Sony MPK-THC User Manual

60

Operating Results for the Fiscal Year Ended

March 31, 2004 compared with the Fiscal Year

Ended March 31, 2003

Although the global economy showed some

signs of growth in the fiscal year ended March

31, 2004, the political situation, especially in

Iraq, and concern about potential terrorist

attacks led to a continued sense of uncertainty

regarding the economy. In Japan, although the

stock market showed signs of recovery, ques-

tions remained about the sustainability of

economic growth and the strength of the

recovery in consumer spending.

Despite these market conditions and the

impact of the translation of financial results into

yen, in accordance with Generally Accepted

Accounting Principles in the U.S. (“U.S. GAAP”),

the currency in which Sony’s financial state-

ments are prepared, Sony’s sales and operating

revenue (“sales”) for the fiscal year ended

March 31, 2004 increased 0.3 percent com-

pared with the previous fiscal year. Sales to

outside customers in the Electronics segment

increased, and revenue in the Financial Services

segment increased due to improvements in

valuation gains and losses at Sony Life Insurance

Co., Ltd. (“Sony Life”), despite a decrease in

sales in the Game, Pictures and Music segments.

Operating income decreased 46.7 percent

compared with the previous fiscal year. This

decrease was mainly due to the increase in re-

structuring charges in the Electronics segment,

the decrease in sales and increase in research

and development costs in the Game segment,

and the absence of profits contributed by the

breakaway performance of Spider-Man in the

previous fiscal year in the Pictures segment.

Partially offsetting the decrease in operating

income were the improvements in valuation

gains and losses from investments in the

general account at Sony Life in the Financial

Services segment, and the benefits of restruc-

turing, a decrease in restructuring charges and

a reduction in advertising and promotion ex-

penses in the Music segment.

On a local currency basis (regarding refer-

ences to results of operations expressed on a

local currency basis, refer to “Foreign Exchange

Fluctuations and Risk Hedging” below), Sony’s

sales for the fiscal year ended March 31, 2004

increased approximately 3 percent, and oper-

ating income decreased approximately 47

percent compared with the previous fiscal year.

For more detailed information about restruc-

turing, please refer to Note 17 of Notes to the

Consolidated Financial Statements. In addition,

refer to “Trend Information” below for more

information on planned restructuring efforts.

In the fiscal year ended March 31, 2004,

Sony recorded restructuring charges of 168.1

billion yen, an increase from the 106.3 billion

yen recorded in the previous fiscal year. The

primary restructuring activities were in the

Electronics, Music and Pictures segments.

Of the total 168.1 billion yen, Sony re-

corded 133.4 billion yen in personnel related

costs. This expense was incurred because

9,000 people, mainly in Japan, the U.S. and

Western Europe, left the company primarily

through early retirement programs. Of the

9,000 people, 5,000 were people who left the

company in Japan.

Restructuring charges in the Electronics seg-

ment for the fiscal year ended March 31, 2004

were 143.3 billion yen, compared to 72.5 billion

yen in the previous fiscal year, and exceeded

the 135.0 billion yen total estimated at the

beginning of the fiscal year.

In the 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 and a shift in demand from CRT

televisions to plasma and liquid crystal display

(“LCD”) panel televisions. Restructuring

charges associated with the shut down totaled

8.5 billion yen, and consisted of 3.1 billion yen

in personnel related costs and 5.3 billion yen in

non-cash equipment impairment, disposal and

other costs. Of the 8.5 billion yen in restructur-

ing charges, 0.2 billion yen was recorded in

cost of sales; 3.1 billion yen was included in

selling, general and administrative expense,

and 5.2 billion yen was included in loss on

sale, disposal or impairment of assets, net.

In addition to the above restructuring

effort, during the year ended March 31,

2004, the Electronics segment accelerated

the implementation of headcount reduction

through early retirement programs resulting

in personnel related costs of 114.0 billion yen,

an increase of 96.4 billion yen compared to

the previous year. Of the 9,000 people who

left the company on a consolidated basis, the

majority came from the Electronics segment.

Headcount of relatively high-paid white collar

employees in Japan, the U.S. and Western

Europe was reduced through early retirement

programs while headcount increased at

manufacturing facilities in East Asia, particularly

in China.

Due to the continued contraction of the world-

wide 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 effective and profitable business model.

As a result, the Music segment has undergone

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