Sony 2005 Annual Report Download - page 117

114 Sony Corporation
Closing of a semiconductor plant in the U.S.
Due to a significant decline in the business conditions of the
U.S. semiconductor industry, Sony made a decision in the fourth
quarter of the year ended March 31, 2003, to close a semicon-
ductor plant in the U.S. This restructuring activity was substan-
tially completed in the year ended March 31, 2005 and total
restructuring charges of ¥4,936 million ($46 million) have been
incurred through March 31, 2005. The remaining liability balance
as of March 31, 2005 was ¥161 million ($2 million) and will be
paid or settled through the year ended March 31, 2006.
During the year ended March 31, 2003, Sony recorded
restructuring charges totaling ¥5,856 million, which consisted
of the accelerated depreciation of equipment of ¥3,128 million,
personnel related costs of ¥1,329 million and the devaluation of
inventory and other costs of ¥1,399 million. These charges were
all recorded in cost of sales in the consolidated statements
of income.
During the year ended March 31, 2004, Sony recorded net
restructuring charges totaling ¥874 million which consisted of
the accelerated depreciation and write-down of equipment of
¥1,982 million, gain on disposal of assets of ¥1,962 million, and
¥854 million of other costs including lease contract termination
costs. Among these charges ¥1,760 million was recorded in
cost of sales, while asset write-down and disposal costs of
¥1,076 million and the gain on asset disposals of ¥1,962 million
were included in loss on sale, disposal or impairment of assets,
net in the consolidated statements of income.
During the year ended March 31, 2005, Sony sold the facilities
and recorded a gain on disposal of ¥1,794 million ($17 million).
The gain was included in loss (gain) on disposal or impairment of
assets, net in the consolidated statements of income.
Retirement programs
In addition to the restructuring efforts disclosed above, Sony 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 ¥22,236
million, ¥114,870 million and ¥50,276 million ($470 million) for
the years ended March 31, 2003, 2004 and 2005, respectively,
and these charges were included in selling, general and admin-
istrative expenses in the consolidated statements of income.
These staff reductions were achieved worldwide mostly through
the implementation of early retirement programs. The remaining
liability balance as of March 31, 2005 was ¥14,011 million ($131
million) and will be paid through the year ending March 31, 2006.
Sony will continue seeking the appropriate level of headcount to
optimize the workforce in the Electronics segment.
Music Segment
Due to the continued contraction of the worldwide music market
due to slow worldwide economic growth, the saturation of the
CD market, the effects of piracy and other illegal duplication,
parallel imports, pricing pressures and the diversification of
customer preferences, Sony has been actively repositioning the
Music segment for the future by looking to create a more effec-
tive and profitable business model. As a result, the Music seg-
ment has undergone a worldwide restructuring program since
the year ended March 31, 2001 to reduce staffing and other
costs through the consolidation and rationalization of facilities
worldwide excluding Japan. As part of this restructuring pro-
gram, Sony combined its recorded music business with the
recorded music business of Bertelsmann AG to form SONY
BMG, a joint venture that is accounted for under the equity
method. See Note 6 for more information on this transaction.
For the years ended March 31, 2003, 2004 and 2005, Sony
recorded total restructuring charges of ¥22,350 million, ¥10,691
million and ¥3,025 million ($28 million), respectively, related to
the restructuring of the Music segment excluding Japan. Of
these restructuring charges, ¥7,950 million and ¥2,122 million
for the years ended March 31, 2003 and 2004, respectively,
were recorded in the non-Japan based disc manufacturing and
physical distribution businesses, formerly included within the
Music segment but reclassified to the Electronics segment. See
Notes 6 and 25 for more information on this reclassification. This
worldwide restructuring of the Music segment is expected to be
completed during the year ended March 31, 2006, and the total
cost of the program is estimated to be ¥53,106 million ($496
million), of which ¥52,573 million ($491 million) was incurred from
the inception of the program through the year ended March 31,
2005. The restructuring costs within the Music segment do not
include the restructuring costs of SONY BMG since the establish-
ment of the joint venture. At March 31, 2005, the liability balance
was ¥1,856 million ($17 million) with most of the liabilities to be
paid or settled during the year ending March 31, 2006.
In addition to the above, Sony also recorded restructuring
charges of ¥1,519 million, ¥1,291 million and ¥ 803 million ($8
million) for the years ended March 31, 2003, 2004 and 2005,
respectively, in Japan, which were primarily personnel related
costs included in selling, general and administrative expenses
in the consolidated statement of income.
Significant restructuring activities included the following:
In the year ended March 31, 2003, restructuring charges related
to the worldwide restructuring of the Music segment totaled
¥22,350 million. Restructuring activities included the further
consolidation of operations through the shutdown of a cassette
and CD manufacturing and distribution center in Holland and a
CD manufacturing facility in the U.S. as well as further staff
reductions in other areas. The restructuring charges consisted of
personnel related costs of ¥14,932 million, non-cash asset
impairment and disposal costs of ¥3,256 million and other costs
of ¥4,162 million including lease termination costs. Among these
charges ¥19,094 million was recorded in selling, general and
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