Sony 2003 Annual Report Download - page 105

Consolidated Financial Information 2003
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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 compared with the previous fiscal year. Significant contributors to the year on year
increase in income before income taxes, in descending order of significance, were the increase in operating income,
the increase in gains on sales of securities investments and other, net, and the absence of the foreign exchange loss
recorded in the previous fiscal year.
Income Taxes
Income taxes for the fiscal year ended March 31, 2003 increased by 15.6 billion yen, or 24.0 percent, to 80.8
billion yen. The increase in income tax was principally due to the increase in income before income taxes described
above, although this increase was partially offset by a tax benefit of 51.9 billion yen recorded due to the reversal of
valuation allowances on deferred tax assets held by Aiwa as these assets became recoverable as a result of Sony’s
decision to merge with Aiwa.
The ratio of income taxes to income before income taxes (the effective tax rate) decreased from 70.3 percent in
the previous fiscal year to 32.6 percent.
Results of Affiliated Companies Accounted for under the Equity Method
During the year, equity in net losses of affiliated companies increased from 34.5 billion yen in the previous fiscal
year to 44.7 billion yen. SEMC, a joint venture focused on mobile phone handsets recorded 20.8 billion yen losses.
In addition, equity affiliates recording losses included S.T. Liquid Crystal Display Corporation (“ST-LCD”), an LCD
joint venture in Japan, Crosswave Communications Inc. (“Crosswave”), a data communications carrier offering
customers broadband networks and network services in Japan, and BE-ST Bellevuestrasse Development GmbH &
Co. First Real Estate KG, Berlin (“BE-ST KG”), a real estate business in Germany. Regarding the significant losses at
SEMC, no year on year comparison is available because SEMC was established in October 2001. However, the loss
of 10.7 billion yen recorded due to SEMC in the second half of the fiscal year ended March 31, 2003 was greater than
the 7.4 billion yen loss recorded in the second half of the fiscal year ended March 31, 2002. This increase in losses
was due to the following factors: decreased sales in the fourth quarter ended March 31, 2003, compared to the fourth
quarter ended March 31, 2002, due to increased pricing pressure; increased expenses due to the phase-in of new
products in the GSM and Japanese markets; and the recording of an operating loss in the fourth quarter ended March
31, 2003 compared to income in the fourth quarter ended March 31, 2002, which benefited from the successful
introduction of two high-end models in the Japanese and European markets. In January 2003, Sony and
Telefonaktiebolaget LM Ericsson announced that they will each invest an additional 150 million euro in SEMC to
strengthen its financial position (refer to “Electronics”, above).