BW20030602002105 20030602T151826Z UTC
( BW)(SONY-CORP.)(SON) Final Results - Part 3
Business Editors
UK REGULATORY NEWS
TOKYO--(BUSINESS WIRE)--June 2, 2003--
Dollars
in
Yen in millions millions
--------------------- ---------
March 31 March 31,
---------------------
2002 2003 2003
---------- ---------- ---------
Current assets YEN379,747 YEN349,414 $2,912
Property, plant and equipment 253,370 242,303 2,019
Other assets 244,169 43,272 361
---------- ---------- ---------
Total assets YEN877,286 YEN634,989 $5,292
========== ========== =========
Current liabilities YEN468,880 YEN374,414 $3,120
Long-term liabilities 176,117 129,497 1,079
Stockholders' equity 232,289 131,078 1,093
---------- ---------- ---------
Total liabilities and stockholders' equity YEN877,286 YEN634,989 $5,292
========== ========== =========
Number of companies at end of year 98 84
Dollars in
Yen in millions millions
-------------------------------- -----------
Year ended
Year ended March 31 March 31,
--------------------------------
2001 2002 2003 2003
---------- ---------- ---------- -----------
Sales and revenue YEN418,213 YEN659,589 YEN785,697 $6,547
Gross profit 134,388 161,655 140,078 1,167
Net income (loss) (65,229) (68,608) (81,422) (679)
During the year ended March 31, 2001, YEN25,026 million of equity in
net losses of Loews Cineplex Entertainment Corporation ("Loews") was
recorded, principally due to continued losses as well as the
impairment loss recorded against the entire carrying value of Sony's
investment in Loews. Thereafter, no additional equity losses were
recorded. In March 2002, Loews completed its reorganization in the
United States of America under Chapter 11 of the Federal Bankruptcy
Code, and in Canada under the Companies-Creditors Agreement Act. As a
result, Sony is no longer a shareholder in Loews. Therefore, the
financial position of Loews as of March 31, 2002 and forward is not
included in the above summarized combined balance sheets.
Sony Ericsson Mobile Communications, AB, a joint venture focused on
mobile phone handsets, was established in October 2001 and is included
in affiliated companies accounted for under the equity method.
In April 2002, Sony completed the sale of its equity interest in the
Telemundo Group which resulted in cash proceeds of YEN88,373 million
($736 million) and a gain of YEN66,502 million ($554 million). In
addition, Sony has deferred an approximate $50 million gain on the
sale relating to certain indemnifications provided by Sony to the
acquirer for events occurring prior to the sale. Under the
indemnification agreement, Sony has agreed to refund up to $50 million
of the purchase price to the third party acquirer if certain events
occurring prior to the sale of the Telemundo Group result in a decline
in the value of the Telemundo Group. These indemnifications expired in
April 2003 with no amounts being refunded by Sony. Accordingly, the
remaining $50 million gain was recognized in April 2003.
In June 2002, Sony completed the partial sale of its equity investment
in the Columbia House Company ("CHC"), a 50-50 joint venture between
AOL Time Warner Inc., and Sony, to Blackstone Capital Partners III LP
("Blackstone"), an affiliate of The Blackstone Group, a private
investment bank. The CEO of The Blackstone Group was also a director
of Sony until June 2002. Under the terms of the sale agreement, Sony
received cash proceeds of YEN17,839 million ($149 million) and a
subordinated note receivable from Columbia House Holdings, Inc., a
majority owned subsidiary of Blackstone, with a face amount of
approximately YEN7,827 million ($65 million). The sale resulted in a
gain of YEN1,324 million ($11 million). Sony still has a 7.5%
ownership interest in CHC, which is no longer accounted for under the
equity method but is now accounted for as a cost method investment.
In September 2002, Sony completed the sale of its equity interest in
Sony Tektronix Inc. which resulted in a gain of YEN3,090 million ($26
million).
In January 2003, Sony acquired a 49.5% interest in InterTrust
Technologies Corporation for YEN23,076 million ($192 million) and it
is included in affiliated companies accounted for under the equity
method.
Affiliated companies accounted for under the equity method with an
aggregate carrying amount of YEN7,623 million and YEN6,342 million
($53 million) at March 31, 2002 and 2003, were quoted on established
markets at an aggregate value of YEN17,991 million and YEN6,894
million ($57 million), respectively.
Account balances and transactions with affiliated companies are
presented below:
Dollars
Yen in millions in
millions
------------------- ---------
March 31 March 31,
-------------------
2002 2003 2003
--------- --------- ---------
Accounts receivable, trade YEN46,296 YEN35,132 $293
========= ========= =========
Advances YEN25,907 YEN13,090 $109
========= ========= =========
Accounts payable, trade YEN5,865 YEN9,964 $83
========= ========= =========
Dollars in
Yen in millions millions
------------------------------ ----------
Year ended
Year ended March 31 March 31,
------------------------------
2001 2002 2003 2003
--------- --------- ---------- ----------
Sales YEN31,239 YEN72,824 YEN161,983 $1,350
========= ========= ========== ==========
Purchases YEN75,379 YEN69,254 YEN102,735 $856
========= ========= ========== ==========
Dividends from affiliated companies accounted for under the equity
method for the years ended March 31, 2001, 2002 and 2003 were YEN2,764
million, YEN3,065 million and YEN2,002 million ($17 million),
respectively.
7. Accounts receivable securitization program
In the United States of America, Sony set up an accounts receivable
securitization program whereby Sony can sell interests in up to $900
million of eligible trade accounts receivable, as defined. Through
this program, Sony can securitize and sell a percentage of undivided
interest in that pool of receivables to several multi-seller
commercial paper conduits owned and operated by banks. Sony can sell
receivables in which the agreed upon original due dates are no more
than 90 days after the invoice dates. The value assigned to undivided
interests retained in securitized trade receivables is based on the
relative fair values of the interest retained and sold in the
securitization. Sony has assumed that the fair value of the retained
interest is equivalent to its carrying value as the receivables are
short-term in nature, high quality and have appropriate reserves for
bad debt incidence. The initial sale of the receivables was in October
2001 and the maximum amount funded was YEN109,060 million for the
fiscal year ended March 31, 2002. There was no sale of receivables for
the fiscal year ended March 31, 2003. There were no outstanding
amounts due at March 31, 2002 and 2003 relating to the existing
undivided interests in the pool of receivables that had been sold.
Losses from these transactions were insignificant.
8. Marketable securities and securities investments and other
Marketable securities and securities investments and other include
debt and equity securities of which the aggregate cost, gross
unrealized gains and losses and fair value pertaining to
available-for-sale securities and held-to-maturity securities are as
follows:
Yen in millions
---------------------------------------------------------------------------------------------------
March 31, 2002 March 31, 2003
------------------------------------------------- -------------------------------------------------
Gross Gross Gross Gross
unrealized unrealized unrealized unrealized
Cost gains losses Fair value Cost gains losses Fair value
------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
Available-for-sale:
Debt securities YEN1,150,630 YEN41,241 YEN15,930 YEN1,175,941 YEN1,550,290 YEN37,237 YEN8,430 YEN1,579,097
Equity securities 58,374 30,371 7,829 80,916 63,786 8,222 4,330 67,678
Held-to-maturity
securities 19,835 353 9 20,179 18,153 672 1 18,824
Total YEN1,228,839 YEN71,965 YEN23,768 YEN1,277,036 YEN1,632,229 YEN46,131 YEN12,761 YEN1,665,599
============ =========== =========== ============ ============ =========== =========== ============
Dollars in millions
-----------------------------------------
March 31, 2003
-----------------------------------------
Gross Gross
unrealized unrealized Fair
Cost gains losses value
-------- ----------- ----------- --------
Available-for-sale:
Debt securities $12,919 $310 $70 $13,159
Equity securities 532 68 36 564
Held-to-maturity securities 151 6 0 157
Total $13,602 $384 $106 $13,880
======== =========== =========== ========
At March 31, 2003, debt securities classified as available-for-sale
securities and held-to-maturity securities mainly consist of Japanese
government and municipal bonds and corporate debt securities due
within 1 to 10 years.
