Form 6-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of April 2004
SONY CORPORATION
(Translation of registrant's name into English)
7-35 KITASHINAGAWA 6-CHOME, SHINAGAWA-KU, TOKYO, JAPAN
(Address of principal executive offices)
The registrant files annual reports under cover of Form 20-F.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SONY CORPORATION
----------------
(Registrant)
By: /s/ Teruhisa Tokunaka
--------------------------
(Signature)
Teruhisa Tokunaka
Executive Deputy President and
Group Chief Strategy Officer
Date: April 27, 2004
List of materials
Documents attached hereto:
i) A press release announcing Sony Corporation's consolidated financial
results for the fiscal year ended March 31, 2004.
ii) A press release announcing Sony Communication Network Corporation's
consolidated financial results for the fiscal year ended March 31,
2004.
iii) A press release regarding stock options at Sony Corporation.
iv) A press release regarding executive appointments at Sony
Corporation.
Sony Corporation: Consolidated Financial Results for the Fiscal Year
TOKYO, April 27 /PRNewswire-FirstCall/ -- Sony Corporation (NYSE: SNE)
today announced its consolidated results for the fiscal year ended March 31,
2004 (April 1, 2003 to March 31, 2004).
(Billions of yen, millions of U.S. dollars,
except per share amounts)
Year ended March 31
2003 2004 Change 2004*
Sales and operating
revenue Y7,473.6 Y7,496.4 +0.3% $72,081
Operating income 185.4 98.9 -46.7 951
Income before income
taxes 247.6 144.1 -41.8 1,385
Net income 115.5 88.5 -23.4 851
Net income per share
of common stock
- Basic Y125.74 Y95.97 -23.7% $0.92
- Diluted 118.21 90.88 -23.1 0.87
* U.S. dollar amounts have been translated from yen, for convenience only,
at the rate of Y104=U.S.$1, the approximate Tokyo foreign exchange
market rate as of March 31, 2004.
Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Consolidated Results for the Fiscal Year ended March 31, 2004
Sales increased 0.3% year on year; on a local currency basis, sales grew
3%. (For all references herein to results on a local currency basis, see Note
I.) In the Electronics segment, sales to outside customers increased, while
overall sales declined slightly due to a decrease in sales between
consolidated companies resulting from the outsourcing of PlayStation 2 ("PS
2") production to third parties in China. With respect to major products in
the Electronics segment, despite a decrease in sales of CRT televisions and
portable audio, sales of cellular phones (sold mainly to Sony Ericsson Mobile
Communications ("Sony Ericsson")), digital still cameras, and flat panel
televisions increased. Sales declined in the Game segment due to lower sales
of both hardware and software. In the Pictures segment, although sales on a
U.S. dollar basis increased due to the contribution of television revenues,
sales decreased due to foreign exchange rate fluctuations. Sales in the Music
segment also decreased primarily due to foreign exchange rate fluctuations.
At the same time, Financial Services revenue increased mainly due to
improvements in valuation gains and losses from investments at Sony Life
Insurance Co., Ltd. ("Sony Life").
Operating income decreased 46.7% (47% decrease on a local currency basis)
compared with the previous fiscal year mainly due to an increase in
restructuring expenses. The Electronics segment recorded an operating loss
owing mainly to an increase in restructuring expenses, principally from
severance related expenses. In the Game segment, operating income declined
due to the decrease in sales and an increase in research and development
expenses for future businesses. In the Pictures segment, despite the
contribution from higher television revenues, operating income decreased
compared with the previous year, which had benefited from the profits
generated by Spider-Man. By contrast, improvements in valuation gains and
losses from investments in the general account at Sony Life resulted in an
increase in operating income in the Financial Services segment. In the Music
segment, operating income was recorded, compared with an operating loss
recorded in the prior year, due to the benefits of restructuring, a reduction
in advertising and promotion expenses and a decrease in restructuring
expenses.
Restructuring expenses for the fiscal year amounted to Y168.1 billion
($1,616 million) compared to Y106.3 billion in the previous fiscal year. In
the Electronics segment, restructuring expenses were Y143.3 billion ($1,378
million) compared to Y72.5 billion in the previous fiscal year.
Income before income taxes decreased 41.8% compared with the previous
fiscal year. Although royalty income and net foreign exchange gain increased
compared to the previous fiscal year, other income declined in this fiscal
year due to the gain on the sale in the previous year of Sony's equity
interest in Telemundo Communications Group, Inc. and its subsidiaries
("Telemundo"), a U.S. based Spanish language television network and station
group that was accounted for by the equity method.
Net income decreased 23.4% compared with the previous fiscal year. Equity
in net income of affiliated companies consisted of an equity gain, primarily
due to profits recorded at Sony Ericsson (the profit Sony recorded from its
equity holding was Y6.4 billion ($62 million)) as compared with equity losses
recorded in the previous fiscal year. The effective tax rate for the fiscal
year of 36.6% was lower than the statutory rate in Japan due to a decrease in
deferred tax liabilities on undistributed earnings of foreign subsidiaries and
because U.S. income was taxed at a lower rate due to utilization of tax loss
and foreign tax credit carryforwards. However, this rate was higher than the
effective tax rate of 32.6% in the prior fiscal year, which benefited from a
reversal in valuation allowances on deferred tax assets held by Aiwa Co., Ltd.
Remarks by Nobuyuki Idei, Chairman and Group CEO of Sony Corporation
During the fiscal year ended March 31, 2004, we worked to enhance the
competitiveness of our products, especially in the Electronics segment,
through the aggressive introduction of new models in such categories as
digital still cameras, flat panel televisions and DVD recorders. The result
was a strong contribution to sales by these products in the year-end and new-
year selling season. In the area of restructuring, we worked to concentrate
management resources in focused business areas and reduce fixed costs,
including via headcount reduction, on a more accelerated basis than originally
planned. In the Financial Services segment, in April 2004, we established a
holding company to integrate financial functions and provide a higher level of
customer service.
In the fiscal year ending March 31, 2005, we will work to concentrate
management resources on growing businesses through initiatives such as
proactive investment in key devices, including next generation broadband
microprocessors, and we will strive to bring value into the Sony Group and
differentiate our products. Through the release of enticing products such as
the PSP handheld entertainment system, the online distribution of music, and
other initiatives, we will venture into new businesses. Moreover, we will
continue to enhance our management structure through restructuring and promote
greater efficiencies in product development and design.
Through these actions, the entire Sony Group will endeavor to strengthen a
foundation designed to achieve mid- to long-term growth and improved
profitability.
Operating Performance Highlights by Business Segment
Electronics
(Billions of yen, millions of U.S. dollars)
Year ended March 31
2003 2004 Change 2004
Sales and operating revenue Y4,940.5 Y4,897.4 -0.9% $47,090
Operating income (loss) 41.4 (35.3) - (339)
Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Sales decreased 0.9% (1% increase on a local currency basis) due to a
significant decline in intersegment sales to the Game segment primarily owing
to outsourcing of PS 2 game console production to third parties in China. On
the other hand, sales to outside customers increased 4.7% compared to the
previous year. Although market conditions had a negative effect on sales of
such products as CRT televisions and portable audio, this was more than offset
by an increase in sales of cellular phones (sold mainly to Sony Ericsson),
which benefited from increased demand for camera-equipped models in Japan and
Europe; Cybershot digital still cameras, which saw continued market growth and
an increase in the number of units sold; and flat panel televisions, which
exhibited significantly increased sales in all geographic regions.
Operating loss of Y35.3 billion was recorded, a deterioration of Y76.7
billion compared to the profit recorded in the previous year. Although sales
to outside customers increased, the operating loss primarily resulted from a
Y70.8 billion increase in restructuring expenses (mainly severance related
expenses) and a decline in prices. Operating performance of CRT televisions,
CLIE personal digital assistants, and optical pickups deteriorated, mainly due
to price declines. On the other hand, operating performance of VAIO PCs
improved because emphasis was placed on high value-added models. Operating
performance of CCDs also improved due to an increase in sales mainly for
digital still cameras.
Inventory as of March 31, 2004 was Y490.5 billion ($4,716 million), a
Y58.1 billion, or 13.4%, increase compared with the level as of March 31, 2003
and a Y43.5 billion, or 8.1%, decrease compared with the level as of December
31, 2003.
Game
(Billions of yen, millions of U.S. dollars)
Year ended March 31
2003 2004 Change 2004
Sales and operating revenue Y955.0 Y780.2 -18.3% $7,502
Operating income 112.7 67.6 -40.0 650
Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Sales decreased 18.3% compared with the previous year (18% decrease on a
local currency basis) as sales of hardware and software decreased.
Hardware: Although PS 2 unit sales in Europe and Japan increased compared
with the previous year, unit sales in the U.S. decreased, contributing to an
overall unit sales decline. This overall unit sales decline, combined with
strategic price reductions on the PS 2 undertaken in Japan, the U.S. and
Europe during the fiscal year, caused a decrease in sales.
Software: Although PS 2 software unit sales and revenue increased,
PlayStation software unit sales and revenue decreased, resulting in an overall
decrease in software sales. Revenue increased in Europe but decreased in
Japan and the U.S.
Operating income decreased by Y45.1 billion, or 40.0%, due to an increase
in research and development expenses for future businesses and the decrease in
hardware sales. Profit from software was nearly unchanged compared with the
previous fiscal year.
Worldwide hardware production shipments*:
-- PS 2: 20.10 million units (a decrease of 2.42 million units)
-- PS one: 3.31 million units (a decrease of 3.47 million units)
Worldwide software production shipments*:
-- PS 2: 222 million units (an increase of 32 million units)
-- PlayStation: 32 million units (a decrease of 29 million units)
* Production shipment units of hardware and software are counted upon
shipment of the products from manufacturing bases. Sales of such
products are recognized when the products are delivered to customers.
Inventory on March 31, 2004 was Y130.9 billion ($1,259 million), a Y12.6
billion, or 8.7%, decrease compared with the level on March 31, 2003 and a
Y2.3 billion, or 1.8%, increase compared with the level on December 31, 2003.
Music
(Billions of yen, millions of U.S. dollars)
Year ended March 31
2003 2004 Change 2004
Sales and operating revenue Y597.5 Y559.9 - 6.3% $5,384
Operating income (loss) (7.9) 19.0 - 182
The amounts presented above are the sum of the yen-translated results of
Sony Music Entertainment Inc. ("SMEI"), a U.S. based operation which
aggregates the results of its worldwide subsidiaries on a U.S. dollar basis,
and the results of Sony Music Entertainment (Japan) Inc. ("SMEJ"), a Japan
based operation which aggregates results in yen. Management analyzes the
results of SMEI in U.S. dollars, so discussion of certain portions of its
results are specified as being on "a U.S. dollar basis."
Sales decreased 6.3% compared with the previous year (flat on a local
currency basis). Of the Music segment's sales, 74% were generated by SMEI,
and 26% were generated by SMEJ.
SMEI: Sales on a U.S. dollar basis were flat compared with the previous
year. Appreciation of European currencies contributed to higher sales outside
of the U.S. which were offset by lower sales in the U.S. Album sales
decreased worldwide due to the continued contraction of the global music
industry brought on by piracy (i.e. unauthorized file sharing and CD burning)
and competition from other entertainment sectors. Best selling albums during
the year included Beyonce's Dangerously in Love and Evanescence's Fallen.
SMEJ: Sales were flat compared with the previous year. Best selling
albums during the year were Mika Nakashima's LOVE and Chemistry's Between the
Lines.
Operating income of Y19.0 billion was recorded compared with an operating
loss of Y7.9 billion in the prior year, an improvement of Y26.9 billion year
on year, as operating performance at both SMEI and SMEJ improved.
SMEI: Operating income was recorded this year, compared with an operating
loss recorded in the prior year, as SMEI realized benefits from the worldwide
restructuring activities implemented over the past two years. These
activities included the rationalization of manufacturing, distribution and
support functions including record label shared services. Also contributing
to the improved operating results were lower advertising and promotion
expenses. In addition, restructuring expenses decreased compared with the
prior year.
SMEJ: Operating income increased compared with the prior year due to a
reduction in selling, general and administrative expenses, primarily
advertising and promotion expenses, and strong sales of Japanese artists'
recordings.
In December 2003, Sony and Bertelsmann AG announced that they had signed a
binding agreement to combine their recorded music businesses in a joint
venture. The newly formed company, which will be known as Sony BMG, will be
50% owned by each parent company. It will not include SMEI's music
publishing, physical distribution and disc manufacturing business or SMEJ.
The merger is subject to regulatory approvals in the United States and the
European Union.
Pictures
(Billions of yen, millions of U.S. dollars)
Year ended March 31
2003 2004 Change 2004
Sales and operating revenue Y802.8 Y756.4 - 5.8% $7,273
Operating income 59.0 35.2 - 40.3 339
The results presented above are a yen-translation of the results of Sony
Pictures Entertainment ("SPE"), a U.S. based operation which aggregates the
results of its worldwide subsidiaries on a U.S. dollar basis. Management
analyzes the results of SPE in U.S. dollars, so discussion of certain portions
of its results are specified as being on "a U.S. dollar basis."
Sales decreased 5.8% compared with the prior year (2% increase on a U.S.
dollar basis). The U.S. dollar revenues represented a new record for SPE, led
by higher television performance in the fiscal year. Television revenues
increased significantly due to initial syndication sales of The King of Queens
and third cycle syndication sales of Seinfeld, as well as the extension of a
licensing agreement for Wheel of Fortune. Notable film releases during the
year included Bad Boys 2, S.W.A.T., Anger Management and Something's Gotta
Give.
Operating income decreased by Y23.7 billion, or 40.3%, from the prior year
(30% decrease on a U.S. dollar basis). The higher television revenues noted
above contributed significantly to operating income in the year. However, the
primary reason for the decline was the absence of profits contributed by the
breakaway performance of Spider-Man in the prior year. Results for the year
were negatively impacted by the disappointing performances of Gigli, Hollywood
Homicide, The Missing and Charlie's Angels: Full Throttle.
Financial Services
(Billions of yen, millions of U.S. dollars)
Year ended March 31
2003 2004 Change 2004
Financial Services revenue Y537.3 Y593.5 +10.5% $5,707
Operating income 22.8 55.2 +142.4 530
Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Financial Services revenue increased 10.5% compared with the previous
fiscal year mainly due to an increase in revenue at Sony Life. Regarding Sony
Life, the method of recognizing insurance premiums received on certain
products was changed from being recorded as revenues to being offset against
the related provision for future insurance policy benefits since the third
quarter beginning October 1, 2003. Although revenue was reduced by Y30.8
billion as a result of this change, revenue at Sony Life increased by Y46.4
billion or 9.9% to Y513.0 billion ($4,933 million) due to improvements in
valuation gains and losses from investments compared with the previous year.*
Operating income increased by Y32.4 billion, or 142.4%, compared with the
previous year due to improvements in valuation gains and losses from
investments in the general account at Sony Life. Operating income at Sony
Life increased by Y33.6 billion or 113.3% to Y63.2 billion ($608 million).*
The above mentioned change in revenue recognition method did not have a
material effect on operating income at Sony Life.
* The Financial Services revenue and operating income at Sony Life are
calculated on a U.S. GAAP basis. Therefore, they differ from the results
that Sony Life discloses on a Japanese statutory basis. The above
mentioned change in revenue recognition method did not have an impact on
results on a Japanese statutory basis.
Other
(Billions of yen, millions of U.S. dollars)
Year ended March 31
2003 2004 Change 2004
Sales and operating revenue Y306.3 Y330.4 +7.9% $3,177
Operating loss (25.0) (10.0) - (96)
Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Sales increased 7.9% compared with the previous year due to an increase in
sales of a business which provides information system services to other
businesses within the Sony Group and of an IC card business. Of the sales in
the Other segment, 53% were sales to outside customers.
Operating loss was reduced because a Network Application and Contents
Service Sector ("NACS") -related business operated by a U.S. subsidiary
recorded a one-time gain on the sale of rights related to a portion of the
Sony Credit Card portfolio.
Cash Flow
The following charts show Sony's unaudited condensed statements of cash
flow on a consolidated basis for all segments excluding the Financial Services
segment and for the Financial Services segment alone. These separate
condensed presentations are not required under U.S. GAAP, which is used in
Sony's consolidated financial statements. However, because the Financial
Services segment is different in nature from Sony's other segments, Sony
believes that these presentations may be useful in understanding and analyzing
Sony's consolidated financial statements.
