entertainment, of current year releases including Spider-Man, the highest
grossing film in SPE’s history, Men in Black II, xXx and Mr. Deeds. The increased worldwide popularity of DVDs also
contributed to the higher home entertainment revenues. As a result of these factors, sales for the current year
release slate increased 1.6 billion U.S. dollars compared with the previous fiscal year. Operating income for the
segment increased significantly due to the higher theatrical and home entertainment revenues for the current year
release slate, partially offset by the aggregate disappointing performance of several films including I Spy and Stuart
Little 2, resulting in an increase of 221 million U.S. dollars, the benefit of restructuring initiatives undertaken in the
previous fiscal year, resulting in an increase of 52 million U.S. dollars, and, less 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 pilots. Losses declined because the number of new shows and pilots was reduced and
because production expenses per new show and pilot were reduced. Operating income for the segment was also
higher because the 67 million U.S. dollar, or 8.5 billion yen, restructuring charge recorded in the previous fiscal year
was not recorded this year (refer to “Restructuring” for details). Partially offsetting the increase in operating income
was an additional provision of 66 million U.S. dollars, an increase of 26 million U.S. dollars over the previous fiscal
year, with respect to previously recorded revenue from KirchMedia, an insolvent licensee in Germany of SPE’s
feature film and television product, and related adjustments to ultimate film income.
As of March 31, 2003, unrecognized license fee revenue at SPE was approximately 1.3 billion U.S. dollars.
SPE expects to record this amount in the future having entered into contracts with television broadcasters to provide
those broadcasters with completed motion picture and television product. The license fee revenue will be recognized
in the year that the product is available for broadcast.