Proceeds from sales of available-for-sale securities were YEN91,424
million, YEN193,048 million and YEN215,554 million ($1,796 million)
for the years ended March 31, 2001, 2002 and 2003, respectively. On
those sales, gross realized gains computed on the average cost basis
were YEN5,291 million, YEN6,397 million and YEN3,570 million ($30
million) and gross realized losses were YEN416 million, YEN3,803
million and YEN3,125 million ($26 million), respectively.
In March 2001, Sony Corporation and consolidated subsidiaries
contributed certain marketable equity securities, not including those
of its subsidiaries and affiliated companies, to an employee
retirement benefit trust, with no cash proceeds thereon. The fair
value of these securities at the time of contribution was YEN14,316
million.
Marketable securities as of March 31, 2002 and 2003 included
short-term investments in money market funds of YEN124,762 million and
YEN123,964 million ($1,033 million), respectively.
In the ordinary course of business, Sony maintains long-term
investment securities, included in securities investments and other,
issued by a number of non-public companies. The aggregate carrying
amounts of the investments in non-public companies at March 31, 2002
and 2003, which were valued at the lower of cost or fair value, were
YEN82,490 million and YEN69,596 million ($580 million), respectively.
The net change in the unrealized gains or losses on trading securities
that has been included in earnings during the years ended March 31,
2001, 2002 and 2003 was insignificant.
Securities investments and other as of March 31, 2002 and 2003 also
included separate account assets (Note 11) in the life insurance
business, which were carried at fair value. Although the separate
account assets consist primarily of debt and equity securities, they
are excluded from the above table due to the nature of the assets.
Proceeds from sales of available-for-sale securities and gross
realized gains or losses described above also exclude the amounts
related to the separate account assets. Separate account assets at
March 31, 2002 and 2003 were YEN106,150 million and YEN118,190 million
($985 million), respectively.
9. Leased assets
Sony leases certain communication and commercial equipment, plant,
office space, warehouses, employees' residential facilities and other
assets.
An analysis of leased assets under capital leases is as follows:
Dollars
in
Yen in millions millions
------------------- ---------
March 31 March 31,
-------------------
Class of property 2002 2003 2003
--------- --------- ---------
Land YEN1,983 YEN1,829 $15
Buildings 15,448 15,937 133
Machinery, equipment and others 35,255 33,733 281
Accumulated depreciation (20,830) (21,236) (177)
--------- --------- ---------
YEN31,856 YEN30,263 $252
========= ========= =========
The following is a schedule by year of the future minimum lease
payments under capital leases together with the present value of the
net minimum lease payments as of March 31, 2003:
Yen in Dollars in
millions millions
----------- -----------
Year ending March 31:
2004 YEN15,545 $129
2005 11,851 99
2006 7,788 65
2007 4,561 38
2008 2,410 20
Later years 7,775 65
----------- -----------
Total minimum lease payments 49,930 416
Less - Amount representing interest 10,031 84
----------- -----------
Present value of net minimum lease payments 39,899 332
Less - Current obligations 11,313 94
----------- -----------
Long-term capital lease obligations YEN28,586 $238
=========== ===========
Minimum lease payments have not been reduced by minimum sublease
income of YEN14,583 million ($122 million) due in the future under
noncancelable subleases.
Minimum rentals under operating leases for the years ended March 31,
2001, 2002 and 2003 were YEN93,727 million, YEN104,497 million and
YEN94,364 million ($786 million), respectively. Sublease rentals under
operating leases for the years ended March 31, 2001, 2002 and 2003
were YEN5,078 million, YEN7,006 million and YEN6,240 million ($52
million), respectively. The total minimum rentals to be received in
the future under noncancelable subleases as of March 31, 2003 are
YEN36,692 million ($306 million).The minimum rental payments required
under operating leases that have initial or remaining noncancelable
lease terms in excess of one year at March 31, 2003 are as follows:
Yen in Dollars in
millions millions
---------- -----------
Year ending March 31:
2004 YEN51,786 $432
2005 42,074 351
2006 35,879 299
2007 26,187 218
2008 21,118 176
Later years 112,467 937
---------- -----------
Total minimum future rentals YEN289,511 $2,413
========== ===========
10. Goodwill and intangible assets
As discussed in Note 2, Sony elected early adoption of FAS No. 142,
retroactive to April 1, 2001. Upon the adoption of this statement,
Sony reassessed the useful lives of its intangible assets and
determined that certain intangible assets including trademarks have
indefinite lives and, as a result, will no longer be amortized. At
April 1, 2001, intangible assets having an indefinite life totaled
YEN76,029 million. Sony performed the transitional impairment test for
these intangible assets and determined that the fair value of these
assets was in excess of the current carrying amount. Accordingly, no
impairment loss was recorded for intangible assets upon the adoption
of FAS No. 142.
Intangible assets acquired during the year ended March 31, 2003
totaled YEN54,404 million ($453 million), which are subject to
amortization and primarily consist of music catalogs of YEN24,058
million ($200 million), acquired patent rights of YEN13,114 million
($109 million) and software to be sold, leased or otherwise marketed
of YEN6,412 million ($53 million). The weighted average amortization
period for music catalogs, acquired patent rights and software to be
sold, leased or otherwise marketed is 37 years, 8 years and 3 years,
respectively.
Intangible assets subject to amortization comprise the following:
Yen in millions Dollars in millions
----------------------------------------------- ----------------------
March 31 March 31,
-----------------------------------------------
2002 2003 2003
----------------------- ----------------------- ----------------------
Gross Gross Gross
carrying Accumulated carrying Accumulated carrying Accumulated
amount amortization amount amortization amount amortization
---------- ------------ ---------- ------------ -------- -------------
Artist contracts YEN97,390 YEN(72,890) YEN89,078 YEN(69,281) $742 $(577)
Music catalog 103,732 (46,137) 120,242 (48,447) 1,002 (404)
Acquired patent
rights 36,962 (13,678) 46,758 (18,024) 390 (150)
Software to be
sold, leased or
otherwise marketed 11,608 (3,149) 17,848 (7,267) 149 (61)
PlayStation format 11,873 (5,344) 11,873 (7,719) 99 (64)
Other 27,137 (14,047) 45,257 (20,499) 377 (171)
---------- ------------ ---------- ------------ -------- -------------
Total YEN288,702 YEN(155,245) YEN331,056 YEN(171,237) $2,759 $(1,427)
========== ============ ========== ============ ======== =============
The aggregate amortization expense for intangible assets for the years
ended March 31, 2002 and 2003 was YEN25,554 million and YEN27,871
million ($232 million), respectively. The estimated aggregate
amortization expense for intangible assets for the next five years is
as follows:
Yen in Dollars in
millions millions
----------- -----------
Year ending March 31,
2004 YEN26,799 $223
2005 22,342 186
2006 14,683 122
2007 13,620 114
2008 12,635 105
Total carrying amount of intangible assets having an indefinite life
comprise the following:
Yen in millions Dollars in
millions
----------------------------------- -----------------
March 31 March 31,
-----------------------------------
2002 2003 2003
----------------- ----------------- -----------------
Trademarks YEN57,195 YEN57,410 $478
Distribution agreement 18,834 18,834 157
----------------- ----------------- -----------------
YEN76,029 YEN76,244 $635
================= ================= =================
In addition to the amortizable and indefinite-lived intangible assets
shown in the above tables, intangible assets at March 31, 2002 and
2003 also include unrecognized prior service costs totaling YEN23,602
million and YEN22,561 million ($188 million), respectively, which were
recorded under FAS No. 87, "Employer's Accounting for Pensions" as
discussed in Note 15.
