Sony 2003 Annual Report Download - page 97

Consolidated Financial Information 2003
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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, net also decreased, by 19.0 billion yen, primarily because of a
decrease in restructuring charges related to reductions in CRT computer display manufacturing capacity, mainly in
the U.S. In the current fiscal year, due to CRT computer display related restructuring in Japan and South-East Asia,
a restructuring charge of 5.6 billion yen was recorded in selling, general and administrative expenses. Royalty
expenses increased 16.9 billion yen. The ratio of selling, general and administrative expenses to sales increased
from 19.9 percent to 20.8 percent due to the decrease in sales.
Regarding profit performance by product compared with the previous fiscal year, the largest gains in operating
income were recorded in CRTs, portable audio, batteries, CRT televisions, recording media and digital still cameras.
Increased demand for semiconductors resulted in a substantial decrease in the size of losses. On the other hand,
losses increased in PCs and Aiwa products. Restructuring carried out in the previous fiscal year also led to improved
profitability in several component businesses, including CRTs and recording media, as a result of the reduction of
fixed costs and the concentration of resources toward successful products. Also contributing to the increase in
profitability was the withdrawal from the loss-making home telephone business and the transfer, in October 2001, of
Sony’s mobile handset business, which was recording a loss, to SEMC. Further, operating income benefited from the
depreciation of the yen against the euro, which exceeded the negative impact of the appreciation of the yen against
the U.S. dollar.
Partially offsetting the increase in profitability were losses recorded in PCs, where sales declined due to
increased competition from lower priced products. Large operating losses were also recorded by Aiwa in almost all
geographic areas as a result of reduced sales because of a decline in the competitiveness of Aiwa’s mainstay
products such as audio, restructuring expenses including costs of headcount reductions, inventory write-downs
brought about by the elimination of product lines, and the sale and disposal of production facilities. Sony Corporation
absorbed Aiwa by merger on December 1, 2002.
In the past Sony has recorded losses in the fourth quarter, due to a seasonal decline in demand for electronics
products. However, the loss in the fourth quarter of the fiscal year ended March 31, 2003 increased substantially due
to, in descending order of financial impact, a decline in sales, an increase in selling, general and administrative
expenses associated with an increase in patent-related and other expenses, and a deterioration in the cost of sales
ratio due to reductions in production undertaken to lower inventory to target levels and pricing pressure. Fourth
quarter operating losses in the Electronics segment totaled 116.1 billion yen compared with an operating loss of 51.3
billion yen in the same quarter of the previous fiscal year. Significant losses were recorded by products including
Aiwa products, semiconductors, digital still cameras and home audio. An approximate 5.9 billion yen restructuring
charge for the closure of a semiconductor plant in the U.S. impacted the loss in the semiconductor business.
Manufacturing by Geographic Area
Regarding the geographic breakdown of total annual production in the Electronics segment (including the
assembly of PlayStation 2 for the Game segment), and the final destination of such production, half of total production