Cash Flow - Consolidated (excluding Financial Services segment)
(Billions of yen, millions of U.S. dollars)
Year ended March 31
Cash flow 2003 2004 Change 2004
- From operating activities Y544.1 Y401.1 Y -143.0 $3,856
- From investing activities (185.9) (352.5) -166.6 (3,389)
- From financing activities (251.2) 153.8 +405.0 1,478
Cash and cash equivalents at
beginning of the fiscal year 356.6 438.5 +82.0 4,216
Cash and cash equivalents at
end of the fiscal year 438.5 592.9 +154.4 5,700
Operating Activities: During the fiscal year, cash increased primarily due
to profit contributions from the Game, Pictures and Music segments and an
increase in notes and accounts payable, trade, while cash decreased primarily
due to an increase in inventory and notes and accounts receivable, trade in
the Electronics segment. Compared with the previous fiscal year, although
there was an increase in the growth in notes and accounts payable, trade, cash
flow from operating activities declined due to factors such as an increase in
the growth in notes and accounts receivable, trade, the increase in inventory
in the Electronics segment, the recording of an operating loss in the
Electronics segment, and a decrease in profits in the Game and Pictures
segments.
Investing Activities: During the fiscal year, proactive capital
expenditures were made, primarily in the Electronics and Game segments, for
semiconductor manufacturing and other equipment. Compared with the previous
fiscal year, net cash used in investing activities increased because, in the
previous fiscal year, proceeds were received from the sale of Sony's equity
interest in Telemundo (Y88.4 billion) and because, during this fiscal year,
capital expenditures increased, as noted above.
As a result, cash flow from operating activities exceeded cash flow from
investing activities by Y48.6 billion in the fiscal year.
Financing Activities: In the fiscal year, repayments of short-term debt,
such as commercial paper, were made while long-term financing was received
through the issuance of Y250 billion of convertible bonds (bonds with stock
acquisition rights). Proceeds from the issuance are expected to be applied
towards investment in semiconductors and key devices.
Cash and Cash Equivalents: The total balance of cash and cash equivalents,
accounting for the effect of exchange rate fluctuations, increased Y154.4
billion to Y592.9 billion as of March 31, 2004 compared to March 31, 2003.
Cash Flow - Financial Services segment
(Billions of yen, millions of U.S. dollars)
Year ended March 31
Cash flow 2003 2004 Change 2004
- From operating activities Y314.8 Y241.6 Y -73.1 $2,323
- From investing activities (516.7) (401.6) +115.1 (3,860)
- From financing activities 149.2 141.7 -7.5 1,362
Cash and cash equivalents at
beginning of the fiscal year 327.2 274.5 -52.7 2,640
Cash and cash equivalents at
end of the fiscal year 274.5 256.3 -18.2 2,465
Operating Activities: Operating activities generated more cash than was
used due to an increase in future insurance policy benefits and other in the
fiscal year, reflecting an increase in insurance-in-force.
Investing Activities: In the fiscal year, payments for investments and
advances exceeded proceeds from sales of securities investments, maturities of
marketable securities and collections of advances, reflecting an increase in
assets under management in the Financial Services businesses.
Financing Activities: Deposits from customers in the banking business
increased in the fiscal year due to factors including an increase in the
number of accounts.
Cash and Cash Equivalents: Cash and cash equivalents decreased Y18.2
billion to Y256.3 billion as of March 31, 2004 compared to March 31, 2003.
Consolidated Results for the Fourth Quarter ended March 31, 2004
Sales were Y1,772.2 billion ($17.0 billion), an increase of 7.1% compared
to the same quarter of the prior year (12% increase on a local currency
basis). In the Electronics segment, sales to outside customers (excludes
sales between consolidated companies) increased 10.9%. Sales of digital still
cameras and flat panel televisions, which benefited from growing demand, and
sales of cellular phones (sold mainly to Sony Ericsson) increased, while sales
of CRT televisions continued to decline. In the Pictures segment, sales
increased significantly due to a television syndication sale and a licensing
agreement extension. In the Financial Services segment, despite a decrease in
sales as a result of a change in the method of recognizing insurance premiums
received, sales increased because of improvements in valuation gains and
losses from investments at Sony Life. However, a decline in the sales of both
software and hardware resulted in a decrease in sales in the Game segment. As
a result of foreign exchange rate fluctuations, sales in the Music segment
decreased.
Operating loss was Y109.8 billion ($1.1 billion), an improvement of Y6.7
billion compared with the same quarter of the previous year. The operating
loss of the Electronics segment increased due to an increase in restructuring
expenses, principally from severance related expenses. The Game segment
recorded an operating loss compared to a profit in the same quarter of the
previous year due to an increase in research and development expenses for
future businesses. In contrast, operating income of the Pictures segment
increased significantly due to the syndication sale and the licensing
agreement extension noted above. Improvements in valuation gains and losses
from investments in the general account at Sony Life resulted in a substantial
increase in operating income in the Financial Services segment. The operating
loss of the Music segment decreased due to lower restructuring expenses
compared with the same quarter of the previous year.
Restructuring expenses for the quarter amounted to Y96.8 billion ($931
million) compared to Y48.7 billion in the fourth quarter of the previous year.
In the Electronics segment, restructuring expenses were Y86.9 billion ($836
million) compared to Y32.9 billion in the same quarter of the previous year.
Loss before income taxes was Y93.6 billion ($900 million), an improvement
of Y26.2 billion compared with the previous year's same quarter. A net
foreign exchange gain was recorded in other income while a net foreign
exchange loss was recorded in the same quarter of the prior year.
Net loss was Y38.2 billion ($367 million), an improvement of Y73.0 billion
compared with the same quarter of the previous year. Income tax benefit
increased due to the utilization of tax loss and foreign and other tax credit
carryforwards. In addition, equity in net income of affiliated companies was
recorded during the quarter compared to equity in net losses in the same
quarter of the previous year. The change from loss to income from equity
affiliates was primarily due to the contribution of Sony Ericsson (the profit
Sony recorded from its equity holding was Y5.4 billion ($52 million)).
Notes
Note I: During the fiscal year ended March 31, 2004, the average value of
the yen was Y112.1 against the U.S. dollar and Y131.1 against the euro, which
was 7.3% higher against the U.S. dollar and 9.7% lower against the euro,
compared with the average rates for the previous fiscal year. Operating
results on a local currency basis described herein reflect sales and operating
revenue ("sales") and operating income obtained by applying the yen's average
exchange rate in the previous fiscal year to local currency-denominated
monthly sales, cost of sales, and selling, general and administrative expenses
in the fiscal year. Local currency basis results are not reflected in Sony's
financial statements and are not measures conforming with Generally Accepted
Accounting Principles in the U.S. ("U.S. GAAP"). In addition, Sony does not
believe that these measures are a substitute for U.S. GAAP measures. However,
Sony believes that local currency basis results provide additional useful
analytical information to investors regarding operating performance.
Note II: "Sales and operating revenue" in each business segment represents
sales and operating revenue recorded before intersegment transactions are
eliminated. "Operating income" in each business segment represents operating
income recorded before intersegment transactions and unallocated corporate
expenses are eliminated.
Note III: Commencing with the first quarter ended June 30, 2003, Sony has
partly realigned its business segment configuration. Also, in the Network
Application and Content Service Sector ("NACS"), expenses incurred in
connection with the creation of a network platform business have been
transferred out of the Other segment and reclassified as unallocated corporate
expenses, because the expected future benefits of this business will be spread
across the Sony Group. In accordance with this realignment, results for the
previous fiscal year have been reclassified to conform to the presentation of
the current fiscal year.
Note IV: During the fourth quarter ended March 31, 2004, the average value
of the yen was Y106.3 against the U.S. dollar and Y132.6 against the euro,
which was 9.8% higher against the U.S. dollar and 5.1% lower against the euro,
compared with the average rates for the same quarter of the previous fiscal
year.
Rewarding Shareholders
Sony believes that continuously increasing corporate value and providing
dividends are essential to rewarding shareholders. It is Sony's policy to
utilize retained earnings, after ensuring the perpetuation of stable
dividends, to carry out various investments that contribute to an increase in
corporate value such as those that ensure future growth and strengthen
competitiveness.
A year-end cash dividend of Y12.5 ($0.12) per share of Sony Corporation
common stock was approved at the Board of Directors meeting held on April 26,
2004 and will be payable on June 1, 2004. Sony Corporation has already paid
an interim dividend of Y12.5 per share to each shareholder; accordingly, the
total annual cash dividend per share is Y25.0.
Regarding shares of subsidiary tracking stock issued in Japan by Sony
Corporation, Sony Communication Network Corporation ("SCN") has been working
to manage its operations so as to expand cash flow, fully solidify its
financial base, and increase its retained earnings to aggressively expand its
business to strengthen its foundation and respond to the quickly expanding
Internet market. For these reasons, SCN does not plan to distribute earnings
to SCN shareholders for the time being. As such, Sony Corporation will
continue its policy of not paying dividends to shareholders of the subsidiary
tracking stock.
Numbers of Employees
Although employees were reduced through restructuring activities, due to
an increase at manufacturing facilities in Asia, primarily in China, the
number of employees at the end of March 2004 was approximately 162,000, an
increase of approximately 900 from the end of March 2003. Approximately 3,600
employees in Japan who left Sony on March 31, 2004, through the early
retirement program and other means, are counted as a part of this total.
Outlook for the Fiscal Year ending March 31, 2005
Change from
previous year
Sales and operating revenue Y7,550 billion +1%
Operating income 160 billion +62
Income before income taxes 160 billion +11
Net income 100 billion +13
Capital expenditures (additions to
fixed assets) Y410 billion +8%
Depreciation and amortization* 370 billion +1
(Depreciation expenses for tangible
assets) (290 billion) (+1)
* Including amortization of intangible assets and amortization of
deferred insurance acquisition costs.
Research and development expenses 550 billion +7%
Assumed exchange rates: approximately Y105 to the U.S. dollar,
approximately Y125 to the euro.
During the fiscal year, primarily in the Electronics segment,
restructuring expenses of approximately Y130 billion are expected to be
incurred across the Sony Group (Y168.1 billion in restructuring expenses were
recorded in the fiscal year ended March 31, 2004).
During the fiscal year, approximately $100 million is expected to be
recorded as equity in net income from InterTrust Technologies Corporation, an
equity affiliate of Sony. This equity in net income includes the proceeds
from the settlement of a patent-related suit against another company and is
included in the above net income forecast.
The forecast for each business segment is as follows:
Electronics
Sales of products such as digital still cameras, flat panel televisions
and DVD recorders are expected to continue to increase, resulting in an
anticipated increase in overall sales of the segment, despite an expected
decrease in sales of CRT televisions. Operating income is expected to
increase due to the increase in sales and the benefit of restructuring
activities undertaken in the previous fiscal year, despite an anticipated
appreciation of the yen and an expected increase in research and development
expenses.
From the fiscal year ending March 31, 2005, research and development
expenses associated with process technologies, including those technologies
used in the Game segment, will be recorded in the Electronics segment, due to
an integration of the semiconductor businesses in the Electronics and Game
segments.
Game
Although software production shipments are expected to remain unchanged
year on year, production shipments of PS one and PS 2 hardware are expected to
decrease compared with the previous year, resulting in a decrease in sales for
the segment. Although a portion of research and development expenses will be
recorded in the Electronics segment, as described above, operating income is
expected to decrease due to continued investment in products such as the PSP
handheld entertainment system and the next generation computer entertainment
system.
Music
Sales are expected to decrease due to an anticipated continued contraction
of the market for music and a reduction in the unit price of DVDs in the
manufacturing division. However, due to factors such as the benefits of
restructuring activities already carried out, operating income is expected to
increase.
Pictures
Sales are expected to decrease due to the absence of the significant
television revenues in the fiscal year ended March 31, 2004. However,
operating income is expected to remain unchanged primarily due to the
contribution of films scheduled for release during the year, most notably
Spider-Man 2.
Financial Services
Although an increase in insurance-in-force is expected at Sony Life, a
decrease in insurance revenue is expected due to a change, at Sony Life, in
the recognition method of insurance premiums received on certain products from
being recorded as revenue to being offset against the related provision for
future insurance policy benefits. A decrease in operating income is also
expected because valuation gains from marketable securities are not included
in the forecast.
Semiconductor capital expenditures
Capital expenditures on semiconductors (in the Electronics and Game
segments) during the fiscal year are expected to amount to Y190 billion
(actual amount in the fiscal year ended March 31, 2004 was Y175 billion). Of
that amount, Y120 billion is expected to be spent for the installation of
semiconductor production equipment designed for next generation broadband
microprocessors (actual amount in the fiscal year ended March 31, 2004 was Y69
billion).
Cautionary Statement
Statements made in this release with respect to Sony's current plans,
estimates, strategies and beliefs and other statements that are not historical
facts are forward-looking statements about the future performance of Sony.
Forward-looking statements include, but are not limited to, those statements
using words such as "believe," "expect," "plans," "strategy," "prospects,"
"forecast," "estimate," "project," "anticipate," "may" or "might" and words of
similar meaning in connection with a discussion of future operations,
financial performance, events or conditions. From time to time, oral or
written forward-looking statements may also be included in other materials
released to the public. These statements are based on management's
assumptions and beliefs in light of the information currently available to it.
Sony cautions you that a number of important risks and uncertainties could
cause actual results to differ materially from those discussed in the forward-
looking statements, and therefore you should not place undue reliance on them.
You also should not rely on any obligation of Sony to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. Sony disclaims any such obligation. Risks and
uncertainties that might affect Sony include, but are not limited to (i) the
global economic environment in which Sony operates, as well as the economic
conditions in Sony's markets, particularly levels of consumer spending; (ii)
exchange rates, particularly between the yen and the U.S. dollar, euro, and
other currencies in which Sony makes significant sales or in which Sony's
assets and liabilities are denominated; (iii) Sony's ability to continue to
design and develop and win acceptance of its products and services, which are
offered in highly competitive markets characterized by continual new product
introductions, rapid development in technology, and subjective and changing
consumer preferences (particularly in the Electronics, Game, Music and
Pictures segments); (iv) Sony's ability to implement successfully personnel
reduction and other business reorganization activities in its Electronics and
Music segments; (v) Sony's ability to implement successfully its network
strategy for its Electronics, Music, Pictures and Other segments and to
develop and implement successful sales and distribution strategies in its
Music and Pictures segments in light of the Internet and other technological
developments; (vi) Sony's continued ability to devote sufficient resources to
research and development and, with respect to capital expenditures, to
correctly prioritize investments (particularly in the Electronics segment);
(vii) the success of Sony's joint ventures and alliances; and (viii) the risk
of being able to obtain regulatory approval and successfully form a jointly
owned recorded music company with BMG. Risks and uncertainties also include
the impact of any future events with material unforeseen impacts.
Business Segment Information
(Millions of yen, millions of U.S. dollars)
Year ended March 31
Sales and operating
revenue 2003 2004 Change 2004
Electronics
Customers Y4,543,313 Y4,758,400 +4.7% $45,754
Intersegment 397,137 138,995 1,336
Total 4,940,450 4,897,395 -0.9 47,090
Game
Customers 936,274 753,732 -19.5 7,247
Intersegment 18,757 26,488 255
Total 955,031 780,220 -18.3 7,502
Music
Customers 512,908 487,457 -5.0 4,687
Intersegment 84,598 72,431 697
Total 597,506 559,888 -6.3 5,384
Pictures
Customers 802,770 756,370 -5.8 7,273
Intersegment 0 0 0
Total 802,770 756,370 -5.8 7,273
Financial Services
Customers 509,398 565,752 +11.1 5,440
Intersegment 27,878 27,792 267
Total 537,276 593,544 +10.5 5,707
Other
Customers 168,970 174,680 +3.4 1,680
Intersegment 137,323 155,712 1,497
Total 306,293 330,392 +7.9 3,177
Elimination (665,693) (421,418) - (4,052)
Consolidated total Y7,473,633 Y7,496,391 +0.3% $72,081
Electronics intersegment amounts primarily consist of transactions with
the Game business.
Music intersegment amounts primarily consist of transactions with the
Game and Pictures businesses.
Other intersegment amounts primarily consist of transactions with the
Electronics business.
Operating income (loss) 2003 2004 Change 2004
Electronics Y41,380 Y(35,298) - $(339)
Game 112,653 67,578 -40.0% 650
Music (7,867) 18,995 - 182
Pictures 58,971 35,230 -40.3 339
Financial Services 22,758 55,161 +142.4 530
Other (24,983) (10,030) - (96)
Total 202,912 131,636 -35.1 1,266
Unallocated corporate
expenses and
elimination (17,472) (32,734) - (315)
Consolidated total Y185,440 Y98,902 -46.7% $951
Commencing with the first quarter ended June 30, 2003, Sony has partly
realigned its business segment configuration. In the NACS, expenses incurred
in connection with the creation of a network platform business have been
transferred out of the Other segment and reclassified as unallocated corporate
expenses, because the expected future benefits of this business will be spread
across the Sony Group. In accordance with these realignments, results for the
previous year have been reclassified to conform to the presentation for the
current year.