Sony also performed the transitional impairment test for existing
goodwill as required by FAS No. 142. Sony determined that the fair
value of each reporting unit which includes goodwill was in excess of
its carrying amount. Accordingly, no impairment loss was recorded for
goodwill upon the adoption of FAS No. 142.
The changes in the carrying amount of goodwill by operating segment
for the years ended March 31, 2002 and 2003 are as follows:
Yen in millions
------------------------------------------------------------------------
Electronics Game Music Pictures Other Total
----------- ---------- --------- ---------- ---------- -----------------
Balance at March 31, YEN83,238 YEN305,159
2001 YEN54,895 YEN115,009 YEN52,017 -
Goodwill acquired YEN1,439
during year 3,674 - 3,184 - 8,297
Other(a) (1,716) (3,904) 3,399 6,154 (149) 3,784
----------- ---------- --------- ---------- ---------- -----------------
Balance at March 31,
2002 56,853 111,105 58,600 89,392 1,290 317,240
Goodwill acquired
during year 5,380 108 1,837 - 140 7,465
Reduction under FAS
No. 109 (9,054) - (17,768) (6,703) - (33,525)
Other(a) - (607) 3,352 (3,992) 194 (1,053)
----------- ---------- --------- ---------- ---------- -----------------
Balance at March 31,
2003 YEN53,179 YEN110,606 YEN46,021 YEN78,697 YEN1,624 YEN290,127
=========== ========== ========= ========== ========== =================
Dollars in millions
------------------------------------------------------------------------
Electronics Game Music Pictures Other Total
----------- --------- ---------- ---------- ---------- -----------------
Balance at March 31,
2002 $473 $926 $489 $745 $11 $2,644
Goodwill acquired
during year 45 1 15 - 1 62
Reduction under FAS
No. 109 (75) - (148) (56) - (279)
Other(a) - (5) 27 (33) 2 (9)
----------- --------- ---------- ---------- ---------- -----------------
Balance at March 31,
2003 $443 $922 $383 $656 $14 $2,418
=========== ========= ========== ========== ========== =================
(a) Other primarily consists of translation adjustment s and
reclassification to/from other accounts.
During the year ended March 31, 2003, Sony realized tax benefits from
operating loss carryforwards that were acquired in connection with
Sony's acquisition of companies within the Electronics, Music and
Pictures businesses. Under FAS No. 109, "Accounting for Income Taxes",
the reversal of the valuation allowance upon the realization of tax
benefits from the operating loss carryforwards was applied to reduce a
portion of the goodwill relating to the acquisition of these
companies.
Amounts previously reported for income before cumulative effect of
accounting changes and net income and basic and diluted earnings per
share (EPS) for the year ended March 31, 2001 are reconciled to
amounts adjusted to exclude the amortization expense related to
goodwill and indefinite-lived intangible assets as follows:
Yen in millions
-----------------
Year ended
March 31, 2001
-----------------
Reported income before cumulative
effect of accounting changes YEN121,227
Add back:
Goodwill amortization 14,968
Intangible assets amortization 2,348
-----------------
Adjusted income before cumulative
effect of accounting changes YEN138,543
=================
Reported net income YEN16,754
Add back:
Goodwill amortization 14,968
Intangible assets amortization 2,348
-----------------
Adjusted net income YEN34,070
=================
Yen
-----------------
Year ended
March 31, 2001
-----------------
Per share data:
Income before cumulative effect
of accounting changes -
Reported basic EPS YEN132.64
Add back:
Goodwill amortization 16.38
Intangible assets
amortization 2.57
-----------------
Adjusted basic EPS YEN151.59
=================
Reported diluted EPS YEN124.36
Add back:
Goodwill amortization 15.05
Intangible assets
amortization 2.36
-----------------
Adjusted diluted EPS YEN141.77
=================
Net income -
Reported basic EPS YEN18.33
Add back:
Goodwill amortization 16.38
Intangible assets
amortization 2.57
-----------------
Adjusted basic EPS YEN37.28
=================
Reported diluted EPS YEN19.28
Add back:
Goodwill amortization 15.05
Intangible assets
amortization 2.36
-----------------
Adjusted diluted EPS YEN36.69
=================
11. Insurance-related accounts
Sony's life and non-life insurance subsidiaries in Japan maintain
their accounting records as described in Note 2 in accordance with the
accounting principles and practices generally accepted in Japan, which
vary in some respects from U.S. GAAP.
Those differences are mainly that insurance acquisition costs are
charged to income when incurred in Japan whereas in the United States
of America those costs are deferred and amortized generally over the
premium-paying period of the insurance policies, and that future
policy benefits calculated locally under the authorization of the
supervisory administrative agencies are comprehensively adjusted to a
net level premium method with certain adjustments of actuarial
assumptions for U.S. GAAP purposes. For purposes of preparing the
consolidated financial statements, appropriate adjustments have been
made to reflect such items in accordance with U.S. GAAP.
The amounts of statutory net equity of the subsidiaries as of March
31, 2002 and 2003 were YEN101,989 million and YEN100,441 million ($837
million), respectively.
(1) Insurance policies:
Life insurance policies that the life insurance subsidiary writes,
most of which are categorized as long-duration contracts, mainly
consist of whole life, term life and accident and health insurance
contracts. The life insurance revenues for the years ended March 31,
2001, 2002 and 2003 were YEN393,432 million, YEN430,019 million and
YEN450,363 million ($3,753 million), respectively. Property and
casualty insurance policies that the non-life insurance subsidiary
writes are primarily automotive insurance contracts which are
categorized as short-duration contracts. The non-life insurance
revenues for the years ended March 31, 2001, 2002 and 2003 were
YEN4,545 million, YEN13,164 million and YEN21,269 million ($177
million), respectively.
(2) Deferred insurance acquisition costs:
Insurance acquisition costs, such as commission expenses, medical
examination and inspection report fees, advertising costs, etc., that
vary with and are primarily related to acquiring new insurance
policies are deferred as long as they are recoverable. The deferred
insurance acquisition costs are amortized mainly over the
premium-paying period of the related insurance policies using
assumptions consistent with those used in computing policy reserves.
Amortization charged to income for the years ended March 31, 2001,
2002 and 2003 amounted to YEN38,886 million, YEN31,000 million and
YEN44,578 million ($371 million), respectively.
(3) Future insurance policy benefits:
Liabilities for future policy benefits are established in amounts
adequate to meet the estimated future obligations of policies in
force. These liabilities are computed by the net level premium method
based upon estimates as to future investment yield, mortality and
withdrawals. Future policy benefits are computed using interest rates
ranging from approximately 1.00% to 5.50%. Mortality, morbidity and
withdrawal assumptions for all policies are based on either the life
insurance subsidiary's own experience or various actuarial tables. At
March 31, 2002 and 2003, future insurance policy benefits amounted to
YEN1,513,917 million and YEN1,734,673 million ($14,456 million),
respectively.
(4) Separate account assets:
Separate account assets are funds on which investment income and gains
or losses accrue directly to certain policyholders. Separate account
assets are legally segregated. They are not subject to the claims that
may arise out of any other business of a life insurance subsidiary.
Separate account assets, which consist primarily of debt and equity
securities, are carried at fair value and included in securities
investments and other (Note 8). The related liabilities are recognized
as separate account liabilities and included in future insurance
policy benefits and other. Fees earned for administrative and
contract-holder services performed for the separate accounts are
recognized as financial service revenue.
