Sony 2006 Annual Report Download - page 126

124
Fixed cost reduction program
During the fiscal year ended March 31, 2004, the Pictures
segment implemented a fixed cost reduction program to further
reduce its operating costs. This restructuring program primarily
related to the reduction of staffing levels and the disposal of
certain long-lived assets. This restructuring program was com-
pleted during the fiscal year ended March 31, 2005 and the total
cost of this restructuring program was ¥4,996 million.
The Pictures segment recorded ¥4,611 million of these costs
during the fiscal year ended March 31, 2004. These restructur-
ing charges consisted of personnel related costs of ¥993 million,
non-cash asset impairment and disposal costs of ¥1,746 million,
and other costs of ¥1,872 million including those relating to the
buy-out of term deal commitments. Of the restructuring costs
incurred, ¥1,525 million was included in cost of sales, ¥1,340
million was included in selling, general and administrative
expenses, and ¥1,746 million was included in loss on sale,
disposal or impairment of assets, net in the consolidated
statements of income.
During the fiscal year ended March 31, 2005, the Pictures
segment completed the fixed cost reduction program and
recorded ¥385 million of additional restructuring costs. These
restructuring charges consisted primarily of personnel related
costs of ¥292 million which were included in selling, general and
administrative expenses in the consolidated statements of
income. No liability existed as of March 31, 2006.
All Other (Music Business)
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 business for the future by looking to create a more effec-
tive and profitable business model. As a result, the Music busi-
ness has undergone a worldwide restructuring program since
the fiscal 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
program, 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 fiscal years ended March 31, 2004, 2005 and 2006,
Sony recorded total restructuring charges of ¥10,691 million,
¥3,025 million and ¥129 million ($1 million), respectively, related
to the restructuring of the Music business excluding Japan. Of
these restructuring charges, ¥2,122 million for the fiscal year
ended March 31, 2004, was recorded in the non-Japan based
disc manufacturing and physical distribution businesses, for-
merly included within the Music segment but reclassified to the
Electronics segment. See Note 25 for more information on this
reclassification. This worldwide restructuring of the Music busi-
ness was completed during the fiscal year ended March 31,
2006, and the total cost of the program was ¥52,702 million,
which was incurred from the inception of the program through
the fiscal year ended March 31, 2006. The restructuring costs
within the Music business do not include the restructuring costs
of SONY BMG since the establishment of the joint venture. At
March 31, 2006, the liability balance was ¥1,193 million ($10
million) which is expected to be settled during the fiscal year
ending March 31, 2007.
In addition to the above, Sony also recorded restructuring
charges of ¥1,291 million, ¥803 million and ¥346 million ($3
million) for the fiscal years ended March 31, 2004, 2005 and
2006, respectively, in Japan, which were primarily personnel
related costs included in selling, general and administrative
expenses in the consolidated statements of income.
Significant restructuring activities included the following:
During the fiscal year ended March 31, 2004, Sony broad-
ened the scope of its worldwide restructuring of the Music
business, which resulted in restructuring charges totaling
¥10,691 million. Restructuring activities included the continua-
tion of the shutdown of the CD manufacturing facility in the U.S.
as well as the restructuring of music label operations and the
further rationalization of overhead functions through staff reduc-
tions. The restructuring charges consisted of personnel related
costs of ¥5,137 million, lease abandonment costs of ¥1,323
million and other related costs of ¥4,231 million including non-
cash asset impairment and disposal costs. Most of these
charges are included in selling, general and administrative
expenses in the consolidated statements of income. Employees
were eliminated across various employee levels, business
functions, operating units, and geographic regions during this
phase of the worldwide restructuring program.
During the fiscal year ended March 31, 2005, in continuation
of the worldwide restructuring program and in connection with
the establishment of the joint venture with Bertelsmann AG
(Note 6), Sony recorded restructuring charges totaling ¥3,025
million within the Music business. Restructuring activities
included the shutdown of certain distribution operations that
were no longer required as a result of the recorded music joint
venture with Bertelsmann AG as well as the further rationaliza-
tion of overhead functions through staff reductions. The restruc-
turing charges consisted of personnel related costs of ¥883
million and other related costs of ¥2,142 million. These charges
are included in selling, general and administrative expenses in
the consolidated statements of income. Employees were elimi-
nated across various employee levels, business functions,
operating units, and geographic regions during this phase of
the worldwide restructuring program.