In the quarter ended December 31, 2003, regarding Sony Life, the
recognition method of insurance premiums received on certain products was
changed from being recorded as revenues to being offset against the related
provision for future insurance policy benefits, reducing revenue in the
Financial Services segment in the year ended March 31, 2004, by Y30.8 billion.
This change did not have a material effect on operating income.
(Millions of yen, millions of U.S. dollars)
Three months ended March 31 (Unaudited)
Sales and operating revenue 2003 2004 Change 2004
Electronics
Customers Y995,663 Y1,104,378 +10.9% $10,619
Intersegment 29,632 7,825 75
Total 1,025,295 1,112,203 +8.5 10,694
Game
Customers 163,715 121,436 -25.8 1,168
Intersegment 3,623 5,301 51
Total 167,338 126,737 -24.3 1,219
Music
Customers 124,358 119,139 -4.2 1,145
Intersegment 17,707 14,966 144
Total 142,065 134,105 -5.6 1,289
Pictures
Customers 187,240 236,602 +26.4 2,275
Intersegment 0 0 0
Total 187,240 236,602 +26.4 2,275
Financial Services
Customers 140,142 144,679 +3.2 1,391
Intersegment 7,258 7,462 72
Total 147,400 152,141 +3.2 1,463
Other
Customers 43,246 45,957 +6.3 442
Intersegment 40,975 42,655 410
Total 84,221 88,612 +5.2 852
Elimination (99,195) (78,209) - (752)
Consolidated total Y1,654,364 Y1,772,191 +7.1% $17,040
Electronics intersegment amounts primarily consist of transactions with
the Game business.
Music intersegment amounts primarily consist of transactions with the
Game and Pictures businesses.
Other intersegment amounts primarily consist of transactions with the
Electronics business.
Operating income (loss) 2003 2004 Change 2004
Electronics Y(116,144) Y(133,364) - $(1,282)
Game 13,631 (6,886) - (66)
Music (12,443) (5,576) - (54)
Pictures 8,089 36,634 +352.9% 352
Financial Services 3,113 17,192 +452.3 165
Other (9,587) (6,343) - (61)
Total (113,341) (98,343) - (946)
Unallocated corporate
expenses and elimination (3,126) (11,413) - (109)
Consolidated total Y(116,467) Y(109,756) - $(1,055)
Commencing with the first quarter ended June 30, 2003, Sony has partly
realigned its business segment configuration. In the NACS, expenses incurred
in connection with the creation of a network platform business have been
transferred out of the Other segment and reclassified as unallocated corporate
expenses, because the expected future benefits of this business will be spread
across the Sony Group. In accordance with these realignments, results for the
previous year have been reclassified to conform to the presentation for the
current year.
In the quarter ended December 31, 2003, regarding Sony Life, the
recognition method of insurance premiums received on certain products was
changed from being recorded as revenues to being offset against the related
provision for future insurance policy benefits, reducing revenue in the
Financial Services segment in the quarter ended March 31, 2004, by Y15.3
billion. This change did not have a material effect on operating income.
Electronics Sales and Operating Revenue to Customers by Product Category
(Millions of yen, millions of U.S. dollars)
Year ended March 31
Sales and operating
revenue 2003 2004 Change 2004
Audio Y682,517 Y623,582 -8.6% $5,996
Video 851,064 948,111 +11.4 9,116
Televisions 950,166 917,207 -3.5 8,819
Information and
Communications 836,724 834,757 -0.2 8,027
Semiconductors 204,710 253,237 +23.7 2,435
Components 527,782 623,799 +18.2 5,998
Other 490,350 557,707 +13.7 5,363
Total Y4,543,313 Y4,758,400 +4.7% $45,754
Three months ended March 31 (Unaudited)
Sales and operating
revenue 2003 2004 Change 2004
Audio Y133,555 Y121,460 -9.1% $1,168
Video 153,197 197,456 +28.9 1,899
Televisions 203,035 213,794 +5.3 2,056
Information and
Communications 214,822 208,816 -2.8 2,008
Semiconductors 52,453 66,163 +26.1 636
Components 131,128 159,464 +21.6 1,533
Other 107,473 137,225 +27.7 1,319
Total Y995,663 Y1,104,378 +10.9% $10,619
The above table is a breakdown of Electronics sales and operating revenue
to customers in the Business Segment Information. The Electronics segment is
managed as a single operating segment by Sony's management. However, Sony
believes that the information in this table is useful to investors in
understanding the product categories in this business segment. In addition,
commencing with the first quarter ended June 30, 2003, Sony has partly
realigned its product category configuration in the Electronics segment.
Accordingly, results of the previous year have been reclassified. The primary
changes are as follows:
Main Product Previous Product Category New Product Category
Set-top box "Televisions" "Video"
Computer display "Information and Communications" "Televisions"
LCD television "Information and Communications" "Televisions"
CRT "Components" "Televisions"
Geographic Segment Information
(Millions of yen, millions of U.S. dollars)
Year ended March 31
Sales and operating revenue 2003 2004 Change 2004
Japan Y2,093,880 Y2,220,747 +6.1% $21,353
United States 2,403,946 2,121,110 -11.8 20,395
Europe 1,665,976 1,765,053 +5.9 16,972
Other Areas 1,309,831 1,389,481 +6.1 13,361
Total Y7,473,633 Y7,496,391 +0.3% $72,081
Three months ended March 31 (Unaudited)
Sales and operating revenue 2003 2004 Change 2004
Japan Y517,933 Y549,960 +6.2% $5,288
United States 481,747 492,729 +2.3 4,738
Europe 363,360 406,956 +12.0 3,913
Other Areas 291,324 322,546 +10.7 3,101
Total Y1,654,364 Y1,772,191 +7.1% $17,040
Classification of Geographic Segment Information shows sales and operating
revenue recognized by location of customers.
Consolidated Statements of Income
(Millions of yen, millions of U.S. dollars,
except per share amounts)
Year ended March 31
2003 2004 Change % 2004
Sales and operating revenue:
Net sales Y6,916,042 Y6,883,478 $66,187
Financial service revenue 509,398 565,752 5,440
Other operating revenue 48,193 47,161 454
7,473,633 7,496,391 +0.3 72,081
Costs and expenses:
Cost of sales 4,979,421 5,058,205 48,637
Selling, general and
administrative 1,782,367 1,798,239 17,291
Financial service
expenses 486,464 505,550 4,861
Loss on sale, disposal
or impairment of
assets, net 39,941 35,495 341
7,288,193 7,397,489 71,130
Operating income 185,440 98,902 -46.7 951
Other income:
Interest and dividends 14,441 18,756 180
Royalty income 32,375 34,244 329
Foreign exchange gain, net 1,928 18,059 174
Gain on sale of securities
investments, net 72,552 11,774 113
Gain on issuances of
stock by subsidiaries
and equity investees - 4,870 47
Other 36,232 34,587 333
157,528 122,290 1,176
Other expenses:
Interest 27,314 27,849 268
Loss on devaluation of
securities investments 23,198 16,481 159
Other 44,835 32,795 315
95,347 77,125 742
Income before income taxes 247,621 144,067 -41.8 1,385
Income taxes 80,831 52,774 507
Income before minority
interest, equity in net
income (loss) of affiliated
companies and cumulative
effect of an accounting
change 166,790 91,293 -45.3 878
Minority interest in
income of consolidated
subsidiaries 6,581 2,379 23
Equity in net income
(loss) of affiliated
companies (44,690) 1,714 16
Income before cumulative
effect of an accounting
change 115,519 90,628 -21.5 871
Cumulative effect of an
accounting change(2004:
Net of income taxes of
Y0 million) - (2,117) (20)
Net income Y115,519 Y88,511 -23.4 $851
Per share data:
Common stock
Income before cumulative
effect of an accounting
change
- Basic Y125.74 Y98.26 -21.9 $0.94
- Diluted 118.21 93.00 -21.3 0.89
Net income
- Basic 125.74 95.97 -23.7 0.92
- Diluted 118.21 90.88 -23.1 0.87
Subsidiary tracking stock
Net income (loss)
- Basic (41.98) (41.80) - (0.40)
Additional Paid-in Capital and Retained Earnings
The following information shows change in additional paid-in capital for
the year ended March 31, 2003 and 2004 and change in retained earnings for the
year ended March 31, 2003 and 2004.
Sony discloses this supplemental information in accordance with disclosure
requirements of the Japanese Securities and Exchange Law, to which Sony, as a
Japanese public company, is subject.
(Millions of yen, millions of U.S. dollars)
Year ended March 31
2003 2004 2004
Additional Pain-in Capital:
Balance, beginning of year Y968,223 Y984,196 $9,463
Conversion of convertible bonds 172 3,988 38
Exchange offerings 15,791 5,409 52
Reissuance of treasury stock 10 (776) (7)
Balance, end of year Y984,196 Y992,817 $9,546
(Millions of yen, millions of U.S. dollars)
Year ended March 31
2003 2004 2004
Retained Earnings:
Balance, beginning of year Y1,209,262 1,301,740 $12,517
Net income 115,519 88,511 851
Cash dividends (23,022) (23,138) (222)
Common stock issue costs, net
of tax (19) (53) (1)
Balance, end of year Y1,301,740 Y1,367,060 $13,145
Consolidated Statements of Income (Unaudited)
(Millions of yen, millions of U.S. dollars,
except per share amounts)
Three months ended March 31
2003 2004 Change % 2004
Sales and operating revenue:
Net sales Y1,503,150 Y1,615,836 $15,537
Financial service revenue 140,142 144,679 1,391
Other operating revenue 11,072 11,676 112
1,654,364 1,772,191 +7.1 17,040
Costs and expenses:
Cost of sales 1,140,533 1,238,300 11,907
Selling, general and
administrative 476,883 495,378 4,763
Financial service expenses 137,013 126,385 1,215
Loss on sale, disposal or
impairment of assets, net 16,402 21,884 210
1,770,831 1,881,947 18,095
Operating income (loss) (116,467) (109,756) - (1,055)
Other income:
Interest and dividends 4,280 5,388 52
Royalty income 10,129 10,389 100
Foreign exchange gain, net - 7,588 73
Gain on sale of securities
investments, net 1,682 28 0
Gain on issuances of stock
by subsidiaries and equity
investees - 3,951 38
Other 11,560 8,139 78
27,651 35,483 341
Other expenses:
Interest 7,251 7,179 69
Loss on devaluation of
securities investments 5,273 3,931 38
Foreign exchange loss, net 264 - -
Other 18,138 8,190 79
30,926 19,300 186
Income (loss) before income
taxes (119,742) (93,573) - (900)
Income taxes (23,412) (50,498) (486)
Income (loss) before minority
interest, equity in net
income (loss) of affiliated
companies (96,330) (43,075) - (414)
Minority interest in income
(loss) of consolidated
subsidiaries (90) 557 6
Equity in net income (loss)
of affiliated companies (14,904) 5,477 53
Net income (loss) Y(111,144) Y(38,155) - $(367)
Per share data:
Common stock
Net income (loss)
- Basic Y(120.47) Y(41.23) - $(0.40)
- Diluted (120.47) (41.23) - (0.40)
Subsidiary tracking stock
Net income (loss)
- Basic (69.86) (13.12) - (0.13)
Consolidated Balance Sheets
(Millions of yen, millions of U.S. dollars)
March 31
ASSETS 2003 2004 2004
Current assets:
Cash and cash equivalents Y713,058 Y849,211 $8,165
Time deposits 3,689 4,662 45
Marketable securities 241,520 274,748 2,642
Notes and accounts receivable,
trade 1,117,889 1,123,863 10,806
Allowance for doubtful
accounts and sales returns (110,494) (112,674) (1,083)
Inventories 625,727 666,507 6,409
Deferred income taxes 143,999 125,532 1,207
Prepaid expenses and other
current assets 418,826 431,506 4,149
3,154,214 3,363,355 32,340
Film costs 287,778 256,740 2,469
Investments and advances:
Affiliated companies 111,510 86,253 829
Securities investments and
other 1,882,613 2,426,697 23,334
1,994,123 2,512,950 24,163
Property, plant and equipment:
Land 188,365 189,785 1,825
Buildings 872,228 930,983 8,952
Machinery and equipment 2,054,219 2,053,085 19,741
Construction in progress 60,383 98,480 947
Less-Accumulated depreciation(1,896,845) (1,907,289) (18,340)
1,278,350 1,365,044 13,125
Other assets:
Intangibles, net 258,624 248,010 2,385
Goodwill 290,127 277,870 2,672
Deferred insurance acquisition
costs 327,869 349,194 3,358
Deferred income taxes 328,091 203,203 1,954
Other 451,369 514,296 4,944
1,656,080 1,592,573 15,313
Y8,370,545 Y9,090,662 $87,410
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings Y124,360 Y91,260 $878
Current portion of long-term
debt 34,385 326,450 3,139
Notes and accounts payable,
trade 697,385 778,773 7,488
Accounts payable, other and
accrued expenses 864,188 812,175 7,809
Accrued income and other taxes 109,199 57,913 557
Deposits from customers in the
banking business 248,721 378,851 3,643
Other 356,810 479,486 4,610
2,435,048 2,924,908 28,124
Long-term liabilities:
Long-term debt 807,439 834,956 8,028
Accrued pension and severance
costs 496,174 368,382 3,542
Deferred income taxes 159,079 96,193 925
Future insurance policy
benefits and other 1,914,410 2,178,626 20,948
Other 255,478 286,737 2,758
3,632,580 3,764,894 36,201
Minority interest in
consolidated subsidiaries 22,022 22,858 220
Stockholders' equity:
Capital stock 476,278 480,267 4,618
Additional paid-in capital 984,196 992,817 9,546
Retained earnings 1,301,740 1,367,060 13,145
Accumulated other
comprehensive income (471,978) (449,959) (4,327)
Treasury stock, at cost (9,341) (12,183) (117)
2,280,895 2,378,002 22,865
Y8,370,545 Y9,090,662 $87,410
Consolidated Statements of Cash Flows
(Millions of yen, millions of U.S. dollars)
Year ended March 31
2003 2004 2004
Cash flows from operating
activities:
Net income Y115,519 Y88,511 $851
Adjustments to reconcile net
income to net cash provided
by operating activities
Depreciation and amortization,
including amortization of
deferred insurance acquisition
costs 351,925 366,269 3,522
Amortization of film costs 312,054 305,786 2,940
Accrual for pension and
severance costs, less payments 37,858 35,562 342
Loss on sale, disposal or
impairment of assets, net 39,941 35,495 341
Gain on sales of securities
investments, net (72,552) (11,774) (113)
Deferred income taxes (98,016) (34,445) (331)
Equity in net (income) losses
of affiliated companies,
net of dividends 46,692 1,732 17
Cumulative effect of an
accounting change - 2,117 20
Changes in assets and liabilities:
(Increase) decrease in notes
and accounts receivable,
trade 174,679 (63,010) (606)
(Increase) decrease in
inventories 36,039 (78,656) (756)
Increase in film costs (317,953) (299,843) (2,883)
Increase (decrease) in notes
and accounts payable, trade (58,384) 93,950 903
Increase (decrease) in
accrued income and other
taxes 14,637 (46,067) (443)
Increase in future insurance
policy benefits and other 233,992 264,216 2,541
Increase in deferred
insurance acquisition costs (66,091) (71,219) (685)
(Increase) decrease in other
current assets 29,095 (34,991) (336)
Increase in other current
liabilities 26,205 44,772 431
Other 48,148 34,230 328
Net cash provided by
operating activities 853,788 632,635 6,083
Cash flows from investing activities:
Payments for purchases of fixed
assets (275,285) (427,344) (4,109)
Proceeds from sales of fixed
assets 25,711 33,987 327
Payments for investments and
advances by financial service
business (1,012,508) (1,167,945) (11,231)
Payments for investments and
advances (other than financial
service business) (123,839) (33,329) (320)
Proceeds from sales of
securities investments,
maturities of marketable
securities and collections
of advances by financial
service business 529,395 791,188 7,607
Proceeds from sales of
securities investments,
maturities of marketable
securities and collections
of advances (other than
financial service business) 148,977 35,521 342
(Increase) decrease in time
deposits 1,124 (1,456) (14)
Cash assumed upon acquisition
by stock exchange offering - 3,634 35
Gain on issuances of stock by
subsidiaries - 3,952 38
Net cash used in investing
activities (706,425) (761,792) (7,325)
Cash flows from financing
activities:
Proceeds from issuance of
long-term debt 12,323 267,864 2,575
Payments of long-term debt (238,144) (32,042) (308)
Decrease in short-term
borrowings (7,970) (57,708) (555)
Increase in deposits from
customers in the banking
business 142,023 129,874 1,249
Dividends paid (22,871) (23,106) (222)
Other 21,505 28,401 273
Net cash provided by (used in)
financing activities (93,134) 313,283 3,012
Effect of exchange rate changes
on cash and cash equivalents (24,971) (47,973) (461)
Net increase in cash and cash
equivalents 29,258 136,153 1,309
Cash and cash equivalents at
beginning of the fiscal year 683,800 713,058 6,856
Cash and cash equivalents at
end of the fiscal year Y713,058 Y849,211 $8,165
(Notes)
1. U.S. dollar amounts have been translated from yen, for convenience
only, at the rate of Y104 = U.S. $1, the approximate Tokyo foreign
exchange market rate as of March 31, 2004.