12. Short-term borrowings and long-term debt
Short-term borrowings comprise the following:
Dollars in
Yen in millions millions
------------------------ -----------
March 31 March 31,
------------------------
2002 2003 2003
---------- ----------- -----------
Unsecured commercial paper:
with weighted-average interest rate of YEN51,584
0.39%with weighted-average interest rate YEN52,820
of 0.13% $440
Unsecured loans, principally from banks:
with weighted-average interest rate of
4.78%
with weighted-average interest rate of 3.55% 51,516 36,840 307
Secured call money:
with weighted-average interest rate of
0.01% 34,700 289
Secured bills sold and other:
with weighted-average interest rate of
0.002% 10,177
---------- ----------- -----------
YEN113,277 YEN124,360 $1,036
========== =========== ===========
At March 31, 2003, securities investments with a book value of 34,700
million ($289 million) were pledged as collateral for call money
issued by a Japanese bank subsidiary.
Long-term debt comprises the following:
Dollars
Yen in millions in
millions
----------------------- ---------
March 31 March 31,
-----------------------
2002 2003 2003
---------- ----------- ---------
Unsecured loans, representing obligations principally to banks:
Due 2002 to 2018 with interest ranging from 1.46% to 5.67% per
annum YEN45,055
Due 2003 to 2018 with interest ranging from 1.26% to 5.66% per
annum YEN43,260 $361
Secured loans, representing obligations principally to banks:
Due 2002 to 2009 with interest ranging from 6.75% to 7.25% per
annum 2,593
Medium-term notes of consolidated subsidiaries:
Due 2002 to 2006 with interest ranging from 1.88% to 4.95% per
annum 89,981
Due 2003 to 2006 with interest ranging from 1.28% to 4.95% per
annum 78,099 651
Unsecured 1.5% convertible bonds, due 2002 218
Unsecured 1.4% convertible bonds, due 2003, convertible
currently at YEN2,707.8 ($23) for one common share, redeemable
before due date 8,159 8,058 67
Unsecured 1.4% convertible bonds, due 2005, convertible
currently at YEN3,995.5 ($33) for one common share, redeemable
before due date 287,809 287,762 2,398
Unsecured 0.03% bonds, due 2004 with detachable warrants,
net of unamortized discount 3,857 3,919 33
Unsecured 0.1% bonds, due 2005 with detachable warrants,
net of unamortized discount 3,810 3,867 32
Unsecured 1.55% bonds, due 2006 with detachable warrants 12,000 12,000 100
Unsecured 0.9% bonds, due 2007 with detachable warrants 7,300 7,300 61
Unsecured 0.9% bonds, due 2007 with detachable warrants of
subsidiary tracking stock 150 150 1
Unsecured 1.42% bonds, due 2005, net of unamortized discount 99,986 99,990 833
Unsecured 0.64% bonds, due 2006, net of unamortized discount 99,991 99,992 833
Unsecured 2.04% bonds, due 2010, net of unamortized discount 49,975 49,978 417
Unsecured 1.52% bonds, due 2011, net of unamortized discount 49,995 49,996 417
Unsecured 6.125% U.S. dollar notes, due 2003, net of
unamortized discount 199,800
Unsecured 2.5% bonds of a consolidated subsidiary, due 2003 15,035
Unsecured 2.0% bonds, due 2005 15,000 15,000 125
Unsecured 1.99% bonds, due 2007 15,000 15,000 125
Unsecured 2.35% bonds, due 2010 4,900 4,900 41
Long-term capital lease obligations:
Due 2002 to 2014 with interest ranging from 2.15% to 10.00%
per annum 47,250
Due 2003 to 2014 with interest ranging from 2.15% to 17.29%
per annum 39,899 332
Guarantee deposits received 21,539 22,654 189
---------- ----------- ---------
1,079,403 841,824 7,016
Less - Portion due within one year 240,786 34,385 287
---------- ----------- ---------
YEN838,617 YEN807,439 $6,729
========== =========== =========
There are no significant adverse debt covenants or cross-default
provisions relating to Sony's borrowings.
In accordance with the requirements of FAS No. 133, the hedged portion
of Sony's fixed-rate debt is reflected in the consolidated balance
sheet at fair value, which reflects any adjustment in the value
attributable to movements in related market interest and foreign
exchange rates.
A summary of the exercise rights of the detachable warrants as of
March 31, 2003 is as follows:
Exercise price Number of shares
----------------
Issued on Exercisable Yen Dollars per warrant Status of exercise
during
------------------ ---------------- -------- ------- ----------------- ------------------------
August 17, 1998 September 1, YEN6,264 319 shares of 230 warrants exercised;
1999 through common stock of 1,770 warrants
August 16, 2004 $52 Sony Corporation outstanding
August 23, 1999 September 1, 279 shares of 2,000 warrants
2000 through common stock of outstanding
August 22, 2005 7,167 60 Sony Corporation
October 19, 2000 November 1, 2001 100 shares of 9,600 warrants
through common stock of outstanding
October 18, 2006 12,457 104 Sony Corporation
December 21, 2001 January 6, 2003 100 shares of 11,534 warrants
through common stock of outstanding
December 20, Sony Corporation
2007 6,039 50
December 21, 2001 June 20, 2002 75 shares of 600 warrants outstanding
through subsidiary
June 20, 2007 3,300 28 tracking stock
Aggregate amounts of annual maturities of long-term debt during the
next five years are as follows:
Year ending Dollars in
March 31 Yen in millions millions
------------- --------------- -------------
2004 YEN34,385 $287
2005 313,905 2,616
2006 158,304 1,319
2007 173,866 1,449
2008 25,157 210
At March 31, 2003, Sony had unused committed lines of credit amounting
to YEN930,629 million ($7,755 million) and can generally borrow up to
90 days from the banks with whom Sony has committed line contracts.
Furthermore, Sony has Commercial Paper Programs, the size of which was
YEN2,060,000 million ($17,167 million). At March 31, 2003, the total
outstanding balance of commercial paper was YEN52,820 million ($440
million). Under those programs, Sony can issue commercial paper for
the period generally not in excess of 270 days up to the size of the
programs. In addition, Sony has Medium Term Notes programs, the size
of which was YEN1,200,000 million ($10,000 million). At March 31,
2003, the total outstanding balance of Medium Term Notes was YEN78,099
million ($651 million).
The basic agreements with certain banks in Japan include provisions
that collateral (including sums on deposit with such banks) or
guarantors will be furnished upon the banks' request and that any
collateral furnished, pursuant to such agreements or otherwise, will
be applicable to all present or future indebtedness to such banks.
13. Deposits from customers in the banking business
All deposits from customers in the banking business are interest
bearing deposits, and are owned by a Japanese bank subsidiary which
was established as an Online Internet bank for individuals. At March
31, 2002 and 2003, the balance of time deposits issued in amounts of
YEN10 million ($83 thousand) or more was YEN24,045 and YEN39,620
million ($330 million), respectively.
At March 31, 2003, aggregate amounts of annual maturities of time
deposits with a remaining term of more than one year include YEN9,802
million ($82 million) and YEN21,010 million ($175 million) for the
years ending March 31, 2005 and 2006, respectively. There are no
deposits having a maturity date after March 31, 2006.
14. Financial instruments
(1) Derivative instruments and hedging activities:
Sony has certain financial instruments including financial assets and
liabilities incurred in the normal course of business. Such financial
instruments are exposed to market risk arising from the changes of
foreign currency exchange rates and interest rates. In applying a
consistent risk management strategy for the purpose of reducing such
risk, Sony uses derivative financial instruments, which include
foreign exchange forward contracts, foreign currency option contracts,
and interest rate and currency swap agreements. Sony does not use
derivative financial instruments for trading or speculative purposes.
Foreign exchange forward contracts and foreign currency option
contracts are utilized primarily to limit the exposure affected by
changes in foreign currency exchange rates on cash flows generated by
anticipated intercompany transactions and intercompany accounts
receivable and payable denominated in foreign currencies. Interest
rate and currency swap agreements are utilized primarily to lower
funding costs, to diversify sources of funding and to limit Sony's
exposure associated with underlying debt instruments resulting from
adverse fluctuations in interest rates and/or foreign currency
exchange rates.
