Sony 2005 Annual Report Download - page 39

36 Sony Corporation
OPERATING RESULTS
Operating Results for the Fiscal Year Ended March 31, 2005
compared with the Fiscal Year Ended March 31, 2004
OVERVIEW
After translation of Sony’s financial results into yen (the currency in
which Sony’s financial statements are prepared), in accordance
with Generally Accepted Accounting Principles in the U.S. (“U.S.
GAAP”). Sony’s sales and operating revenue (“sales”) for the fiscal
year ended March 31, 2005 decreased 4.5 percent compared
with the previous fiscal year. On a local currency basis (regarding
references to results of operations expressed on a local currency
basis, refer to “Foreign Exchange Fluctuations and Risk Hedging”
below), sales for the fiscal year decreased approximately 3 per-
cent. This decrease is mainly due to the fact that, as of August
1, 2004, the sales of Sony’s overseas recorded music business
are no longer recorded within Sony’s consolidated sales as a result
of the establishment of SONY BMG MUSIC ENTERTAINMENT
(“SONY BMG”), which is accounted for by the equity method,
through the merger of Sony’s overseas recorded music business
with Bertelsmann AG’s recorded music business, and a change
in the method of recognizing insurance premiums received on
certain products at Sony Life Insurance Co., Ltd. (“Sony Life”),
as of the third quarter beginning October 1, 2003, from being
recorded as revenues to being offset against the related
provision for future insurance policy benefits.
Operating income increased 15.2 percent compared with the
previous fiscal year. On a local currency basis, operating income
increased approximately 26 percent compared with the previous
fiscal year. In addition to a decrease in restructuring charges
compared to the previous fiscal year, several segments experi-
enced an improvement in profitability such as the Pictures
segment, where Spider-Man 2 was a significant contributor,
and the Music segment, where several best-selling albums and
singles in Japan contributed to improved profitability. On the
other hand, the Electronics segment, where the cost of sales
ratio deteriorated due to pricing pressures, and the Game
segment, where there was a decrease in hardware sales,
both experienced deteriorated profitability.
RESTRUCTURING
In the fiscal year ended March 31, 2005, Sony recorded restruc-
turing charges of 90.0 billion yen, a decrease from the 168.1 bil-
lion yen recorded in the previous fiscal year. The primary restruc-
turing activities were in the Electronics and Music segments.
Of the total 90.0 billion yen, Sony recorded 53.6 billion yen in
personnel related costs. This expense was incurred because
12,000 people, mainly in Japan, the U.S. and Western Europe,
left the company primarily through early retirement programs.
For more detailed information about restructuring, please refer
to Note 25 of Notes to the Consolidated Financial Statements.
■ELECTRONICS
Restructuring charges in the Electronics segment for the fiscal
year ended March 31, 2005 were 81.8 billion yen, compared to
143.3 billion yen in the previous fiscal year. Of these restructuring
charges, restructuring charges of 2.1 billion yen and 1.1 billion
yen, for the years ended March 31, 2004 and 2005, 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
Note 25 of Notes to the Consolidated Financial Statements for
more information on this reclassification.
In the fiscal year ended March 31, 2004, Sony made a
decision to shut down certain TV display CRT manufacturing
operations in Japan to rationalize production facilities and
downsize its business, due to a contraction in the market as a
result of a shift in demand from CRT televisions to plasma and
liquid crystal display (“LCD”) panel televisions. In the year ended
March 31, 2005, as part of this restructuring program, Sony
recorded a non-cash impairment charge of 7.5 billion yen for the
CRT TV display manufacturing facilities located in Europe. The
impairment charge was calculated as the difference between
the carrying value of the asset group and the present value of
estimated future cash flows. The charge was recorded in loss on
sale, disposal or impairment of assets, net in the consolidated
statements of income.
In addition to the above restructuring efforts, Sony undertook
several headcount reduction programs to further reduce operat-
ing costs in the Electronics segment. As a result of these pro-
grams, Sony recorded restructuring charges of 50.3 billion yen
for the fiscal year ended March 31, 2005, and these charges
were included in selling, general and administrative 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 14.0 billion yen and will be paid through
the fiscal year ending March 31, 2006. Sony will continue seek-
ing the appropriate headcount level to optimize the workforce in
the Electronics segment.
■MUSIC
Restructuring charges in the Music segment, including at Sony
Music Entertainment (Japan) Inc. (“SMEJ”), for the fiscal year
ended March 31, 2005 were 3.8 billion yen, compared to 9.9
billion yen in the previous fiscal year.
Operating and Financial Review and Prospects
Sony Corporation and Consolidated Subsidiaries
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