2. As of March 31, 2004, Sony had 1,048 consolidated subsidiaries
(including variable interest entities). It has applied the equity
accounting method in respect to 66 affiliated companies.
3. Sony calculates and presents per share data separately for Sony's
common stock and for the subsidiary tracking stock which is linked to
the economic value of Sony Communication Network Corporation, based on
Statement of Financial Accounting Standards ("FAS") No.128, "Earnings
per Share". The holders of the tracking stock have the right to
participate in earnings, together with common stock holders.
Accordingly, Sony calculates per share data by the "two-class" method
based on FAS No.128. Under this method, basic net income per share
for each class of stock is calculated based on the earnings allocated
to each class of stock for the applicable period, divided by the
weighted-average number of outstanding shares in each class during the
applicable period. The earnings allocated to the subsidiary tracking
stock are determined based on the subsidiary tracking stockholders'
economic interest in the targeted subsidiary's earnings available for
dividends or change in accumulated losses that do not include those of
the targeted subsidiary's subsidiaries. The earnings allocated to
common stock are calculated by subtracting the earnings allocated to
the subsidiary tracking stock from Sony's net income for the period.
Weighted-average shares used for computation of earnings per share of
common stock are as follows. The dilutive effect in the weighted-
average shares for the three months and the year ended March 31, 2003
and 2004 mainly resulted from convertible bonds. No additional shares
were included in the computation of diluted net loss per share for the
three months ended March 31, 2003 and 2004 because to do so would have
been antidilutive.
Weighted-average shares (Thousands of shares)
Year ended March 31
2003 2004
Income before cumulative effect of an accounting
change and net income
- Basic 919,706 923,650
- Diluted 998,591 1,000,215
Weighted-average shares (Thousands of shares)
Three months ended March 31
2003 2004
Net income
- Basic 920,814 924,439
- Diluted 920,814 924,439
Weighted-average shares used for computation of earnings per share of
the subsidiary tracking stock for the three months and the year ended
March 31, 2003 and 2004 are 3,072 thousand shares. There were no
potentially dilutive securities or options granted for earnings per
share of the subsidiary tracking stock.
4. Sony's comprehensive income is comprised of net income and other
comprehensive income. Other comprehensive income includes changes in
unrealized gains or losses on securities, unrealized gains or losses
on derivative instruments, minimum pension liabilities adjustments and
foreign currency translation adjustments. Net income, other
comprehensive income (loss) and comprehensive income (loss) for the
three months and the year ended March 31, 2003 and 2004 were as
follows:
(Millions of yen,
millions of U.S. dollars)
Year ended March 31 Three months ended March 31
2003 2004 2004 2003 2004 2004
Net income (loss) Y115,519 Y88,511 $851 Y(111,144) Y(38,155) $(367)
Other comprehensive
income (loss):
Unrealized gains
(losses) on
Securities (5,339) 52,292 503 2,834 21,385 206
Unrealized gains
(losses) on
derivative
instruments (4,082) 4,193 40 (668) 1,302 13
Minimum pension
liabilities
Adjustments (110,636) 93,415 898 (110,636) 95,611 919
Foreign currency
translation
adjustments (76,328) (127,881) (1,229) 25,387 (27,752) (267)
(196,385) 22,019 212 (83,083) 90,546 871
Comprehensive
income (loss) Y(80,866) Y110,530 $1,063 Y(194,227) Y52,391 $504
5. On April 1, 2002, Sony adopted FAS No.144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". FAS No.144 addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets. FAS No.144 establishes a single accounting model
for long-lived assets to be disposed of by sale and modifies the
accounting and disclosure rules for discontinued operations. The
adoption of the provision of FAS No.144 did not have a material impact
on Sony's results of operations and financial position for the year
ended March 31, 2003.
6. In April 2002, the Financial Accounting Standards Board ("FASB")
issued FAS No.145, "Rescission of FASB Statements No.4, 44 and 64,
Amendment of FASB Statement No.13, and Technical Corrections". This
statement rescinds certain authoritative pronouncements and amends,
clarifies or describes the applicability of others, effective for
fiscal years beginning or transactions occurring after May 15, 2002,
with early adoption encouraged. Sony elected early adoption of this
statement retroactive to April 1, 2002. The adoption of this
statement did not have an impact on Sony's results of operations and
financial position.
7. In June 2002, the FASB issued FAS No.146, "Accounting for Costs
Associated with Exit or Disposal Activities". FAS No.146 is effective
for exit or disposal activities that are initiated after December 31,
2002. FAS No.146 addresses financial accounting and reporting for
costs associated with exit or disposal activities. Sony adopted FAS
No.146 on January 1, 2003. The adoption of this statement did not
have a material effect on Sony's results of operations and financial
position.
8. In November 2002, the FASB issued FASB Interpretation ("FIN") No.45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others, an
interpretation of FASB Statements No.5, 57, and 107 and rescission of
FASB Interpretation No.34". The interpretation elaborates on the
existing disclosure requirements for most guarantees. It also
clarifies that at the time a company issues a guarantee, the company
must recognize an initial liability for the fair value of the
obligations it assumes under the guarantee. The initial recognition
and initial measurement provisions of FIN No.45 are applicable on a
prospective basis to guarantees issued or modified after December 31,
2002. The initial recognition and initial measurement provisions of
FIN No.45 did not have a material effect on Sony's results of
operations and financial position as at and for the year ended
March 31, 2003.
9. In December 2002, the FASB issued FAS No.148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an Amendment of
FASB Statement No.123". FAS No.148 amends FAS No.123, "Accounting for
Stock-Based Compensation", to provide alternative methods of
transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. FAS No.148 also
requires that disclosures of the pro forma effect of using the fair
value method of accounting for stock-based employee compensation be
displayed more prominently and in a tabular format. Sony adopted the
disclosure-only requirements in accordance with FAS No.148 for the
year ended March 31, 2003. Sony has accounted for its employee
stock-based compensation in accordance with Accounting Principles
Board Opinion No.25, "Accounting for Stock Issued to Employees" and,
therefore, the adoption of the provisions of FAS No.148 did not have
an impact on Sony's results of operations and financial position.
10. Effective with the first quarter ended June 30, 2003, "(Gain) loss on
sale, disposal or impairment of assets, net" which was previously
included in "Selling, general and administrative" is disclosed
separately in "Costs and expenses". Such amounts for the three months
and the year ended March 31, 2003 have been reclassified to conform to
the presentation for this year.
11. Adoption of New Accounting Standards
Consolidation of Variable Interest Entities
In January 2003, the FASB issued FIN No.46, "Consolidation of Variable
Interest Entities - an Interpretation of ARB No.51", and the revised
FIN No.46 was issued in December 2003. This interpretation addresses
consolidation by a primary beneficiary of a variable interest entity
("VIE"). FIN No.46 is effective immediately for all new VIEs created
or acquired after January 31, 2003. Sony has not entered into any new
arrangements with VIEs on or after February 1, 2003. For VIEs created
or acquired prior to February 1, 2003, the provisions of FIN No.46
must be adopted by the end of the third quarter of the year ending
March 31, 2004, with early adoption from the second quarter
encouraged. For VIEs acquired prior to February 1, 2003, any
difference between the net amount added to the balance sheet and the
amount of any previously recognized interest in the VIE will be
recognized as a cumulative effect of accounting change. For VIEs
created or acquired prior to February 1, 2003, Sony adopted FIN No.46
on July 1, 2003. As a result of the adoption of FIN No.46, Sony
recognized Y2,117 million ($20 million) of loss as the cumulative
effect of accounting change. Additionally, Sony's assets and
liabilities increased as non-cash transactions, which resulted in no
cash flows, by Y95,255 million ($916 million) and Y97,950 million
($942 million), respectively, as well as cash and cash equivalents of
Y1,521 million ($15 million).
Accounting for Asset Retirement Obligations
In June 2001, the FASB issued FAS No.143, "Accounting for Asset
Retirement Obligations". This statement addresses financial
accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset
retirement costs. Sony adopted FAS No.143 on April 1, 2003. The
adoption of FAS No.143 did not have a material impact on Sony's
results of operations and financial position.
Multiple Element Revenue Arrangements
In November 2002, the FASB issued Emerging Issues Task Force ("EITF")
Issue No.00-21, "Accounting for Revenue Arrangements with Multiple
Deliverables". EITF Issue No.00-21 provides guidance on when and how
to account for arrangements that involve the delivery or performance
of multiple products, services and/or rights to use assets. Sony
adopted EITF Issue No.00-21 on July 1, 2003. The adoption of EITF
Issue No.00-21 did not have a material impact on Sony's results of
operations and financial position.
Derivative Instruments and Hedging Activities
In April 2003, the FASB issued FAS No.149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities". This statement
amends and clarifies financial accounting and reporting for derivative
instruments, including derivative instruments embedded in other
contracts and for hedging activities under FAS No.133. Sony adopted
FAS No.149 on July 1, 2003. The adoption of FAS No.149 did not have
an impact on Sony's results of operations and financial position.
Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity
In May 2003, the FASB issued FAS No.150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity". FAS No.150 establishes standards for how certain financial
instruments with characteristics of both liabilities and equity shall
be classified and measured. This statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning
after June 15, 2003. Sony adopted FAS No.150 on April 1, 2003. The
adoption of FAS No.150 did not have an impact on Sony's results of
operations and financial position.
Other Consolidated Financial Data
(Millions of yen, millions of U.S. dollars)
Year ended March 31
2003 2004 Change 2004
Capital expenditures
(additions to property,
plant and equipment) Y261,241 Y378,264 +44.8% $3,637
Depreciation and
amortization expenses* 351,925 366,269 +4.1 3,522
(Depreciation expenses for
tangible assets) (279,476) (286,911) (+2.7) (2,759)
Research and development
expenses 443,128 514,483 +16.1 4,947
Three months ended March 31
2003 2004 Change 2004
Capital expenditures
(additions to property,
plant and equipment) Y76,610 Y109,582 +43.0% $1,054
Depreciation and amortization
expenses* 96,241 99,339 +3.2 955
(Depreciation expenses for
tangible assets) (74,340) (76,485) (+2.9) (735)
Research and development
expenses 131,379 140,368 +6.8 1,350
* Including amortization expenses for intangible assets and for deferred
insurance acquisition costs
Condensed Financial Services Financial Statements (Unaudited)
The results of the Financial Services segment are included in Sony's
consolidated financial statements. The following schedules show unaudited
condensed financial statements for the Financial Services segment and all
other segments excluding Financial Services. These presentations are not
required under U.S. GAAP, which is used in Sony's consolidated financial
statements. However, because the Financial Services segment is different in
nature from Sony's other segments, Sony believes that a comparative
presentation may be useful in understanding and analyzing Sony's consolidated
financial statements.
Transactions between the Financial Services segment and Sony without
Financial Services are eliminated in the consolidated figures shown below.
(Millions of yen, millions of U.S. dollars)
Condensed Statements
of Income Year ended March 31
Financial Services 2003 2004 Change % 2004
Financial service
revenue Y537,276 Y593,544 +10.5 $5,707
Financial service expenses 514,518 538,383 +4.6 5,177
Operating income 22,758 55,161 +142.4 530
Other income (expenses),
net (1,282) 1,958 - 19
Income before income taxes 21,476 57,119 +166.0 549
Income taxes and other 13,071 22,975 +75.8 221
Net income Y8,405 Y34,144 +306.2 $328
(Millions of yen, millions of U.S. dollars)
Year ended March 31
Sony without Financial
Services 2003 2004 Change % 2004
Net sales and operating
revenue Y6,974,980 Y6,939,964 -0.5 $66,730
Costs and expenses 6,811,292 6,896,377 +1.2 66,311
Operating income 163,688 43,587 -73.4 419
Other income (expenses),
net 67,846 52,746 -22.3 507
Income before income taxes 231,534 96,333 -58.4 926
Income taxes and other 120,089 30,916 -74.3 297
Income before cumulative
effect of an accounting
change 111,445 65,417 -41.3 629
Cumulative effect of an
accounting change - (2,117) - (20)
Net income Y111,445 Y63,300 -43.2 $609
(Millions of yen, millions of U.S. dollars)
Year ended March 31
Consolidated 2003 2004 Change % 2004
Financial service
revenue Y509,398 Y565,752 +11.1 $5,440
Net sales and operating
revenue 6,964,235 6,930,639 -0.5 66,641
7,473,633 7,496,391 +0.3 72,081
Costs and expenses 7,288,193 7,397,489 +1.5 71,130
Operating income 185,440 98,902 -46.7 951
Other income (expenses),
net 62,181 45,165 -27.4 434
Income before income taxes 247,621 144,067 -41.8 1,385
Income taxes and other 132,102 53,439 -59.5 514
Income before cumulative
effect of an accounting
change 115,519 90,628 -21.5 871
Cumulative effect of an
accounting change - (2,117) - (20)
Net income Y115,519 Y88,511 -23.4 $851
(Millions of yen, millions of U.S. dollars)
Condensed Statements of Income Three months ended March 31
Financial Services 2003 2004 Change % 2004
Financial service revenue Y147,400 Y152,141 +3.2 $1,463
Financial service expenses 144,287 134,949 -6.5 1,298
Operating income 3,113 17,192 +452.3 165
Other income (expenses), net 1,173 (92) - (1)
Income before income taxes 4,286 17,100 +299.0 164
Income taxes and other 3,751 7,103 +89.4 68
Net income Y535 Y9,997 +1768.6 $96
(Millions of yen, millions of U.S. dollars)
Three months ended March 31
Sony without Financial
Services 2003 2004 Change % 2004
Net sales and operating
revenue Y1,517,775 Y1,630,452 +7.4 $15,677
Costs and expenses 1,636,881 1,757,683 +7.4 16,900
Operating income (loss) (119,106) (127,231) - (1,223)
Other income (expenses),
net (4,533) 16,551 - 159
Income (loss) before income
taxes (123,639) (110,680) - (1,064)
Income taxes and other (11,977) (62,419) - (600)
Net income (loss) Y(111,662) Y(48,261) - $(464)
(Millions of yen, millions of U.S. dollars)
Three months ended March 31
Consolidated 2003 2004 Change % 2004
Financial service revenue Y140,142 Y144,679 +3.2 $1,391
Net sales and operating
revenue 1,514,222 1,627,512 +7.5 15,649
1,654,364 1,772,191 +7.1 17,040
Costs and expenses 1,770,831 1,881,947 +6.3 18,095
Operating income (loss) (116,467) (109,756) - (1,055)
Other income (expenses),
net (3,275) 16,183 - 155
Income (loss) before income
taxes (119,742) (93,573) - (900)
Income taxes and other (8,598) (55,418) - (533)
Net income (loss) Y(111,144) Y(38,155) - $(367)
Condensed Balance Sheets
(Millions of yen, millions of U.S. dollars)
Financial Services March 31
ASSETS 2003 2004 2004
Current assets:
Cash and cash equivalents Y274,543 Y256,316 $2,465
Marketable securities 236,621 270,676 2,603
Notes and accounts receivable,
trade 68,188 72,273 695
Other 105,593 100,433 965
684,945 699,698 6,728
Investments and advances 1,731,415 2,274,510 21,870
Property, plant and equipment 45,990 40,833 393
Other assets:
Deferred insurance acquisition
costs 327,869 349,194 3,358
Other 106,900 110,804 1,065
434,769 459,998 4,423
Y2,897,119 Y3,475,039 $33,414
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings Y72,753 Y86,748 $834
Notes and accounts payable,
trade 5,417 7,847 75
Deposits from customers in
the banking business 248,721 378,851 3,643
Other 88,986 175,357 1,686
415,877 648,803 6,238
Long-term liabilities:
Long-term debt 140,908 135,811 1,306
Accrued pension and severance
costs 8,737 10,183 98
Future insurance policy
benefits and other 1,914,410 2,178,626 20,948
Other 104,421 126,349 1,216
2,168,476 2,450,969 23,568
Stockholders' equity 312,766 375,267 3,608
Y2,897,119 Y3,475,039 $33,414
(Millions of yen, millions of U.S. dollars)
Sony without Financial Services
March 31
ASSETS 2003 2004 2004
Current assets:
Cash and cash equivalents Y438,515 Y592,895 $5,700
Marketable securities 4,899 4,072 39
Notes and accounts receivable,
trade 943,073 943,590 9,073
Other 1,117,453 1,151,879 11,077
2,503,940 2,692,436 25,889
Film costs 287,778 256,740 2,469
Investments and advances 383,004 358,629 3,448
Investments in Financial
Services, at cost 166,905 176,905 1,701
Property, plant and equipment 1,232,359 1,324,211 12,732
Other assets 1,251,810 1,251,901 12,038
Y5,825,796 Y6,060,822 $58,277
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings Y126,687 Y352,459 $3,389
Notes and accounts payable,
trade 693,589 773,221 7,435
Other 1,245,578 1,190,563 11,448
2,065,854 2,316,243 22,272
Long-term liabilities:
Long-term debt 802,911 832,540 8,005
Accrued pension and severance
costs 487,437 358,199 3,444
Other 310,136 348,946 3,355
1,600,484 1,539,685 14,804
Minority interest in
consolidated subsidiaries 16,288 17,554 169
Stockholders' equity 2,143,170 2,187,340 21,032
Y5,825,796 Y6,060,822 $58,277
(Millions of yen, millions of U.S. dollars)
Consolidated March 31
ASSETS 2003 2004 2004
Current assets:
Cash and cash equivalents Y713,058 Y849,211 $8,165
Marketable securities 241,520 274,748 2,642
Notes and accounts
receivable, trade 1,007,395 1,011,189 9,723
Other 1,192,241 1,228,207 11,810
3,154,214 3,363,355 32,340
Film costs 287,778 256,740 2,469
Investments and advances 1,994,123 2,512,950 24,163
Property, plant and equipment 1,278,350 1,365,044 13,125
Other assets:
Deferred insurance acquisition
costs 327,869 349,194 3,358
Other 1,328,211 1,243,379 11,955
1,656,080 1,592,573 15,313
Y8,370,545 Y9,090,662 $87,410
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings Y158,745 Y417,710 $4,016
Notes and accounts payable,
trade 697,385 778,773 7,488
Deposits from customers in
the banking business 248,721 378,851 3,643
Other 1,330,197 1,349,574 12,977
2,435,048 2,924,908 28,124
Long-term liabilities:
Long-term debt 807,439 834,956 8,028
Accrued pension and severance
costs 496,174 368,382 3,542
Future insurance policy
benefits and other 1,914,410 2,178,626 20,948
Other 414,557 382,930 3,683
3,632,580 3,764,894 36,201
Minority interest in
consolidated subsidiaries 22,022 22,858 220
Stockholders' equity 2,280,895 2,378,002 22,865
Y8,370,545 Y9,090,662 $87,410
(Millions of yen, millions of U.S. dollars)
Condensed Statements of Cash Flows Year ended March 31
Financial Services 2003 2004 2004
Net cash provided by operating
activities Y314,764 Y241,627 $2,323
Net cash used in investing
activities (516,663) (401,550) (3,860)
Net cash provided by financing
activities 149,207 141,696 1,362
Net decrease in cash and cash
equivalents (52,692) (18,227) (175)
Cash and cash equivalents at
beginning of the fiscal year 327,235 274,543 2,640
Cash and cash equivalents at
end of the fiscal year Y274,543 Y256,316 $2,465
(Millions of yen, millions of U.S. dollars)
Year ended March 31
Sony without Financial Services 2003 2004 2004
Net cash provided by operating
activities Y544,051 Y401,090 $3,856
Net cash used in investing
activities (185,883) (352,496) (3,389)
Net cash provided by (used in)
financing activities (251,247) 153,759 1,478
Effect of exchange rate changes
on cash and cash equivalents (24,971) (47,973) (461)
Net increase in cash and cash
equivalents 81,950 154,380 1,484
Cash and cash equivalents at
beginning of the fiscal year 356,565 438,515 4,216
Cash and cash equivalents at end
of the fiscal year Y438,515 Y592,895 $5,700
(Millions of yen, millions of U.S. dollars)
Year ended March 31
Consolidated 2003 2004 2004
Net cash provided by operating
activities Y853,788 Y632,635 $6,083
Net cash used in investing
activities (706,425) (761,792) (7,325)
Net cash provided by (used in)
financing activities (93,134) 313,283 3,012
Effect of exchange rate changes
on cash and cash equivalents (24,971) (47,973) (461)
Net increase in cash and cash
equivalents 29,258 136,153 1,309
Cash and cash equivalents at
beginning of the fiscal year 683,800 713,058 6,856
Cash and cash equivalents at
end of the fiscal year Y713,058 Y849,211 $8,165
SONY [LOGO]
6-7-35 Kita-shinagawa
Shinagawa-ku
Tokyo, 141-0001 Japan
News & Information
================================================================================
No.04-018E Subsidiary Tracking Stock
Sony Communication Network Corporation [LOGO]
2004/4/26 Consolidated Financial Results for the So-net
Fiscal year ended March 31, 2004
15:00
Sony Communication Network Corporation (hereinafter, the "SCN"), a
subsidiary the performance of which is linked to a tracking stock issued by Sony
Corporation, announced today its consolidated results for the year ended March
31, 2004 (the period from April 1, 2003 to March 31, 2004).