These instruments are executed with creditworthy financial
institutions, and virtually all foreign currency contracts are
denominated in U.S. dollars, euros and other currencies of major
countries. Although Sony may be exposed to losses in the event of
nonperformance by counterparties or unfavorable interest and currency
rate movements, it does not anticipate significant losses due to the
nature of Sony's counterparties or the hedging arrangements.
Derivative financial instruments held by Sony are classified and
accounted for as described below pursuant to FAS No. 133.
Fair value hedges
The derivatives designated as fair value hedges include interest rate
and currency swap agreements.
Both the derivatives designated as fair value hedge and hedged items
are reflected at fair value in the consolidated balance sheet. Changes
in the fair value of the derivatives designated as fair value hedge as
well as offsetting changes in the carrying value of the underlying
hedged items are recognized in income currently.
The amount of ineffectiveness of these fair value hedges, that was
reflected in earnings, was not material for the years ended March 31,
2002 and 2003. In addition, there were no amounts excluded from the
assessment of hedge effectiveness of fair value hedges.
Cash flow hedges
The derivatives designated as cash flow hedges include foreign
exchange forward contracts, foreign currency option contracts and
interest rate and currency swap agreements.
Changes in the fair value of derivatives designated as cash flow
hedges are initially recorded in other comprehensive income and
reclassified into earnings when the hedged transaction affects
earnings.
For the years ended March 31, 2002 and 2003, these cash flow hedges
were fully effective. In addition, there were no amounts excluded from
the assessment of hedge effectiveness of cash flow hedges. At March
31, 2003, amounts related to derivatives qualifying as cash flow
hedges amounted to a reduction of equity of YEN4,793 million ($40
million), of which YEN2,213 million ($18 million) is expected to be
reclassified into earnings within the next twelve months. There were
no forecasted transactions that failed to occur for the year ended
March 31, 2003.
Derivatives not designated as hedges
The derivatives not designated as hedges under FAS No. 133 include
foreign exchange forward contracts, foreign currency option contracts,
interest rate and currency swap agreements, convertible rights
included in convertible bonds and other.
Changes in the fair value of derivatives not designated as hedges are
recognized in income currently.
A description of the purpose and classification of the derivative
financial instruments held by Sony follows:
Foreign exchange forward contracts and foreign currency option
contracts
Sony enters into foreign exchange forward contracts and purchased and
written foreign currency option contracts primarily to fix the cash
flows from intercompany accounts receivable and payable and forecasted
transactions denominated in functional currencies (Japanese yen, U.S.
dollars and euros) of Sony's major operating units. The majority of
written foreign currency option contracts are a part of range forward
contract arrangements and expire in the same month with the
corresponding purchased foreign currency option contracts.
Since July 1, 2002, certain foreign currency option contracts have
been designated as hedges of forecasted intercompany transactions in
line with changes of hedging scheme regarding Sony's derivative
activities, under which such derivative transactions meet the
requirements for hedge accounting, including correlation, as
stipulated under FAS No. 133 and 138.
Sony also enters into foreign exchange forward contracts, which
effectively fix the cash flows from foreign currency denominated debt.
Accordingly, these derivatives have been designated as cash flow
hedges in accordance with FAS No. 133.
Foreign exchange forward contracts and foreign currency option
contracts that do not qualify as hedges are marked-to-market with
changes in value recognized in other income and expense.
These derivatives generally mature or expire within five months after
the balance sheet date.
Interest rate and currency swap agreements
Sony enters into interest rate and currency swap agreements, which are
used for reducing the risk arising from the changes in the fair value
of fixed rate debt and available-for-sale debt securities. For
example, Sony enters into interest rate and currency swap agreements,
which effectively swap foreign currency denominated fixed rate debt
for functional currency denominated variable rate debt. These
derivatives are considered to be a hedge against changes in the fair
value of Sony's foreign denominated fixed-rate obligations.
Accordingly, these derivatives have been designated as fair value
hedges in accordance with FAS No. 133.
Sony also enters into interest rate and currency swap agreements that
are used for reducing the risk arising from the changes in anticipated
cash flow of variable rate debt and foreign currency denominated debt.
For example, Sony enters into interest rate and currency swap
agreements, which effectively swap foreign currency denominated
variable rate debt for functional currency denominated fixed rate
debt. These derivatives are considered to be a hedge against changes
in the anticipated cash flow of Sony's foreign denominated variable
rate obligations. Accordingly, these derivatives have been designated
as cash flow hedges in accordance with FAS No. 133.
Any other interest rate and currency swap agreements that do not
qualify as hedges, which are used for reducing the risk arising from
changes of variable rate and foreign currency dominated intercompany
debt, are marked-to-market with changes in value recognized in other
income and expense.
Embedded derivatives
The embedded derivatives that must be separated from the host
contracts and accounted for as derivative instruments under FAS No.
133 are recognized in income currently. For example, the convertible
rights included in convertible bonds held by Sony's life insurance
subsidiary, which are classified as available-for-sale debt
securities, are considered embedded derivatives and are
marked-to-market with changes in value recognized in financial service
revenue.
(2) Fair value of financial instruments:
The estimated fair values of Sony's financial instruments are
summarized as follows. The following summary excludes cash and cash
equivalents, time deposits, notes and accounts receivable, trade,
short-term borrowings, notes and accounts payable, trade and deposits
from customers in the banking business that are carried at amounts
which approximate fair value. The summary also excludes debt and
equity securities which are disclosed in Note 8.
Yen in millions
---------------------------------------------------------------------------------
March 31
---------------------------------------------------------------------------------
2002 2003
------------------------------------------ --------------------------------------
Notional Carrying Estimated Notional Carrying Estimated
amount amount fair value amount amount fair value
------------ -------------- -------------- ------------ ------------ ------------
Long-term debt including
the current portion YEN(1,079,403) YEN(1,323,772) YEN(841,824) YEN(924,665)
Foreign exchange forward
contracts YEN1,042,836 (37,243) (37,243) YEN1,139,330 (11,753) (11,753)
Currency option contracts
purchased 357,052 1,267 1,267 484,456 2,868 2,868
Currency option contracts
written 423,826 (2,933) (2,933) 238,760 (1,975) (1,975)
Interest rate swap
agreements 256,501 (6,699) (6,699) 181,443 (8,446) (8,446)
Interest rate and currency
swap agreements 228,433 5,550 5,550 24,588 (1,330) (1,330)
Embedded derivatives 342,846 3,740 3,740 446,463 1,755 1,755
Dollars in millions
---------------------------------
March 31, 2003
---------------------------------
Notional Carrying Estimated
amount amount fair value
---------- ---------- ------------
Long-term debt including
the current portion $(7,016) $(7,706)
Foreign exchange forward
contracts $9,494 (98) (98)
Currency option contracts
purchased 4,037 24 24
Currency option contracts
written 1,990 (16) (16)
Interest rate swap
agreements 1,512 (70) (70)
Interest rate and currency
swap agreements 205 (11) (11)
Embedded derivatives 3,721 15 15
The following are explanatory notes regarding the estimation method of
fair values in the above table.
Long-term debt including the current portion
The fair values of long-term debt, including the current portion, were
estimated based on either the market value or the discounted amounts
of future cash flows using Sony's current incremental debt rates for
similar liabilities.
Derivative financial instruments
The fair values of foreign exchange forward contracts and foreign
currency option contracts were estimated based on market quotations.
The fair values of interest rate and currency swap agreements were
estimated based on the discounted amounts of future net cash flows.
The fair values of convertible rights, which were a majority of
embedded derivatives, were estimated based on the market price of
stock which will be acquired by the exercise.
