Sony 2007 Annual Report Download - page 63

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as cathode ray tube (“CRT”) televisions, sales to outside
customers increased 13.4 percent compared with the previous
fiscal year mainly due to an increase in sales of LCD televisions.
Sales within the Game segment increased 6.1 percent compared
to the previous fiscal year as a result of the launch of the PS3 in
Japan, North America and Europe. In the Pictures segment,
sales increased 29.5 percent compared to the previous fiscal
year due to higher worldwide theatrical and home entertainment
revenue from films released in the fiscal year ended March 31,
2007 as compared to those released in the previous fiscal year.
Revenues decreased 12.6 percent within the Financial Services
segment primarily due to lower valuation gains in the general
account and the separate account at Sony Life, compared to
the previous fiscal year, when there was a significant increase in
the Japanese stock market.
Operating income decreased 68.3 percent compared with
the previous fiscal year. The operating income for the previous
fiscal year included a one time net gain of 73.5 billion yen
resulting from the transfer to the Japanese government of the
substitutional portion of Sony’s Employee Pension Fund, of
which 64.5 billion yen was recorded within the Electronics
segment. During the fiscal year ended March 31, 2007, Sony
recorded a 51.2 billion yen provision that relates to the recalls by
Dell Inc. (“Dell”), Apple Inc. (“Apple”) and Lenovo, Inc. (“Lenovo”)
of notebook computer battery packs that use lithium-ion battery
cells manufactured by Sony and the subsequent global replace-
ment program initiated by Sony for certain notebook computer
battery packs used by Sony and several other notebook com-
puter manufacturers that use lithium-ion battery cells manufac-
tured by Sony. Despite the recording of this provision, operating
income within the Electronics segment increased 2,167.4
percent mainly as a result of an increase in sales to outside
customers and a positive impact from the depreciation of the yen
versus the U.S. dollar and the Euro. In the Game segment, an
operating loss was recorded in the fiscal year ended March 31,
2007 as a result of the sale of the PS3 at strategic price points
lower than its production cost during the introductory period. In
the Pictures segment, operating income increased 55.7 percent
compared with the previous fiscal year due to strong worldwide
theatrical and home entertainment revenue on feature films
released in the current fiscal year. In the Financial Services
segment, operating income decreased 55.3 percent compared
with the previous fiscal year as a result of decreased valuation
gains from investments in the general account, including
valuation gains from convertible bonds at Sony Life.
Operating income in the fiscal year ended March 31, 2007
included a gain on the sale of a portion of the site of Sony’s
former headquarters in the amount of 21.7 billion yen, of which
2.6 billion yen was recorded within All Other and the remaining
amount was recorded in “Corporate.” Operating income related
to an additional gain on sale for the remaining portion of the site
under contract, which is expected to be recognized in the fiscal
year ending March 31, 2008 is estimated to be approximately
59.0 billion yen, and this entire amount will be recorded
in “Corporate.”
Operating income for the fiscal year ended March 31, 2007
was negatively affected by the recording of certain provisions
for outstanding legal proceedings including the European
Commission’s investigation in connection with professional
videotape claims, partially offset by the reversal of a portion of
provisions related to the resolution of certain patent claims
recorded in prior periods.
RESTRUCTURING
In the fiscal year ended March 31, 2007, Sony recorded
restructuring charges of 38.8 billion yen, a decrease from the
138.7 billion yen recorded in the previous fiscal year. The primary
restructuring activities were in the Electronics segment.
Of the total 38.8 billion yen, Sony recorded 10.8 billion yen in
personnel-related costs including early retirement programs.
■ELECTRONICS
Restructuring charges in the Electronics segment for the fiscal
year ended March 31, 2007 were 37.4 billion yen, compared to
125.8 billion yen in the previous fiscal year.
Due to the worldwide market shrinkage as a result of demand
shift from CRT televisions to LCD and plasma televisions, Sony
has been implementing a worldwide plan to rationalize CRT and
CRT television production facilities and has been downsizing its
business over several years. As a part of this restructuring
program, in the fiscal year ended March 31, 2007 Sony recorded
a non-cash impairment charge of 1.7 billion yen for CRT television
manufacturing facilities located in the U.S. The impairment charge
was calculated as the difference between the carrying value of the
asset 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. While
continuing to manufacture and sell CRT televisions in countries
and territories where demand remains, Sony is actively shifting its
focus in those areas to LCD televisions. As a result, Sony plans to
cease manufacturing CRTs by March 2008, after it has stockpiled
a sufficient quantity for future use.
As a result of the contraction of the European rear-projection
television market, Sony has decided to discontinue the production
of LCD rear-projection televisions in Europe. In association with
this action, Sony has recorded inventory write-downs and charges
for supplier claims of 3.8 billion yen for the fiscal year ended March
31, 2007, with most of these expenses being recorded
as cost of sales in the consolidated statements of income.
In addition to the above restructuring efforts, Sony undertook
headcount reduction programs to further reduce operating costs
in the Electronics segment. As a result of these programs, Sony