These results are based on the generally accepted accounting standards of
Japan.
o For FY2003 results, although there was an increase in broadband
subscribers, there was an intensification of competition for subscribers.
As a result, there was an operating loss. During the year ended March 31,
2004, sales decreased 1.6%, compared with the year ended March 31, 2003,
to 38,166 million yen. An operating loss of 870 million yen and an
ordinary loss of 911 million yen were recorded. Net loss for the year
under review was 412 million yen.
o So-net subscribers total 2.3 million, including 550,000 broadband
subscribers. The SCN maintained the level of 2.3 million subscribers
reached at the end of the previous fiscal year. The number of broadband
subscribers, mainly of ADSL, reached 550,000, an increase by 31% over the
end of the previous fiscal year.
o Fiscal Year 2004 Forecast: expected turn towards profitability due to an
expected increase in sales of Internet-related services and expected cost
reductions. Regarding the Forecast of Consolidated Results for the year
ending March 31, 2005, sales are expected to reach 40,000 million yen, an
increase of 4.8%, as a result of a rise in revenue per subscriber due to
an increase in the proportion of broadband subscribers, especially of FTTH
subscribers, and an increase in Internet-related services. In terms of
profitability, with judicious management of customer acquisition costs
(such as marketing and sales promotion expenses) and reductions, begun in
the prior year, of communication line expenses through integration of
access points, it is expected that operating income of 100 million yen,
ordinary income of 100 million yen, and net income of 50 million yen will
be recorded. Furthermore, at the end of the year ending March 31, 2005, it
is estimated that the number of So-net subscribers will reach 2.35
million, of which the SCN aims for over 700,000 to be broadband
subscribers.
Consolidated Results for the year ended March 31, 2004 (Millions of Yen)
Year ended March 31
2003 2004 Change (%)
Sales 38,795 38,166 (1.6)
Operating income (loss) 472 (870) --
Ordinary income (loss) 96 (911) --
Net income (loss) (16) (412) --
[Operating Results and Financial Condition]
a. Operating Results
Summary of Consolidated Operations
During the year under review, the Japanese economy showed signs of
moderate economic growth. Factors in the economic background included a
correction in the strength of the yen, an improvement in corporate
profitability, and an improving trend in individual consumption.
Under these economic conditions, in the Internet sector, the number of
Internet users in Japan was over 36 million as of March 2004, an increase of
about 6 million from the year earlier period. Within that total, as the
transition from narrowband to broadband continued, the number of broadband users
passed 14 million users (including ADSL, FTTH, and CATV), an increase of about
4.7 million. (Data according to the Ministry of Public Management, Home Affairs,
Posts and Telecommunications.)
In this business environment, the SCN, in addition to strengthening its
broadband connection services and broadband content services, began offering a
portal service for televisions.
Furthermore, in order to acquire new subscribers, the SCN aggressively
implemented new subscriber promotions in cooperation with carriers, such as a
campaign offering three months of free broadband. As a result, the SCN was able
to maintain the March 2003 level of 2.3 million subscribers, and within that,
the number of broadband subscribers reached 550,000 (including users of such
services as "Flets" which is operated by regional NTT East and NTT West
Corporations).
Under these circumstances, sales for the SCN for the year ended March 31,
2004 decreased 1.6% to 38,166 million yen, compared with sales of 38,795 million
yen in the year ended March 31, 2003. Although there was a sales increase
related to a rise in broadband subscribers, and an increase in the sales of
subsidiaries, there were negative impacts from a decrease in narrowband
subscribers and free-promotion campaigns.
Regarding profitability, despite lower costs for communication lines as a
result of access point integration, reduced expenses for outsourcing thanks to
efficiency improvements at call centers, and improvements in profitability at
consolidated subsidiaries, there were increases in costs related to the creation
of broadband content and increased expenses for subscriber acquisition, such as
sales promotion campaigns. As a result, an operating loss of 870 million yen was
recorded, compared with operating income of 472 million yen in the prior fiscal
year.
Furthermore, equity losses of 30 million yen, compared with 437 million
yen in the prior year, were recorded due to affiliated companies accounted for
by the equity method--Label Gate Co., Ltd. and DeNA Co., Ltd. As a result, an
ordinary loss of 911 million yen was recorded, compared with ordinary income of
96 million yen in the prior fiscal year.
Under extraordinary gain, gain on issuance of stock by equity investee of
613 million yen and gain on sale of investment in affiliate of 81 million yen
were recorded. However, under extraordinary loss, write-off of goodwill of 84
million yen, loss on revaluation of investments in other securities of 90
million yen, and loss on impairment of long-lived assets relating to decided
withdrawal from certain operations of 87 million yen were recorded.
An income tax current expense of 16 million yen and income tax deferred
benefit of 163 million yen were recorded. As a result, net loss during the year
under review was 412 million yen, compared with a net loss of 16 million yen in
the prior fiscal year.
Sales by Category
Year ended March 31, 2004
----------------------------------------------------------------------------------------------------------------------------
Year ended March Year ended March Year-on-
31, 2003 Percentage 31, 2004 Percentage year change
(millions of yen) of total (%) (millions of yen) of total (%) (%)
----------------------------------------------------------------------------------------------------------------------------
Operating Internet 32,245 83.1 30,731 80.5 (4.7)
revenue provider
services
------------------------------------------------------------------------------------------------------------
Internet- 5,161 13.3 6,523 17.1 26.4
related
services
----------------------------------------------------------------------------------------------------------------------------
Merchandise sales 1,389 3.6 912 2.4 (34.3)
----------------------------------------------------------------------------------------------------------------------------
Total 38,795 100.0 38,166 100.0 (1.6)
----------------------------------------------------------------------------------------------------------------------------
The three-months ended March 31, 2004
----------------------------------------------------------------------------------------------------------------------------
Three months
Year ended March ended March Year-on-
31, 2003 Percentage 31, 2004 Percentage year change
(millions of yen) of total (%) (millions of yen) of total (%) (%)
----------------------------------------------------------------------------------------------------------------------------
Operating Internet 7,762 81.8 7,491 78.3 (3.5)
revenue provider
services
------------------------------------------------------------------------------------------------------------
Internet- 1,355 14.3 1,812 19.0 33.8
related
services
----------------------------------------------------------------------------------------------------------------------------
Merchandise sales 371 3.9 260 2.7 (30.0)
----------------------------------------------------------------------------------------------------------------------------
Total 9,488 100.0 9,562 100.0 0.8
----------------------------------------------------------------------------------------------------------------------------
*Operating revenue*
ISP services
In this category, the SCN has focused on broadband and worked to enrich
its areas of service, including ADSL and FTTH offerings as well as newly
established services such as wireless. Also, in the areas of high-value added
connection services, the SCN has started an FTTH service that offers an IP
telephone service, So-net Phone.
o Connection Services
o FTTH (expanded cooperation with carriers)
o So-net Hikari (Chubu Electric) access "commuf@" service
started
o UCOM home service started
o "B Flets" Family Pack started
o So-net Hikari (TEPCO (Tokyo Electric)) apartment service
established
o ADSL (high-speed/area expansion)
o 1M, 40M courses started
o 156GC starts operation in FY03. (total 873GC)
o Mobile Wireless LAN (service start)
o MVNO bitwarp PDA course started
o Valued-added Connection Services
o So-net Phone (for B Flets, TEPCO, UCOM)
As a result, sales of ISP services for the year ended March 31, 2004 were
30,731 million yen, a decrease of 4.7% compared with the prior fiscal year. Such
sales accounted for 80.5% of total sales, a decrease of 2.6 points. This
reflected the free sales promotion campaigns throughout the year, although there
was a rise in revenue per subscriber thanks to an increase in the proportion of
broadband subscribers.
Internet-related services
In this category, the SCN worked to efficiently manage its content
offerings through careful selection of businesses, while continuing to actively
develop and introduce broadband contents.
o Broadband contents
o Launch of online jukebox "Wonder Juke" and "Wonder Juke
Classic"
o Korean dramas "Truth" and "Secret" (Internet and CS
broadcasting)
o Start of service for television
o Offering of portal services for Plasma Wega and AirBoard
o Encourage more intense usage by diversification of payment methods
for subscription content
o eMoney "Edy" settlement
o Safe and simple settlement by "eLIO" credit card
Sales of consolidated subsidiaries (excluding sales related to Merchandise
sales) increased and as a result, sales in this category during the year under
review increased 26.4% to 6,523 million yen. Sales in this category accounted
for 17.1% of total sales, an increase of 3.8 points.
*Merchandise sales*
In this category, sales for the year ended March 31, 2004 were 912 million
yen, a decrease of 34.3% compared with the prior fiscal year. Such sales
accounted for 2.4% of total sales, a decrease of 1.2 points. The decrease was a
result of the decline of sales of the broadband unit for PlayStation 2, which
had strong sales during the prior year, as well as of the Sony-made broadband AV
Router "HN-RT1" and "PostPet v.3" software.
Results of Consolidated Subsidiaries and of Affiliated Companies Accounted for
by the Equity Method
The SCN includes the following four consolidated subsidiaries: So-net
Sports.com Corp., So-net M3 Inc., So-net M3 U.S.A. Corp.(hereinafter "M3
U.S.A.), and Skygate, Co., Ltd. Affiliated companies accounted for by the equity
method include Label Gate Co., Ltd. and DeNA Co., Ltd. During the year under
review, equity losses were held to 30 million yen, compared to 437 million
during the prior fiscal year, due to continued profitability throughout the year
at DeNA Co., Ltd.
Of these, M3 U.S.A. was established in November and began marketing
activities for the purpose of beginning services of its "MR-kun" site in the
United States.
On the other hand, So-net Sports.com Corp. and Skygate, Co., Ltd. saw
satisfactory performance in some areas, but from a profitability standpoint,
harsh conditions continued.
Furthermore, liquidation of Drivegate Inc., which had operated used-car
related sites, was completed in March 2004.
b. Analysis of Financial Conditions
Assets, Liabilities, Capital Accounts
At the end of the year ended March 31, 2004, assets were 13,001 million
yen, a decrease of 1,050 million yen from the end of the year ended March 31,
2003. This was primarily due to a decrease of 1,230 million yen in current
assets.
The decrease in current assets was mainly due to decreases in the combined
amounts of deposits in Sony group company and cash and bank deposits of 1,202
million yen and a decrease in inventories of 149 million yen. Non-current assets
increased 180 million yen. This increase was mainly a result of an increase in
long-term loans, software, and recognition of deferred tax assets related to net
operating losses, offset somewhat by a decrease in amortization of goodwill and
loss on impairment of certain investments in others.
On the other hand, at the end of the year ended March 31, 2004, liabilities
had decreased by 668 million yen compared with the end of the year ended March
31, 2003. This resulted from a decrease in current liabilities of 713 million
yen and an increase in long-term liabilities of 45 million yen. The main factor
in the decrease in current liabilities was a repayment of long-term debt of 800
million yen to Sony Corp.
Total stockholders' equity decreased by 408 million yen. This was due to a
recording of net loss of 412 million yen during the year under review.
Cash Flow
Cash and cash equivalents were 2,182 million yen at the end of the year
ended March 31, 2004, a decrease of 1,202 million yen from the end of the prior
fiscal year. During the year under review, the SCN generated 129 million yen of
cash in operating activities, used 529 million yen of cash in investing
activities, and used 800 million yen of cash in financing activities.
*Cash flows from operating activities*
During the year ended March 31, 2004, regarding cash flows from operating
activities, the SCN generated 129 million yen, largely worse than during the
year ended March 31, 2003 when the SCN generated 2,077 million yen. This was
mainly due to an increase in net loss before income taxes from 269 million yen
in the prior fiscal year to 534 million yen in the year under review; an
increase in accounts payable, trade of 36 million yen during the year under
review, compared with 460 million yen in the prior fiscal year; and a decrease
in accrued expenses of 199 million yen compared with an increase of 176 million
yen during the prior fiscal year. Also, net loss before income taxes during the
year under review included gain on issuance of stock by equity investee of 613
million yen as a non-cash earning, compared with none the prior fiscal year, and
equity in net losses of affiliated companies of 30 million yen as a non-cash
charge, compared with 437 million yen in the prior fiscal year.