15. Pension and severance plans
Upon terminating employment, employees of Sony Corporation and its
subsidiaries in Japan are entitled, under most circumstances, to
lump-sum indemnities or pension payments as described below. For
employees voluntarily retiring, under normal circumstances, minimum
payment is an amount based on current rates of pay and lengths of
service. In calculating the minimum payment for employees
involuntarily retiring, including employees retiring due to meeting
mandatory retirement age requirements, Sony may grant additional
benefits. With respect to directors' and statutory auditors'
resignations, lump-sum severance indemnities are calculated using a
similar formula and are normally paid subject to the approval of
Sony's shareholders.
Sony Corporation and most of its subsidiaries in Japan have
contributory funded defined benefit pension plans, which are pursuant
to the Japanese Welfare Pension Insurance Law. The contributory
pension plans cover a portion of the governmental welfare pension
program, under which the contributions are made by the companies and
their employees, and an additional portion representing the
substituted noncontributory pension plans. Under the contributory
pension plans, the defined benefits representing the noncontributory
portion of the plans, in general, cover 60% of the indemnities under
the existing regulations to employees. The remaining indemnities are
covered by severance payments by the companies. The pension benefits
are determined based on years of service and the compensation amounts,
as stipulated in the aforementioned regulations, are payable at the
option of the retiring employee in a lump-sum amount or on a monthly
pension. Contributions to the plans are funded through several
financial institutions in accordance with the applicable laws and
regulations.
Many of foreign subsidiaries have defined benefit pension plans or
severance indemnity plans which substantially cover all of their
employees, under which the cost of benefits is currently funded or
accrued. Benefits awarded under these plans are based primarily on the
current rate of pay and length of service.
The components of net pension and severance costs, which exclude
employee termination benefits paid in restructuring activities, for
the years ended March 31, 2001, 2002 and 2003 were as follows:
Japanese plans:
Dollars in
Yen in millions millions
----------------------------------- -----------
Year ended
Year ended March 31 March 31,
-----------------------------------
2001 2002 2003 2003
---------- ---------- ----------- -----------
Service cost YEN46,400 YEN48,609 YEN47,884 $399
Interest cost 19,040 21,232 20,857 174
Expected return on plan assets (26,216) (26,286) (25,726) (214)
Amortization of net transition asset (375) (375) (375) (3)
Recognized actuarial loss 7,447 12,639 20,655 172
Amortization of prior service cost 783 611 (939) (8)
Gains on curtailments and settlements (1,380) (12)
---------- ---------- ----------- -----------
Net periodic benefit cost YEN47,079 YEN56,430 YEN60,976 $508
========== ========== =========== ===========
Foreign plans:
Dollars in
Yen in millions millions
----------------------------------- -----------
Year ended
Year ended March 31 March 31,
-----------------------------------
2001 2002 2003 2003
---------- ---------- ----------- -----------
Service cost YEN14,899 YEN15,161 YEN13,954 $116
Interest cost 6,805 7,944 8,478 71
Expected return on plan assets (6,492) (7,416) (7,319) (61)
Amortization of net transition asset (36) (87) (47) (0)
Recognized actuarial (gain) loss 555 (351) 1,452 12
Amortization of prior service cost (341) 848 (208) (2)
Gains on curtailments and settlements (460) (4)
---------- ---------- ----------- -----------
Net periodic benefit cost YEN15,390 YEN16,099 YEN15,850 $132
========== ========== =========== ===========
The changes in benefit obligation and plan assets, funded status and
composition of amounts recognized in the consolidated balance sheets
were as follows:
Japanese plans Foreign plans
------------------------------- -------------------------------
Dollars Dollars
Yen in millions in Yen in millions in
millions millions
--------------------- --------- --------------------- ---------
March 31 March 31, March 31 March 31,
--------------------- ---------------------
2002 2003 2003 2002 2003 2003
---------- ---------- --------- ---------- ---------- ---------
Change in benefit obligation:
Benefit obligation at beginning
of year YEN801,322 YEN869,142 $7,243 YEN128,162 YEN143,210 $1,193
Service cost 48,609 47,884 399 15,161 13,954 116
Interest cost 21,232 20,857 174 7,944 8,478 71
Plan participants'
contributions 5,102 5,148 43 740 706 6
Amendments (26,085) (852) (23) (0)
Actuarial (gain) loss 47,877 114,665 955 (3,404) 9,019 75
Foreign currency exchange rate
changes 4,415 (9,551) (80)
Curtailments and settlements (4,103) (1,010) (8) (1,092) (9)
Benefits paid (24,812) (24,926) (208) (8,956) (7,121) (59)
---------- ---------- --------- ---------- ---------- ---------
Benefit obligation at end of
year 869,142 1,031,760 8,598 143,210 157,580 1,313
---------- ---------- --------- ---------- ---------- ---------
Change in plan assets:
Fair value of plan assets at
beginning of year 460,167 456,678 3,806 86,351 82,602 688
Actual return (loss) on plan
assets (29,094) (66,682) (556) (6,215) (10,466) (87)
Foreign currency exchange rate
changes 5,774 (3,287) (28)
Employer contribution 31,936 21,296 177 4,694 5,235 44
Plan participants'
contributions 5,102 5,148 43 740 706 6
Benefits paid (11,433) (11,192) (93) (8,742) (6,853) (57)
---------- ---------- --------- ---------- ---------- ---------
Fair value of plan assets at
end of year YEN456,678 YEN405,248 $3,377 YEN82,602 YEN67,937 $566
---------- ---------- --------- ---------- ---------- ---------
Japanese plans Foreign plans
------------------------------- ------------------------------
Dollars Dollars in
Yen in millions in Yen in millions millions
millions
--------------------- --------- ------------------- ----------
March 31 March 31, March 31 March 31,
--------------------- -------------------
2002 2003 2003 2002 2003 2003
---------- ---------- --------- --------- --------- ----------
Funded status YEN412,464 YEN626,512 $5,221 YEN60,608 YEN89,643 $747
Unrecognized actuarial loss (325,637) (513,012) (4,275) (26,040) (38,702) (322)
Unrecognized net transition asset 1,229 854 7 (97) (180) (2)
Unrecognized prior service cost 22,518 21,579 180 1,668 1,283 11
---------- ---------- --------- --------- --------- ----------
Net amount recognized YEN110,574 YEN135,933 $1,133 YEN36,139 YEN52,044 $434
========== ========== ========= ========= ========= ==========
Amounts recognized in the
consolidated balance sheet
consist of:
Accrued pension and severance
costs, including current
portion YEN258,597 YEN444,636 $3,705 YEN36,139 YEN72,048 $600
Intangibles (23,602) (22,433) (187) (128) (1)
Accumulated other comprehensive
income (124,421) (286,270) (2,385) (19,876) (165)
---------- ---------- --------- --------- --------- ----------
Net amount recognized YEN110,574 YEN135,933 $1,133 YEN36,139 YEN52,044 $434
========== ========== ========= ========= ========= ==========
Weighted-average assumptions used as of March 31, 2001, 2002 and 2003
were as follows:
Japanese plans:
March 31
--------------------------------------
2001 2002 2003
----------- ----------- ------------
Discount rate 2.7% 2.4% 1.9%
Expected return on plan assets 4.0% 4.0% 4.0%
Rate of compensation increase 3.0% 3.0% 3.0%
Foreign plans:
March 31
--------------------------------------
2001 2002 2003
----------- ----------- ------------
Discount rate 6.8% 6.6% 6.3%
Expected return on plan assets 7.7% 8.1% 8.3%
Rate of compensation increase 4.6% 4.5% 4.1%
As required under FAS No. 87, "Employers' Accounting for Pensions",
the assumptions are reviewed in accordance with changes in
circumstances.
