Sony 2003 Annual Report Download - page 92

Consolidated Financial Information 2003
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euro against the yen on sales, the cost of sales ratio in the fourth quarter of the fiscal year ended March 31, 2003
increased due to declining sales and temporary reductions in production volume for the purpose of lowering inventory
to target levels at the end of the fourth quarter. These production adjustments were carried out primarily in March
2003, mainly in the Electronics segment. Research and development expenses (included in cost of sales) for the
fiscal year ended March 31, 2003 increased by 9.9 billion yen, or 2.3 percent, to 443.1 billion yen compared with the
previous fiscal year, with much of this increase in the Game segment. The ratio of research and development
expenses to sales increased from 6.1 percent to 6.4 percent.
Selling, general and administrative expenses for the fiscal year ended March 31, 2003 increased by 76.6 billion
yen, or 4.4 percent, to 1,819.5 billion yen compared with the previous fiscal year. The ratio of selling, general and
administrative expenses to sales increased from 24.6 percent in the previous fiscal year to 26.1 percent. Year on
year, the ratio of selling, general and administrative expenses to sales increased from 19.9 percent to 20.8 percent in
the Electronics segment, from 17.1 percent to 18.0 percent in the Game segment, from 39.3 percent to 40.6 percent
in the Music segment, and from 33.1 percent to 34.5 percent in the Pictures segment.
Advertising and promotion expenses increased 40.8 billion yen mainly due to increased expenses in 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 expenses 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 losses on the sale, disposal
or impairment of long-lived assets, net. This was due to a 19.0 billion decrease in such losses in the Electronics
segment, offset by a 6.4 billion yen increase in such losses in the Other segment, principally in the Network
Application and Content Service Sector (“NACS”).
The ratio of selling, general and administrative expenses to sales in the fourth quarter was 32.5 percent, an
increase from 26.6 percent in the fourth quarter of the previous fiscal year. This was due to an increase in selling,
general and administrative expenses and a decrease in sales compared with the same quarter of the previous fiscal
year. Selling, general and administrative expenses increased primarily due to an increase in royalty expenses
amounting to 23.3 billion yen. Sales decreased due to pricing pressure and discount selling of goods for the purpose
of lowering inventory to target levels at the end of the quarter.
“Sales” in the ratio of cost of sales to sales and in the ratio of research and development to sales refers only to
net sales and excludes Financial Services revenue and other operating revenue. “Sales” in the ratio of selling,
general and administrative expenses to sales includes net sales and other operating revenue, and excludes Financial