*Cash flows from investing activities*
During the year ended March 31, 2004, regarding cash flows from investing
activities, the SCN used only 529 million yen, while during the year ended March
31, 2003, the SCN used 1,993 million yen. Factors influencing a decrease in net
cash out flows from investing activities of the year under review compared with
those of the prior fiscal year included a reduction in payment for securities
investment in from 1,134 million yen in the prior fiscal year to 122 million yen
during the year under review. Also, outlays for acquisition of intangible assets
such as connection services and e-commerce related systems were 971 million yen,
compared with outlays of 620 million yen in the prior fiscal year, and proceeds
from repayment of loans to affiliated companies were 749 million yen during the
year under review.
*Cash flows from financing activities*
During the year ended March 31, 2004, regarding cash flows from financing
activities, the SCN used 800 million yen, while during the year ended March 31,
2003, the SCN used 1,340 million yen. During the year under review, this
reflected the repayment of long-term debt to Sony Corp.
--------------------------------------------------------------------------------
For inquiries, please contact:
Sony Corp., IR Office
7-35, Kita-Shinagawa 6-chome Shinagawa-ku, Tokyo 141-0001 Tel:(03) 5448-2180
Tokyo 141-0001
www.sony.co.jp/IR/
Sony Communication Network Corporation, IR Section
7-35, Kita-Shinagawa 4-chome Shinagawa-ku, Tokyo 140-0001 Tel:(03) 3446-7210
Tokyo 141-0001
www.so-net.ne.jp/corporation/IR/
Condensed Consolidated Statements of Income
For the year ended March 31, 2004 (Millions of yen)
Year ended March 31
2003 2004 Change
----------------- ------------------- ------
Sales 38,795 38,166 (1.6%)
Cost of sales 22,725 23,569
Gross profit 16,070 14,598
Selling, general and administrative expenses 15,598 15,468
Operating income (loss) 472 (870) --%
Non-operating income 117 261
Non-operating expenses
Equity in net loss of affiliated companies 437 30
Other 57 493 271 302
Ordinary income (loss) 96 (911) --%
Extraordinary gain
Gain on issuance of stock by equity investee 0 613
Gain on sale of investment in affiliate -- 0 81 695
Extraordinary loss
Loss on revaluation of investments in other securities 251 90
Loss on issuance of stock by equity investee -- 1
Loss on withdrawal from certain operations -- 56
Loss on impairment of ling-lived assets -- 87
Write off of goodwill -- 84
Loss from lease cancellation due to service
integration and re-examination 114 365 -- 318
Net income (loss) before income taxes (269) (534) --%
Income tax current 128 16
Income tax deferred (332) (204) (163) (147)
Minority interests in loss (earnings) of consolidated 49 (25)
subsidiaries
Net income (loss) (16) (412) --%
For the three-months ended March 31, 2004 (Millions of Yen)
Three-months ended March 31
2003 2004 Change
----------------- ------------------- ------
Sales 9,488 9,562 0.8%
Cost of sales 5,730 5,763
Gross profit 3,758 3,799
Selling, general and administrative expenses 4,259 3,743
Operating income (loss) (501) 56 --%
Non-operating income 55 53
Non-operating expenses
Equity in net loss of affiliated companies 163 26
Other (9) 154 77 103
Ordinary income (loss) (599) 6 --%
Extraordinary loss
Loss on issuance of stock by equity investee -- 0
Loss on revaluation of investments in other securities 251 62
Loss on withdrawal from certain operations -- 2
Loss on impairment of ling-lived assets -- 87
Write off of goodwill -- 84
Loss from lease cancellation due to service
integration and re-examination 114 365 -- 235
Net income (loss) before income taxes (964) (229) --%
Income tax current (341) (70)
Income tax deferred (310) (651) (15) (85)
Minority interests in loss (earnings) of consolidated 21 (5)
subsidiaries
Net income (loss) (293) (320) --%
Condensed Consolidated Balance Sheets
(Millions of yen)
March 31 March 31
ASSETS 2003 2004 Change
-------- -------- -------
Current assets 8,594 7,363 (1,230)
Cash and bank deposit 517 840 324
Notes and account receivable, trade 3,803 3,891 89
Inventories 278 130 (149)
Deposits in Sony group company 2,867 1,342 (1,526)
Deferred tax assets 472 356 (117)
Other 704 828 124
Allowance for bad debt (47) (23) 24
Non-current assets 5,458 5,637 180
Property, plant and equipment 349 256 (92)
Furniture and fixtures 232 162 (71)
Other 116 94 (22)
Intangible assets 2,465 2,263 (202)
Software 1,141 1,286 145
Goodwill 1,104 708 (395)
Other 220 269 49
Investment and other assets 2,644 3,118 474
Investments in affiliates and others 1,618 1,495 (123)
Deferred tax assets 498 773 275
Other 527 849 322
------- ------- ------
Total assets 14,051 13,001 (1,050)
------- ------- ------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities 5,880 5,167 (713)
Account payable, trade 2,428 2,463 36
Current portion of long-term borrowing from parent 800 -- (800)
Company
Accrued expense 1,889 1,711 (179)
Accrued income taxes 127 197 71
Accrued bonuses 217 239 22
Accrued customer incentive program -- 81 81
Other 419 475 56
Long-term liabilities 94 140 45
Accrued severance costs for employees 65 93 28
Accrued severance indemnities for directors 29 47 17
Total liabilities 5,974 5,306 (668)
------- ------- ------
Minority interest 33 58 25
------- ------- ------
Common stock 5,246 5,246 --
Additional paid-in capital 4,765 4,765 --
Retained earnings (accumulated losses) (1,961) (2,373) (412)
Unrealized exchange losses of investment securities (6) -- 6
Foreign currency translation adjustments -- (1) (1)
------- ------- ------
Total stockholders' equity 8,044 7,636 (408)
------- ------- ------
Total liabilities and stockholders' equity 14,051 13,001 (1,050)
------- ------- ------
Consolidated Statements of Additional Paid-in Capital and Retained Earnings and
Accumulated Losses
(millions of yen)
--------------------------------------------------------------------------------
Item Year ended Year ended
March 31, 2003 March 31, 2004
Additional Paid-in Capital
Balance at the beginning of the year 4,765 4,765
Balance at the end of the year 4,765 4,765
--------------------------------------------------------------------------------
Retained Earnings (Accumulated Losses)
Balance at the beginning of the year (1,945) (1,961)
Increase
Net loss 16 412
Balance at the end of the year (1,961) (2,373)
--------------------------------------------------------------------------------
Consolidated Statements of Cash Flow
For the year ended March 31, 2004 (Millions of yen)
Year ended March 31
2003 2004
-------- --------
I. Cash flows from operating activities
Net income(loss) before income taxes (269) (534)
Depreciation and amortization 773 836
Loss on impairment of ling-lived assets -- 87
Amortization for goodwill 311 311
Write-off of goodwill -- 84
Gain on issuances of stock by equity investee (0) (613)
Loss on issuance of stock by equity investee -- 1
Equity in net loss of affiliated companies 437 30
Loss on revaluation of investments in other securities 251 90
Gain on sale of investments in affiliate -- (81)
Loss on withdrawal from certain operations -- 56
Increase (decrease) in accrued bonuses (25) 22
Increase in accrued severance costs for employees 23 28
Increase in accrued severance indemnities for directors 13 17
Increase (decrease) in allowance for bad debt 19 (24)
Increase in accrued customer incentive program -- 81
Interest and dividend income (8) (9)
Interest expenses 7 3
Loss on disposal of tangible fixed assets 47 93
Loss on sales of tangible fixed assets -- 10
Gain on sales of tangible fixed assets -- (1)
(Increase) decrease in account receivable, trade 184 (89)
(Increase) decrease in inventories (214) 149
Increase in other current assets (141) (136)
Increase in accounts payable, trade 460 36
Increase (decrease) in accrued expenses 176 (199)
Increase in other current liabilities 161 61
------ ----
Sub Total 2,207 309
------ ----
Receipt of interest and dividends 8 9
Payments for interest (7) (3)
Payments for income taxes (131) (186)
------ ----
Net cash provided by operating activities 2,077 129
------ ----
(Millions of yen)
Year ended March 31
2003 2004
II. Cash flows from investing activities
Payment for securities investment (1,134) (122)
Proceeds from sales of securities investment -- 231
Payment for acquisition of fixed assets (51) (37)
Proceeds from sales of fixed assets 7 4
Payment for acquisition of intangible assets (620) (971)
Proceeds from sales of intangible assets 20 0
Payment for deposits (43) (4)
Proceeds from deposits 101 1
Payments for long-term prepaid expenses (32) (203)
Net cash increase resulting from acquiring subsidiary 30 --
Payments for loan (271) (178)
Repayment of loan -- 749
------ ------
Net cash used in investing activities (1,993) (529)
------ ----
III. Cash flows from financing activities
Decrease in short-term borrowing (140) --
Payments of long-term debt (1,200) (800)
------ ------
Net cash used in financing activities (1,340) (800)
------ ------
IV. Effect of exchange rate difference on cash and cash equivalents -- (1)
V. Decrease in cash and cash equivalents (1,257) (1,202)
VI. Cash and cash equivalents at beginning of year 4,641 3,384
------ ------
VII. Cash and cash equivalents at end of the period 3,384 2,182
====== ======
(Notes)
1. Consolidated financial statements of the SCN Group are based on the
standards conforming with the Generally Accepted Accounting
Principles in Japan.
(For reference)
(Millions of yen)
Fiscal year ended Fiscal year ended Change
March 31, 2003 March 31, 2004 (%)
Increase in fixed assets 44 32 (27.5)
Increase in intangible assets 562 942 67.5
Depreciation of fixed assets* 133 110 (17.2)
Amortization of intangible assets* 602 657 9.3
Three-months ended Three-months ended Change
March 31, 2003 March 31, 2004 (%)
Increase in fixed assets 11 2 (80.5)
Increase in intangible assets 124 197 58.4
Depreciation of fixed assets* 34 35 1.6
Amortization of intangible assets* 142 164 15.4
* Includes extraordinary depreciation of fixed assets, which is included in loss
on decided withdrawal from certain operations, and loss on impairment of
ling-lived assets (excluding those related to leased assets).
Strategy and Outlook
(a) Basic management aims
Since starting Internet connection services under the name of "So-net" in
January of 1996, the SCN has strived to offer a new style of network services.
The SCN offers various services including a gratifying communications
environment and uniquely appealing contents.
Going forward, aiming towards the creation of corporate value and new
growth in the 21st century, the SCN has raised up since October 2002 its new
slogan "Sony Fun Broadband," based on a recognition of the importance of
strengthening cooperation within the Sony Group in the expanding Internet
market. This expresses the intention of the SCN to offer customers services
including Sony Group electronic devices and game, music, pictures, and financial
services in a broadband Internet environment that is truly always connected.
This is the SCN management's basic aim.
Also, during the year under review, the SCN worked to deepen its services
such as by offering a service aimed at televisions.
(b) Basic policy for distribution of earnings
The SCN believes that as well as working to establish and strengthen its
corporate foundation, it must also work to aggressively respond to the Internet
marketplace, which is characterized by rapid growth in demand for always-on
broadband connections and intensifying competition to acquire share. The SCN
believes that in order to rapidly ready businesses that respond to these trends,
it should manage its operations by expanding cash flow, and by fully solidifying
its financial base and retained earnings. For these reasons, for the time being,
the SCN does not plan to distribute earnings to SCN shareholders.
(c) The view about the reduction in an investment unit
The reduction in an investment unit is not examined.
(d) Current challenges
Given the business environment in the Internet world that is shifting
towards dedicated-line broadband connections, the SCN is working to increase the
satisfaction of customers, including the continuous protection of customer
information, and is striving to make the advance of broadband the focus of its
greatest efforts.
In terms of individual business areas, the SCN is carrying out the
following activities:
a) ISP services
SCN connection services include a variety of user offerings such as
dial-up connections, wireless, ADSL, and FTTH. In the area of FTTH services,
which are particularly expected to spread in the future, the SCN is cooperating
with NTT, TEPCO, Chubu Electric, and U's Communications Corp. to cope with
different customers' area, residential departmentalization, and charges. By
offering a wide selection of services, such as those aimed at televisions as
well as personal computers, the SCN intends to expand further its subscriber
base.
b) Content and services
By cooperating with the Sony Group, the SCN aims to develop and offer
contents and services focused on broadband, including services aimed at
televisions. For content and other services, the SCN is striving to increase the
revenue and profitability of content by integrating content, e-commerce, and
advertising in a way that fully takes into account the degree of use,
profitability, and page views.
c) Cooperation with the Sony Group
The SCN is working to cooperate with the Sony Group in terms of Sony
electronic devices and "So-net" connection services and payment and settlement
platforms. The SCN intends to deepen cooperation with the Sony Group, as will be
reflected in new products and services. Already, the SCN is striving to
strengthen cooperation with the Sony Group by starting a service aimed at
televisions.
d) Investment aims
The SCN is seizing the challenge to focus on investments in content and
services aimed at dedicated-line broadband. The SCN aims to carry out
investments for the planning and development of content and services, their
procurement and aggregation, and the acquisition of distribution rights, whether
internally, by subsidiaries, or by affiliated companies, while at the same time,
working to move forward with future investments by clearly setting out
profitability and investment objectives.
e) Securing customers' private information
Since its establishment, the SCN has aggressively strived to keep
customers' private information secure by organizing an independent internal unit
for that area and by establishing a monitoring system for when
operations-related customer information is acquired and distributed.
Furthermore, in November 1999, the SCN achieved the "Privacy Mark" for
protection of customer information, the first in the industry to pass this
hurdle. Also, the SCN established an Information Security Management System
(ISMS) which in June 2003 attained international certification (BS7799-2:2002)
as well as conformation with domestic ISMS standards. In this way, the SCN is
working towards a system that sufficiently manages and protects consumers'
private information.
(e) Fundamental policies regarding corporate governance and related
measures, implementation
In regards to the corporate governance of the SCN, the basic aims of the
Sony Group are as follows.
The SCN is a subsidiary the performance of which is linked to a tracking
stock issued by Sony Corporation. As a subsidiary of Sony Corporation, which in
actuality has 100% of the voting rights, matters at the SCN's General
Shareholders' Meeting are all controlled by Sony Corporation. Furthermore,
through the directors' nominations at the General Shareholders' Meeting, Sony
Corporation indirectly controls the board of directors of the SCN.
On the other hand, the directors of Sony Corporation have a fiduciary duty
to Sony Corporation and bear a responsibility to work to maximize the corporate
value of Sony Corporation, which includes the SCN and the other individual
companies of the Sony Group. In view of the definition of the SCN as within the
Sony Group, measures to maximize the corporate value of Sony Corporation and
measures to maximize the corporate value of the SCN can be thought of as
parallel in many cases. However, in situations where within the Sony Group there
is the possibility of competition with the SCN as well as cases where the supply
of the Sony Group's limited management resources is to those businesses, then it
cannot be denied that there is the possibility that there will be cases where
the interests of the overall Sony Group and the interests of the SCN are not
parallel. In such a case, as a result of working to maximize the corporate value
of the overall Sony Group including the SCN, there is the possibility of a
negative impact on the corporate value of the SCN, stemming from such a
limitation on a growth opportunity of the SCN.
Based on these possibilities, Sony Corporation has established the
following basic aims regarding the SCN.
i) Basic management aims of the Sony Corporation Board of Directors
o Indicators of management judgment:
One role of the Board of Directors of Sony Corporation is to coordinate
the interests within the Group and carry out management judgment to maximize
corporate value of the overall Sony Group. When the case arises that the
interests of the SCN and another subsidiary or business unit of Sony Corporation
are in conflict, then it is the aim to carry out an appropriate decision that
maximizes the corporate value of the Sony Group and does not unreasonably harm
the interests of the shareholders.
o Distribution of business opportunities and management resources, dealing
with competing businesses:
When carrying out the distribution of business opportunities and
management resources within the Group, the Board of Directors of Sony
Corporation aims to carry out appropriate management decisions, examining
whether to distribute to the SCN or another Group business so that the interests
of the entire Sony Group can be increased.
Furthermore, in the development of future businesses, in the case that
there exists businesses within the group where their operations replicate that
of the SCN, and that it is thought that the competition is having a major impact
on the corporate value of the entire Sony Group, then the board of directors and
the management entities involved will work to properly adjust the matter.
o Matters for Sony Corporation's Prior Approval:
As for matters relating to SCN management, the SCN Board of Directors
carries out decisions of its intentions, but for important matters relating to
the management of the entire Sony Group, before the SCN carries out its
operational intentions, it must get the approval of Sony Corporation.