Under FAS No. 87, Sony has recorded a pension liability to cover the
amount of the projected benefit obligation in excess of plan assets,
considering unrealized items and the minimum pension liability. The
minimum pension liability represents the excess of the accumulated
benefit obligation over plan assets and accrued pension and severance
costs already recognized before recording the minimum pension
liability. A corresponding amount was recognized as an intangible
asset to the extent of the unrecognized prior service cost, and the
balance was recorded as a component of accumulated other comprehensive
income, net of tax.
The accumulated benefit obligations and the fair value of plan assets
for the pension plans which Sony has recognized the minimum pension
liability were as follows:
Japanese plans Foreign plans
------------------------------- -------------------------------
Dollars Dollars
Yen in millions in Yen in millions in
millions millions
--------------------- --------- --------------------- ---------
March 31 March 31, March 31 March 31,
--------------------- ---------------------
2002 2003 2003 2002 2003 2003
---------- ---------- --------- ---------- ---------- ---------
Accumulated benefit obligations YEN685,357 YEN843,463 $7,029 YEN102,313 $853
Fair value of plan assets 445,499 405,009 3,375 63,024 525
16. Stockholders' equity
(1) Subsidiary tracking stock:
On June 20, 2001, Sony Corporation issued shares of subsidiary
tracking stock in Japan, the economic value of which is intended to be
linked to the economic value of Sony Communication Network Corporation
("SCN"), a directly and indirectly wholly owned subsidiary of Sony
Corporation which is engaged in Internet-related services. The
subsidiary tracking stock holders have no direct rights in the equity
or assets of SCN or the assets of Sony Corporation. Except as
summarized below, the shares of subsidiary tracking stock have the
same rights and characteristics as those of shares of common stock.
The dividend on the shares of this series of subsidiary tracking stock
is payable only when the Board of Directors of SCN has resolved to pay
to its common stock holders a dividend in an amount per share of the
subsidiary tracking stock equal to the amount of SCN's dividend per
share of its common stock multiplied by the Standard Ratio (as defined
in the articles of incorporation), subject to statutory restriction on
Sony Corporation's ability to pay dividends on its shares of capital
stock and the maximum dividend amount (as defined in the articles of
incorporation). If the amount of dividends paid to the subsidiary
tracking stock holders is less than the amount, which should have been
paid pursuant to the formula set forth above due to the statutory
restriction referred to above or for any other reason, such shortfall
will be accumulated and such cumulative amount will be paid to the
subsidiary tracking stock holders for subsequent fiscal years. Any
such dividend on the subsidiary tracking stock is payable in priority
to the payment of dividends to the common stock holders. However, the
subsidiary tracking stock holders have no right to participate in the
dividends to common stock holders. Furthermore, even if the Board of
Directors of SCN does not take a resolution for the payment of
dividends to SCN's common stock holders, Sony Corporation may decide
to pay dividends to its common stock holders.
The subsidiary tracking stock holders have the same voting rights as
those of the common stock holders and, thus, are entitled to
participate and vote at any General Meeting of Shareholders in the
same way as the common stock holders. In addition, as each series of
subsidiary tracking stock is a separate class of stock different from
common stock, if any resolution of the General Meeting of Shareholders
would adversely affect the rights of the shareholders of a particular
class of subsidiary tracking stock, the shareholders of each class of
subsidiary tracking stock will have the right to approve or disapprove
such resolution by a special resolution of the meeting of shareholders
of that class of subsidiary tracking stock.
In the event of distribution of residual assets to the shareholders of
Sony Corporation where, as long as such assets include shares of
common stock of SCN, the number of shares of SCN common stock obtained
by multiplying the number of shares of the subsidiary tracking stock
held by each holder by the Standard Ratio or the net proceeds from the
sale of the shares of SCN common stock so to be distributed will be
distributed to the holders of the subsidiary tracking stock.
The shares of subsidiary tracking stock may be subject to repurchase
and retirement in the same manner and under the same restriction as
the shares of common stock. In addition, at any time after the passage
of three years from the date of the initial issuance of shares of a
series of subsidiary tracking stock, it may retire the entire amount
of all outstanding shares of that series of subsidiary tracking stock
upon paying to the shareholders thereof an amount equal to the current
market price of the subsidiary tracking stock out of Sony
Corporation's retained earnings available for dividend payments. Sony
Corporation may also retire the shares of a series of subsidiary
tracking stock in their entirety pursuant to the procedures prescribed
by the Japanese Commercial Code for the reduction of capital upon
payment to the subsidiary tracking stock holders an amount equal to
the market value thereof as set forth above.
At any time after the passage of three years from the date of the
initial issuance of shares of a series of subsidiary tracking stock,
it may convert the entire amount of all outstanding shares of the
subsidiary tracking stock into the shares of Sony Corporation's common
stock at the rate of the multiple of 1.1 of the market value (as
defined in the articles of incorporation) of shares of the subsidiary
tracking stock divided by the market value (as similarly defined) of
the shares of Sony Corporation's common stock.
If any events (as defined in the articles of incorporation) occur, the
entire amount of all outstanding shares of the subsidiary tracking
stock will be either retired or converted into shares of Sony
Corporation's common stock at the price or rate set forth above.
The number of shares of the subsidiary tracking stock issued and
outstanding at March 31, 2003 was 3,072,000. At March 31, 2003, 90,500
shares of the subsidiary tracking stock would be issued upon exercise
of warrants and stock acquisition rights outstanding.
(2) Common stock:
Changes in the number of shares of common stock issued and outstanding
during the years ended March 31, 2001, 2002 and 2003 have resulted
from the following:
Number of
shares
--------------
Balance at March 31, 2000 453,639,163
Stock split 453,639,163
Exercise of stock purchase warrants 111,209
Conversion of convertible bonds 12,145,253
Stock issued under exchange offerings 82,346
--------------
Balance at March 31, 2001 919,617,134
Exercise of stock purchase warrants 8,301
Conversion of convertible bonds 118,920
--------------
Balance at March 31, 2002 919,744,355
Conversion of convertible bonds 138,330
Stock issued under exchange offering 2,502,491
--------------
Balance at March 31, 2003 922,385,176
==============
At March 31, 2003, 84,652,963 shares of common stock would be issued
upon conversion or exercise of all convertible bonds, warrants and
stock acquisition rights outstanding.
On October 1, 2002, Sony Corporation implemented a share exchange as a
result of which Aiwa Co., Ltd. ("Aiwa") become a wholly-owned
subsidiary. As a result of this share exchange, Sony Corporation
issued 2,502,491 new shares, the minority interest in Aiwa was
eliminated from the balance sheet, and additional paid-in capital
increased YEN15,791 million ($132 million). On December 1, 2002, Sony
Corporation absorbed Aiwa by merger. The merger had no effect on
Sony's consolidated financial statements.
On May 19, 2000, Sony Corporation completed a two-for-one stock split.
The number of shares issued was 453,639,163 shares. There was no
increase in the common stock account because the new shares were
distributed from the portion of previously issued shares accounted for
as excess of par value in the common stock account in accordance with
the Japanese Commercial Code.
On November 20, 1991, Sony Corporation made a free share distribution
of 33,908,621 shares in ratios of one share for each ten shares held
for which no accounting entry was required in Japan. Had the
distribution been accounted for in the manner adopted by companies in
the United States of America, YEN201,078 million would have been
transferred from retained earnings to the appropriate capital
accounts. This has been the only free distribution of common stock
where no accounting entry was required in Japan.
Conversions of convertible bonds into common stock are accounted for
in accordance with the provisions of the Japanese Commercial Code by
crediting approximately one-half of the conversion proceeds to the
common stock account and the remainder to the additional paid-in
capital account.
The Ordinary General Meeting of Shareholders held on June 27, 1997
authorized Sony Corporation, pursuant to the Japanese regulations, to
acquire and retire up to a total not exceeding 30 million outstanding
shares of its common stock with its profit, whenever deemed necessary
by the Board of Directors in view of general economic conditions,
Sony's business performance and financial condition and other factors.
Subsequently, the Ordinary General Meeting of Shareholders held on
June 29, 2000 increased the maximum number of shares of its common
stock up to 90 million shares on and after June 30, 2000 and the
Extraordinary General Meeting of Shareholders held on January 25, 2001
authorized Sony Corporation to acquire and retire the subsidiary
tracking stock as well as its common stock on and after January 26,
2001.
The Ordinary General Meeting of Shareholders held on June 26, 1998
approved that (a) in addition to the shares discussed in the preceding
paragraph, Sony Corporation may, by a resolution of the Board of
Directors, acquire and retire up to a total not exceeding 30 million
outstanding shares of its common stock with its additional paid-in
capital at prices in total not exceeding YEN400 billion and (b) Sony
Corporation may grant share subscription rights to directors and/or
employees pursuant to the Japanese regulations. Subsequently, the
Extraordinary General Meeting of Shareholders held on January 25, 2001
authorized Sony Corporation to acquire and retire the subsidiary
tracking stock as well as its common stock on and after January 26,
2001.
Prior to the amendments to the Japanese Commercial Code enacted on
April 1, 2002, purchase and retirement by Sony Corporation of its own
shares could be made at any time by resolution of the Board of
Directors up to the number of shares and total purchase price as
described above. No common stock and subsidiary tracking stock had
been acquired nor had any share subscription rights been granted under
those approvals during the years ended March 31, 2001 and 2002.
Following such amendments to the Japanese Commercial Code, purchase by
Sony Corporation of its own shares is subject to the prior approval of
shareholders at the Ordinary General Meeting of Shareholders, which
includes the maximum number of shares to be purchased and the maximum
total purchase amount. Once such approval of shareholders is obtained,
Sony Corporation may purchase its own shares at any time during the
period up to the conclusion of next Ordinary General Meeting of
Shareholders.
The Ordinary General Meeting of Shareholders held on June 20, 2002
approved that Sony Corporation acquire up to a total not exceeding 90
million outstanding shares of its common stock at an amount in a total
not exceeding YEN650 billion ($5,417 million) and a total not
exceeding 300 thousand outstanding shares of the subsidiary tracking
stock at an amount in total not exceeding YEN1 billion ($8 million)
until the conclusion of the General Meeting of Shareholders to be held
for the year ended March 31, 2003. At March 31, 2003, no common stock
and subsidiary tracking stock had been acquired under this approval.
On April 23, 2003, the Board of Directors of Sony Corporation resolved
the following proposals in accordance with the Japanese Commercial
Code. The proposals, which will be discussed by the General Meeting of
Shareholders to be held on June 20, 2003, resolve that Sony
Corporation may acquire up to a total not exceeding 90 million
outstanding shares of its common stock at an amount in a total not
exceeding YEN400 billion ($3,333 million) and a total not exceeding
300 thousand outstanding shares of the subsidiary tracking stock at an
amount in total not exceeding YEN1 billion ($8 million) until the
conclusion of the General Meeting of Shareholders to be held for the
year ending March 31, 2004.
(3) Retained earnings:
The amount of statutory retained earnings of Sony Corporation
available for the payments of dividends to shareholders as of March
31, 2003 was YEN650,705 million ($5,423 million). The appropriation of
retained earnings for the year ended March 31, 2003 including cash
dividends for the six-month period ended March 31, 2003 has been
incorporated in the accompanying consolidated financial statements.
This appropriation of retained earnings will be proposed for approval
at the Ordinary General Meeting of Shareholders to be held on June 20,
2003 and will be then recorded in the statutory books of account, in
accordance with the Japanese Commercial Code, upon shareholders'
approval.
Retained earnings include Sony's equity in undistributed earnings of
affiliated companies accounted for by the equity method in the amount
of YEN9,259 million and YEN2,967 million ($25 million) at March 31,
2002 and 2003, respectively.
(4) Other comprehensive income
Other comprehensive income for the years ended March 31, 2001, 2002
and 2003 were as follows:
Yen in millions
---------------------------------------
Pre-tax Tax Net-of-tax
amount expense amount
------------ ----------- -------------
For the year ended March 31, 2001:
Unrealized gains on securities -
Unrealized holding gains or losses arising
during the period YEN(6,290) YEN(1,200) YEN(7,490)
Less: Reclassification adjustment for gains
or losses included in net income (16,095) 6,186 (9,909)
Minimum pension liability adjustment (79,678) 33,544 (46,134)
Foreign currency translation adjustments 169,144 (8,862) 160,282
------------ ----------- -------------
Other comprehensive income YEN67,081 YEN29,668 YEN96,749
============ =========== =============
For the year ended March 31, 2002:
Unrealized gains on securities -
Unrealized holding gains or losses arising
during the period YEN(24,857) YEN4,614 YEN(20,243)
Less: Reclassification adjustment for gains
or losses included in net income (2,594) 1,318 (1,276)
Unrealized losses on derivative instruments -
Cumulative effect of an accounting change 2,040 (951) 1,089
Unrealized holding gains or losses arising
during the period 5,470 (3,033) 2,437
Less: Reclassification adjustment for gains
or losses included in net income (7,200) 2,963 (4,237)
Minimum pension liability adjustment (38,391) 16,163 (22,228)
Foreign currency translation adjustments 101,483 (4,051) 97,432
------------ ----------- -------------
Other comprehensive income YEN35,951 YEN17,023 YEN52,974
============ =========== =============
For the year ended March 31, 2003:
Unrealized gains on securities -
Unrealized holding gains or losses arising
during the period YEN(18,575) YEN8,948 YEN(9,627)
Less: Reclassification adjustment for gains
or losses included in net income 3,421 867 4,288
Unrealized losses on derivative instruments -
Unrealized holding gains or losses arising
during the period (6,268) 1,791 (4,477)
Less: Reclassification adjustment for gains
or losses included in net income 682 (287) 395
Minimum pension liability adjustment (181,725) 71,089 (110,636)
Foreign currency translation adjustments -
Translation adjustments arising during the
period (87,103) 3,110 (83,993)
Less: Reclassification adjustment for
losses
included in net income 7,665 - 7,665
------------ ----------- -------------
Other comprehensive income YEN(281,903) YEN85,518 YEN(196,385)
============ =========== =============
Dollars in millions
---------------------------------------
Pre-tax Tax Net-of-tax
amount expense amount
----------- ----------- -------------
For the year ended March 31, 2003:
Unrealized gains on securities -
Unrealized holding gains or losses arising
during the period $(155) $75 $(80)
Less: Reclassification adjustment for gains
or losses included in net income 29 6 35
Unrealized losses on derivative instruments -
Unrealized holding gains or losses arising
during the period (52) 15 (37)
Less: Reclassification adjustment for gains
or losses included in net income 5 (2) 3
Minimum pension liability adjustment (1,514) 592 (922)
Foreign currency translation adjustments -
Translation adjustments arising during the
period (726) 26 (700)
Less: Reclassification adjustment for
losses
included in net income 64 - 64
Other comprehensive income $(2,349) $712 $(1,637)
=========== =========== =============
(MORE TO FOLLOW)
Short Name: Sony Corp.
Category Code: FR
Sequence Number: 00005357
Time of Receipt (offset from UTC): 20030602T155753+0100
--30--KO/uk* AC/uk MH/uk
CONTACT: Sony Corporation
KEYWORD: UNITED KINGDOM JAPAN INTERNATIONAL EUROPE ASIA PACFIC
INDUSTRY KEYWORD: COMPUTERS/ELECTRONICS
ELECTRONIC GAMES/MULTIMEDIA HARDWARE
SOURCE: Sony Corp.
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