For example, matters which fall under this category include something
which greatly affects the corporate value of the Sony Group, where there is
necessary close cooperation with Sony Corporation or a Sony Group business, or
when there is concern that something will be contrary to profitability within
the Group.
ii) Relationship of Sony Corporation and the SCN
o Dividend policy of the SCN:
Under the set terms of the articles of incorporation, Sony Corporation may
pay a dividend for the tracking stock where the dividend amount is that which
the SCN Board of Directors has proposed as a distribution of the SCN's earnings.
The dividend policy of the SCN is decided by the SCN's Board of Directors. The
approval beforehand of Sony Corporation is not necessary.
o Disclosure of the SCN:
As long as the subsidiary tracking stock is listed, Sony Corporation plans
to disclose the financial information of the SCN each quarter, while also
disclosing the financial accounts of the SCN in Sony Corporations's Yuka Shoken
Hokokusho and Hanki Hokokusho (annual and semi-anual financial reports), as is
in accordance with the law.
iii) Summary of implementation of measures relating to corporate governance of
the SCN:
The SCN, as a corporation which has adopted the auditing system, has a
total of seven directors, including four outside directors. There are also three
auditors, all of whom are elected outside auditors. The outside directors
include three from Sony Corp. and one from Sony Music Entertainment (Japan)
Inc., which is an affiliated company of Sony Corp. The outside auditors include
two from Sony Corp. (of which one is a full-time auditor) and one from Sony
Finance International, Inc., which is a shareholder of the SCN. With this system
of outside directors and auditors, the SCN aims for a corporate governance
structure characterized by "checks and balances."
Also, the executive officer system has been introduced within the SCN, and
in total there are eight officers. Within those are three directors who serve
concurrently as executive officers, and five who are full-time executive
officers.
(f) Fundamental policies regarding relations with related parties (such as
parent company)
i) Regarding personnel issues
Regarding personnel issues with Sony Corp., for directors it is as stated
above in (e)"iii." For employees, the SCN is defined as being within the Sony
Group and predicated on the viewpoint of securing human resources and
maintaining flexibility with human resources.
ii) Regarding transactional relations
Sony Corp., in terms of the entire Sony Group, works to use the capital of
the Sony Group companies by concentrating resources (concentration of cash
scheme), with the goal of more advantageously using working capital. The SCN as
well is part of this scheme and deposits its funds with the affiliated company
Sony Global Treasury Services PLC. As of the end of March 2004, the transactions
of each Sony Group company had been set forth in "Transactional Relations
between Related Parties."
iii) Regarding contracts related to trademarks and patents, and royalties
The SCN's brands that it uses for its services, such as "So-net" and
"Smash" are trademarks that belong to Sony Corp. The SCN has contracted with
Sony Corp. regarding exclusive usage rights to the trademarks for "So-net" and
"Smash." Also, while making use of extensive patent assets held by Sony Corp.,
in order to minimize the possibility of litigation by other companies for patent
rights infringement, there are contracts for comprehensive cross-licensing with
Sony Corp. for patents and other intellectual property.
(g) Other important items regarding company management
Recently, society has begun to look critically at industries that manage
customer private data, such as the transfer of subscriber data. This is a trend
not just limited to the industries that are related to the SCN's activities.
The SCN took the lead before other companies in November 1999 in setting
up a mechanism for a system for securing individuals' private data and achieved
the JIS standard for protection of consumer data, the "Privacy Mark." The SCN
places the handling of customers' private data in a privacy manager in each
division. At the same time, the SCN has established a central department for
integrating company-wide privacy policies. With this department as the center,
the SCN carries out thorough employee education and implements, through each of
the privacy managers, the most appropriate management methods for private data.
In this way, the SCN is working to keep customers' private data secure on an
ongoing basis.
(h) Risk management
At the present time, the main risk factors for the SCN are as follows:
i) The business environment in which the SCN operates
The SCN is not merely an Internet service provider, but it is a business
which offers a wide-range of services including contents and such. For that
reason, the SCN competes with various other companies in areas including not
just Internet connection services, but also communications services,
broadcasting services, and other areas. Competition is intense, especially in
the area of Internet connection services, such as FTTH and ADSL. It is possible
that the SCN's revenue and profitability will decline as a result of competition
stemming from these areas. In addition, there is also the possibility that there
may be unavoidable expenses related to price competition or the building of
market share, such as marketing and promotion costs. There is the possibility
that there will be a large negative impact on the SCN's financial performance.
ii) Revenue structure
The proportion of the SCN's total sales that stem from connection services
was 80.5% during the year ended March 31, 2004. The profitability of these
connection services is greatly impacted by such factors as trends in the number
of subscribers, cost trends for such services (such as expenses related to
promotional campaigns), and developments in communication line costs.
Furthermore, given these circumstances where a majority of revenue is dependent
on connection services, it is expected that those unpredictable factors will
impact SCN's financial results in the future.
iii) Legal environment for the Internet
The SCN's Internet connection service business is impacted by regulations
based on the Telecommunication Business Law. In addition, while regulations from
such laws as the Unauthorized Computer Access Law and the ISP Law do not
directly impact Internet-related businesses, there are regulations that
indirectly concern communication methods such as the Internet. Also, in the
unfolding area of e-commerce, laws protecting consumers such as the Consumer
Contract Act, the Specific Commercial Transaction Act, Act about payment in
installments ,Antique business Act, and the Act against Unjustifiable Premiums
and Misleading Representations involve regulations that impact the SCN. If the
SCN were to violate any of these laws, the reputation of the SCN might be
damaged, and there could be a negative impact on future operations. Also, there
is the possibility of having to establish a structure for observing new laws if
there were revisions in these laws.
Also, there is the possibility of unavoidable circumstances where the SCN
has to bear some legal risk. A legal judgment, including the jurisdiction or
legal basis for such, against the SCN cannot be accurately forecast, such as in
the case that some kind of legal trouble were to arise in the business
operations of the SCN.
Furthermore, there is the possibility of restrictions on future operations
of the SCN, in terms of laws and regulations in countries, including Japan, in
regards to the Internet and e-commerce.
iv) Possibility of infringement upon intellectual property
Given that the SCN develops businesses related to the Internet, there is
the possibility that there could be infringement on other companies'
intellectual property, such as technology patents and business model patents,
trademarks, or design rights. The SCN works hard to make sure that such
violations of intellectual property rights do not occur, but there is the
possibility of having to shoulder significant compensation for damages in the
case that some company's intellectual property rights were violated. Also, there
is the possibility that there will be pressure on future earnings due to the
necessity of paying licensing fees in the case that another company develops
technology or another company's business model becomes the standard.
v) Securing and developing human resources
In terms of developing the SCN's businesses, it is necessary to secure
personnel that have creative and technological skills. However, in the area of
Internet-related businesses, turnover of personnel is high and it is possible
that in the future the SCN will not be able to secure the necessary human
resources. Furthermore, in the SCN are many people who have transferred from
various Sony Group companies, and while the SCN is working to secure flexible
personnel arrangements, it is possible that the SCN will have trouble securing
personnel as a result of policies designed to maximize the corporate value of
the entire Sony Group. The SCN is also working to develop human capital within
the company, but in the case that the SCN is unable to secure or develop
sufficient human resources, there could be a negative impact on the future
business developments of the SCN.
vi) System for operating servers
The SCN has laid out a system for managing all the servers that are used
to manage customer data and settlement 24 hours a day, 365 days a year. With
respect to the unpredictability of accidents, the SCN has back-ups for important
servers depending on the substance of a service. However, there is the
possibility of an inability to use the servers if there were an earthquake,
fire, or other natural disaster, or a destructive act that damages the service
offerings. In such a case, there is the possibility of a large negative impact
on the continuation of the SCN's operations.
vii) Operation of call centers
For the SCN, appropriately responding to customer inquiries is considered
indispensable in order to acquire and keep So-net subscribers. There is a
dependence on temporary staff, who are the majority of personnel in SCN call
centers. Regarding temporary staff who start work in call centers, while the SCN
is working to continue to improve quality, such as by carrying out sufficient
training, there is the possibility that service levels will decline for some
reason, such as if there were a shortage of call center staff. In such a case,
there is the possibility of a negative impact on the SCN's financial results.
(i) Regarding compulsory retirement of the subsidiary tracking stock or the
compulsory conversion into common stock of the parent company (Sony Corporation)
At the present time, unless there are significant changes in the direction
of the corporate strategy of the entire Sony Group or in the way that the SCN is
defined within the Sony Group, or unless there are significant changes in a
business environment which includes a variety of factors such as the growth of
the SCN, there are no plans to carry our compulsory retirement or conversion
into common stock three years after the issuance of the subsidiary tracking
stock, that is to say, on June 20, 2004.
(j) Forecast of Consolidated Results
Regarding the forecast of the consolidated results for the fiscal year ending
March 31, 2005, the SCN has the goal of achieving operating profitability.
o It is expected that there will be a further acceleration in FTTH-related
services (including acquiring new subscribers).
o The SCN plans to expand usability by investing in new businesses (mainly
value-added broadband contents), in particular services aimed at
television. At the same time, the SCN aims to carefully select investments
and will focus on profitability.
o The SCN will work to strengthen the overall management structure.
The SCN announces the following forecast for consolidated results:
(millions of yen)
Consolidated Results Change from previous year
-------------------- -------------------------
Sales 40,000 +4.8%
Operating income 100 --
Ordinary income 100 --
Net income 50 --
The above forecast takes into account the following expected factors:
o It is expected that the number of So-net subscribers at the end of the
year ending March 31, 2005 will be 2.35 million, an increase over the year
earlier period of 50,000.
o Within the above total, the number of broadband subscribers is targeted to
700,000, an increase of 150,000 over the year earlier period.
o Regarding expected sales by category: (change from previous year)
ISP services 30,800 +0.2%
Internet-related services 8,100 +24.2%
Merchandise sales 1,100 +20.6%
As for ISP services, it is expected that competition for new subscribers will
intensify and that the rate of growth will be slow. As for Internet-related
services, it is expected that sales of broadband content will increase, and it
is expected that subsidiaries' results will improve. As for Merchandise sales,
it is expected that sales of goods connected with "Content" will increase.
Cautionary statement:
Statements made in this release with respect to Sony Corporation and Sony
Communication Network's ("SCN") current plans, estimates, strategies and beliefs
and other statements that are not historical facts are forward-looking
statements about the future performance of SCN. These statements are based on
management's assumptions and beliefs in light of the information currently
available to it. Therefore, SCN cautions you that a number of important risks
and uncertainties could cause actual results to differ materially from those
discussed in the forward-looking statements, and therefore you should not place
undue reliance on them.
SONY [LOGO]
6-7-35 Kita-shinagawa
Shinagawa-ku
Tokyo, 141-0001 Japan
News & Information
================================================================================
No. 04-021E
April 27, 2004
--------------------------------------------------------------
Stock Options (Stock Acquisition Rights)
--------------------------------------------------------------
Sony Corporation (the "Corporation") resolved at a meeting of its Board of
Directors held on April 26, 2004, to propose an agenda asking for authorization
to issue the stock acquisition rights outlined below, for the purpose of
granting stock options, pursuant to Articles 280-20 and 280-21 of the Commercial
Code of Japan. The proposal will be made at its 87th ordinary general meeting of
shareholders to be held on June 22, 2004.
I Stock Acquisition Rights for Common Stock
1. Reason for Issue of Common Stock Acquisition Rights to Persons Other Than
Shareholders without Any Consideration
The Corporation will issue the stock acquisition rights (the "Common Stock
Acquisition Rights") to subscribe for shares of common stock of the
Corporation ("Common Stock") to directors, corporate executive officers
and employees of the Corporation and its subsidiaries without any
consideration therefor pursuant to the provisions of Articles 280-20 and
280-21 of the Commercial Code of Japan upon the terms outlined below for
the purposes of giving directors, corporate executive officers and
employees of the Corporation and its subsidiaries an incentive to
contribute towards the improvement of the business performance of the
Corporation and its group companies (the "Group") and thereby improving
such business performance of the Group, by making the economic interest
which such directors, corporate executive officers or employees will
receive correspond to the business performance of the Corporation.
2. Terms of Issue of Common Stock Acquisition Rights
(1) Persons to Whom Common Stock Acquisition Rights Will be Allocated
Directors, corporate executive officers and employees of the Corporation
and its subsidiaries.
(2) Aggregate number of Common Stock Acquisition Rights
Not exceeding 27,500.
(3) Class and Number of Shares to be Issued or Transferred upon Exercise of
Common Stock Acquisition Rights
Not exceeding 2,750,000 shares of Common Stock.
The number of shares to be issued or transferred upon exercise of each
Common Stock Acquisition Right (the "Number of Granted Shares") shall be
100 shares of Common Stock.
However, in the case that the Number of Granted Shares is adjusted
pursuant to (4) below, the number of shares to be issued or transferred
upon exercise of the Common Stock Acquisition Rights shall be adjusted to
the number obtained by multiplying the Number of Granted Shares after
adjustment by the aggregate number of the Common Stock Acquisition Rights.
(4) Adjustment of Number of Granted Shares
In the case that the Corporation splits or consolidates the shares of
Common Stock, the Number of Granted Shares shall be adjusted in accordance
with the following formula.
Number of Number of
Granted Shares = Granted Shares x Ratio of split
after adjustment before adjustment or consolidation
An adjustment above shall be made only with respect to the Number of
Granted Shares for the Common Stock Acquisition Rights which have not been
exercised at the time of the adjustment. Any fraction less than one (1)
share resulting from the adjustment shall be disregarded.
(5) Issue Price of Common Stock Acquisition Rights
The Common Stock Acquisition Rights are issued without the payment to the
Corporation of any consideration.
(6) Amount to be Paid In per Share to be Issued or Transferred upon Exercise
of Common Stock Acquisition Rights
The amount to be paid in per share to be issued or transferred upon
exercise of the Common Stock Acquisition Right (the "Exercise Price")
shall be initially as follows.
[1] Common Stock Acquisition Rights with Exercise Price Denominated in
Yen
The Exercise Price shall be the average of the closing prices of
Common Stock in the regular trading thereof on the Tokyo Stock
Exchange (each "Closing Price") for the ten (10) consecutive trading
days (excluding days on which there is no Closing Price) immediately
prior to the issue date of the Common Stock Acquisition Rights (any
fraction less than one (1) yen arising as a result of such
calculation shall be rounded up to the nearest one (1) yen);
provided, however, that if such calculated price is lower than any
of (i) the average of the Closing Prices for the thirty (30)
consecutive trading days (excluding days on which there is no
Closing Price) commencing forty-five (45) trading days immediately
before the day immediately after the issue date of the Common Stock
Acquisition Rights (any fraction less than one (1) yen arising as a
result of such calculation shall be rounded up to the nearest one
(1) yen), (ii) the average of the Closing Prices for the thirty (30)
consecutive trading days (excluding days on which there is no
Closing Price) commencing forty-five (45) trading days immediately
before the date on which the Corporation fixes the Exercise Price
(any fraction less than one (1) yen arising as a result of such
calculation shall be rounded up to the nearest one (1) yen), or
(iii) the Closing Price on the issue date of the Common Stock
Acquisition Rights (if there is no Closing Price on such date, the
Closing Price on the immediately preceding trading day), the
Exercise Price shall be the highest price of (i), (ii) and (iii)
above.
[2] A Common Stock Acquisition Rights with Exercise Price Denominated in
U.S. Dollars
The Exercise Price shall be the U.S. dollar amount obtained by
dividing the average of the Closing Prices for ten (10) consecutive
trading days (excluding days on which there is no Closing Price)
immediately prior to the issue date of the Common Stock Acquisition
Rights (the "Reference Yen Price") by the average of the exchange
rate quotations by a leading commercial bank in Tokyo for selling
spot U.S. dollars by telegraphic transfer against yen for such ten
(10) consecutive trading days (the "Reference Exchange Rate") (any
fraction less than one (1) cent arising as a result of such
calculation shall be rounded up to the nearest one (1) cent);
provided, however, that if the Reference Yen Price is lower than any
of (i) the average of the Closing Prices for the thirty (30)
consecutive trading days (excluding days on which there is no
Closing Price) commencing forty-five (45) trading days immediately
before the day immediately after the issue date of the Common Stock
Acquisition Rights or (ii) the average of the Closing Prices for the
thirty (30) consecutive trading days (excluding days on which there
is no Closing Price) commencing forty-five (45) trading days
immediately before the date on which the Corporation fixes the
Exercise Price, the Exercise Price shall be the U.S. dollar amount
obtained by dividing the highest price of (i) and (ii) above by the
Reference Exchange Rate (any fraction less than one (1) cent arising
as a result of such calculation shall be rounded up to the nearest
one (1) cent).
(7) Adjustment of Exercise Price
In the case that the Corporation splits or consolidates the shares of
Common Stock after the issue date of the Common Stock Acquisition Rights,
the Exercise Price shall be adjusted in accordance with to the following
formula, and any fraction less than one (1) yen or one (1) cent resulting
from the adjustment shall be rounded up to the nearest one (1) yen or one
(1) cent.
Exercise Price = Exercise Price x 1
after adjustment before adjustment -------------------------------
Ratio of split or consolidation
In addition, in the case of a merger with any other company, corporate
split or capital reduction of the Corporation, or in any other case
similar thereto where an adjustment of Exercise Price shall be required,
in each case after the issue date of the Common Stock Acquisition Rights,
the Exercise Price shall be appropriately adjusted to the extent
reasonable.
(8) Period during Which Common Stock Acquisition Rights may be Exercised
The period during which the Common Stock Acquisition Rights may be
exercised will be sometime within the period from the issue date of the
Common Stock Acquisition Rights to the day on which ten (10) years have
passed from such issue date, which will be determined by the Board of
Directors of the Corporation or the Executive Officer to whom the
determination has been delegated by a resolution of the Board of Directors
of the Corporation.
(9) Conditions for Exercise of Common Stock Acquisition Rights
[1] Each Common Stock Acquisition Right may not be exercised in part.
[2] A Other conditions for exercise shall be determined by the Board of
Directors of the Corporation or the Executive Officer to whom the
determination has been delegated by a resolution of the Board of
Directors of the Corporation.
(10) Mandatory Cancellation of Common Stock Acquisition Rights
Not applicable.
(11) Restriction on Transfer of Common Stock Acquisition Rights
The Common Stock Acquisition Rights are non-transferable, unless such
transfer is expressly approved by the Board of Directors of the
Corporation.
II Stock Acquisition Rights for Tracking Stock
1. Reason for Issue of Tracking Stock Acquisition Rights to Persons Other
Than Shareholders without Any Consideration
The Corporation will issue the stock acquisition rights (the "Tracking
Stock Acquisition Rights") to subscribe for shares of subsidiary tracking
stock of the Corporation ("Tracking Stock") to directors and employees of
Sony Communication Network Corporation ("SCN") without any consideration
therefor pursuant to the provisions of Articles 280-20 and 280-21 of the
Commercial Code of Japan upon the terms outlined below for the purposes of
giving directors and employees of SCN an incentive to contribute towards
the improvement of the business performance of SCN and thereby improving
such business performance of SCN, by making the economic interest which
such directors or employees will receive correspond to the business
performance of SCN.
2. Terms of Issue of Tracking Stock Acquisition Rights
(1) Persons to Whom Tracking Stock Acquisition Rights Will be Allocated
Directors and employees of SCN.
(2) Aggregate number of Tracking Stock Acquisition Rights
Not exceeding 455.
(3) Class and Number of Shares to be Issued or Transferred upon Exercise of
Tracking Stock Acquisition Rights
Not exceeding 45,000 shares of Tracking Stock.
However, on and after the Compulsory Conversion Date (as defined in
Article 10-9 of the Articles of Incorporation of the Corporation, the
"Compulsory Conversion Date") for the Compulsory Conversion of shares of
Tracking Stock into shares of Common Stock (as defined in Article 10-9 of
the Articles of Incorporation of the Corporation, the "Compulsory
Conversion"), the class of shares to be issued or transferred upon
exercise of the Tracking Stock Acquisition Rights shall be the Common
Stock.
The number of shares to be issued or transferred upon exercise of each
Tracking Stock Acquisition Right (the "Number of Granted Shares") shall be
100 shares of Tracking Stock.
However, in the case that the Number of Granted Shares is adjusted
pursuant to (4) below, the number of shares to be issued or transferred
upon exercise of the Tracking Stock Acquisition Rights shall be adjusted
to the number obtained by multiplying the Number of Granted Shares after
adjustment by the aggregate number of the Tracking Stock Acquisition
Rights.
(4) Adjustment of Number of Granted Shares
In the case that an adjustment of the Exercise Price provided for in (7)
below is made for any reason, the Number of Granted Shares shall be
appropriately adjusted so that the amount obtained by multiplying the
number of shares after adjustment by the Exercise Price after adjustment
shall be equal to the amount obtained by multiplying the number of shares
before adjustment by the Exercise Price before adjustment.
An adjustment above shall be made only with respect to the Number of
Granted Shares for the Tracking Stock Acquisition Rights which have not
been exercised at the time of the adjustment. Any fraction less than one
(1) share resulting from the adjustment shall be disregarded.
(5) Issue Price of Tracking Stock Acquisition Rights
The Tracking Stock Acquisition Rights are issued without the payment to
the Corporation of any consideration.
(6) Amount to be Paid In per Share to be Issued or Transferred upon Exercise
of Tracking Stock Acquisition Rights
The amount to be paid in per share to be issued or transferred upon
exercise of each Tracking Stock Acquisition Right (the "Exercise Price")
shall be initially the average of the closing prices of Tracking Stock in
the regular trading thereof on the Tokyo Stock Exchange (each "Closing
Price") for the ten (10) consecutive trading days (excluding days on which
there is no Closing Price) immediately prior to the issue date of the
Tracking Stock Acquisition Rights (any fraction less than one (1) yen
arising as a result of such calculation shall be rounded up to the nearest
one (1) yen); provided, however, that if such calculated price is lower
than any of (i) the average of the Closing Prices for the thirty (30)
consecutive trading days (excluding days on which there is no Closing
Price) commencing forty-five (45) trading days immediately before the day
immediately after the issue date of the Tracking Stock Acquisition Rights
(any fraction less than one (1) yen arising as a result of such
calculation shall be rounded up to the nearest one (1) yen) or (ii) the
Closing Price on the issue date of the Tracking Stock Acquisition Rights
(if there is no Closing Price on such date, the Closing Price on the
immediately preceding trading day), the Exercise Price shall be the
highest price of (i) and (ii) above.
(7) Adjustment of Exercise Price
[1] Adjustment due to events which become effective prior to the
Compulsory Conversion Date
In the case that the Corporation splits or consolidates the shares
of Tracking Stock after the issue date of the Tracking Stock
Acquisition Rights but prior to the Compulsory Conversion Date
(excluding such date), the Exercise Price shall be adjusted in
accordance with the following formula, and any fraction less than
one (1) yen resulting from the adjustment shall be rounded up to the
nearest one (1) yen.
Exercise Price = Exercise Price x 1
after adjustment before adjustment -------------------------------
Ratio of split or consolidation
[2] A Adjustment due to events which become effective after the
Compulsory Conversion Date
In the case that the Compulsory Conversion is made, the Excise Price
shall be appropriately adjusted in accordance with the conversion
ratio for the Compulsory Conversion.
In addition to the foregoing, any adjustment of the Exercise Price
after the Compulsory Conversion Date shall be made in the same
manner as described in [1] above with any necessary amendment by
replacing Tracking Stock with Common Stock.
[3] In addition, in the case of a merger with any other company,
corporate split or capital reduction of the Corporation, or in any
other case similar thereto where an adjustment of Exercise Price
shall be required, in each case after the issue date of the Tracking
Stock Acquisition Rights, the Exercise Price shall be appropriately
adjusted to the extent reasonable.
(8) Period during Which Tracking Stock Acquisition Rights may be Exercised
The period during which the Tracking Stock Acquisition Rights may be
exercised will be sometime within the period from the issue date of
the Tracking Stock Acquisition Rights to the day on which ten (10)
years have passed from such issue date, which will be determined by
the Board of Directors of the Corporation or the Executive Officer
to whom the determination has been delegated by a resolution of the
Board of Directors of the Corporation.
In addition, in case of the Compulsory Retirement of the shares of
Tracking Stock provided for in Articles 10-7 and 10-8 of the
Articles of Incorporation of the Corporation, no Tracking Stock
Acquisition Right may be exercised on and after the Termination Date
for such Compulsory Retirement.
(9) Conditions for Exercise of Tracking Stock Acquisition Rights
[1] Each Tracking Stock Acquisition Right may not be exercised in part.
[2] A Other conditions for exercise shall be determined by the Board of
Directors of the Corporation or the Executive Officer to whom the
determination has been delegated by a resolution of the Board of
Directors of the Corporation.
(10) Mandatory Cancellation of Tracking Stock Acquisition Rights
Not applicable.
(11) Restriction on Transfer of Tracking Stock Acquisition Rights
The Tracking Stock Acquisition Rights are non-transferable, unless such transfer
is expressly approved by the Board of Directors of the Corporation.
Note: The issue of the stock acquisition rights mentioned above is subject to
the approval by shareholders on issues of the Common Stock Acquisition Rights
and the Tracking Stock Acquisition Rights to be obtained at the Corporation's
87th ordinary general meeting of shareholders scheduled for June 22, 2004. In
addition, respective issues of the stock acquisition rights are further subject
to the resolutions of the Board of Directors or the determination by the
Executive Officer to whom the determination has been delegated by a resolution
of the Board of Directors on the specific terms and conditions of such issues.
--------------------------------------------------------------------------------
Contact:
Corporate Communications
Sony Corporation
(03) 5448-2200 (Direct line)
SONY [LOGO]
6-7-35 Kitashinagawa
Shinagawa-ku
Tokyo 141-0001
News & Information
April 27, 2004
No. 04-020E
Executive Appointments
Tokyo, Japan - At its Board of Directors Meeting held on April 26, 2004, Sony
Corporation decided candidates for the positions of Member of the Board,
Corporate Executive Officer, Executive Officer and Group Executive Officer.
The selections are subject to the approval of the Ordinary General Meeting of
Shareholders to be held on June 22, 2004 (for Member of the Board candidates)
and to the approval of the Board of Directors Meeting to be held on the same day
(for Corporate Executive Officer, Executive Officer and Group Executive Officer
candidates).
Members of the Board (*Independent Director)
The candidates for Board Members are as follows.
Nobuyuki Idei
Kunitake Ando
Teruo Masaki
Howard Stringer
Ken Kutaragi
Teruhisa Tokunaka
Goran Lindahl
Akihisa Ohnishi
Iwao Nakatani* Director of Research, UFJ Institute Ltd., President,
Tama University
Akishige Okada* Chairman of the Board (Representative Director),
Sumitomo Mitsui Financial Group, Inc., Chairman of the
Board (Representative Director), Sumitomo Mitsui Banking
Corporation
Hirobumi Kawano* Executive Advisor, The Tokio Marine and Fire Insurance
Co., Ltd.
Yotaro Kobayashi* Chairman of the Board, Fuji Xerox Co., Ltd.
Carlos Ghosn* President and Chief Executive Officer, Nissan Motor Co.,
Ltd.
Sakie T. Fukushima* Representative Director & Regional Managing
Director-Japan, Korn/Ferry International
Member, Board of Directors, Korn/Ferry
International, U.S.A
Yoshihiko Miyauchi* Director, Representative Executive Officer, Chairman and
Chief Executive Officer, ORIX Corporation
Yoshiaki Yamauchi* Director, Sumitomo Mitsui Financial Group, Inc.
Members of the Board Retired
Minoru Morio
Corporate Executive Officers (** concurrent with Director)
The candidates for Representative Corporate Executive Officer and Corporate
Executive Officer are as follows. Seven new Corporate Executive Officers have
been selected (***).
Representative Corporate Executive Officers
Chairman Nobuyuki Idei** Group CEO
President Kunitake Ando** Global Hub President, Officer in
charge of Personal Solutions
Business Group
Corporate Executive Officers
Vice Chairman Howard Stringer** COO (in charge of Entertainment
Business Group), Sony Group
Americas Representative
Executive Deputy President
Shizuo Takashino COO (in charge of IT & Mobile
Solutions Network Company and
Professional Solutions Network
Company)
Executive Deputy President
Ken Kutaragi** COO (in charge of Game Business
Group, Home Electronics Network
Company, Semiconductor Solutions
Network Company (SSNC)), NC
President, SSNC
Executive Deputy President
Teruo Masaki** Group General Counsel
Executive Deputy President
Katsumi Ihara*** Group CSO&CFO
Executive Deputy President
Ryoji Chubachi*** COO (in charge of Micro Systems
Network Company (MSNC) and
EMCS),NC President, MSNC
Corporate Senior Executive Vice President
Keiji Kimura*** NC President, IT & Mobile
Solutions Network Company
Corporate Executive Vice President
Tsutomu Niimura*** NC President, Home Electronics
Network Company
Corporate Executive Vice President
Fujio Nishida*** Officer in charge of Marketing
and Corporate Communications
Corporate Senior Vice President
Takao Yuhara Officer in charge of Finance and
Investor Relations
Corporate Senior Vice President
Nobuyuki Oneda*** Officer in charge of Corporate
Planning & Control and
Accounting
Corporate Senior Vice President
Yasunori Kirihara*** Officer in charge of Corporate
Human Resources
Corporate Executive Officer
Nicole Seligman Group Deputy General Counsel
Corporate Executive Officers Retired
As of June 22
Teruhisa Tokunaka Scheduled to be appointed as President, Representative
Director, Sony Financial Holdings Inc. (Currently
Executive Deputy President and Group CSO, Representative
Corporate Executive Officer)
Minoru Morio Scheduled to be appointed as Advisor (Currently Vice
Chairman and Sony Group East Asia Representative, Group
CPO, Corporate Executive Officer)
Akira Kondoh (Currently Corporate Senior Executive Vice President and
Group CIO, Corporate Executive Officer)
Goran Lindahl (Currently Sony Group Europe Representative and Chairman
of Sony Group in Europe, Corporate Executive Officer)
Executive Officers
As of June 22, 2004 the number of Executive Officers is scheduled to be 34.
New Executive Officers
Appointments as of June 22
Senior Vice President
Kenshi Manabe (Currently CTO of Semiconductor Technology)
Vice President
Masataka Kawashima (Currently General Manager, Accounting Department)
Vice President
Tadashi Saito (Currently CFO of Sony Electronics Inc., in charge of
Corporate Development in Global Hub)
Vice President
Tomoyuki Suzuki (Currently President, Imaging Device Company,
Semiconductor Solutions Network Company)
Vice President
Masaaki Tsuruta (Currently Deputy President of Semiconductor Solutions
Network Company (SSNC), President of SoC Solution
Center, SSNC)
Promoted Executive Officers
Appointments as of June 22
Executive Vice President
Yoshihide Nakamura (Currently Senior Vice President, Senior General
Manager, Intellectual Property Division)
Senior Vice President
Norihisa Shirota (Currently Vice President, CTO of Home Electronics,
President, Research & Development Group, Semiconductor
Solutions Network Company)
Senior Vice President
Yoshihiro Taya (Currently Vice President, CFO of IT & Mobile Solutions
Network Company, CFO of Personal Solutions Network
Company)
Senior Vice President
Takashi Fukushima (Currently Vice President, Deputy President, IT & Mobile
Solutions Network Company (IMNC), President, Personal
Audio Company of IMNC)
New Group Executive Officers
As of June 22
Kazutomo Enomoto (Currently Representative Director, Sony Culture
Entertainment Inc.)
Keiji Nakazawa (Currently Representative Director and CFO, S-LCD
Corporation)
Michael Lynton (Currently Chairman and CEO, Sony Pictures
Entertainment, Inc.)
Change from Group Executive Officers to Executive Officers
As of June 22
Executive Vice President
Eiji Kishi (Currently Group Executive Officer, President of
Personal Solutions Business Group)
Senior Vice President
Masao Morita (Currently Group Executive Officer, Representative
Director, Sony Music Entertainment (Japan) Inc.)
Executive Officers Retired
As of June 22
Mario Tokoro Scheduled to be appointed as Counselor (Currently
Executive Vice President, Co-President, Institute of
Strategy)
Toshitada Doi Scheduled to be appointed as Counselor (Currently
Executive Vice President, General Manager, Life Dynamics
Laboratories Preparation Office)
Tadao Yoshida Scheduled to be appointed as Counselor (Currently Vice
President, Creative Center)
Seiichi Watanabe Scheduled to be appointed as Advisor (Currently
Executive Vice President, Officer in charge of
Environmental Affairs)
Tadasu Kawai Scheduled to be appointed as Advisor (Currently
Executive Vice President, Officer in charge of Global
Audit)
Takeo Kaji Scheduled to be appointed as Advisor (Currently Vice
President, Officer in charge of External Relations,
Global Professional Solutions)
Group Executive Officers Retired
As of June 22
Tadakatsu Hasebe Scheduled to be appointed as Advisor (Currently
President, Representative Director, Sony Supply Chain
Solutions, Inc.)
As of April 30
Kenji Kitatani (Currently Executive Vice President, Sony Corporation of
America)
--------------------------------------------------------------------------------
Inquiries
Sony Corporate Communications
TEL 03-5448-2200 FAX 03-5448-3061