Sonyar06-E.Pdf
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Contents © SCEI ULTRAVIOLET © 2006 Screen Gems, Inc. All Rights Reserved. Financial Highlights 1 To Our Shareholders: A Message from Howard Stringer, CEO 2 New Management’s Mid-Term Corporate Strategy 5 The Revitalization of Electronics: An Interview with Ryoji Chubachi, Electronics CEO 9 Feature Story HD World: The World of High Definition, Created by Sony 14 BRAVIA: High-Resolution, Slim-Profile LCD Televisions for the Flat Panel Era 16 Business Overview 18 Review of Operations Cautionary Statement Statements made in this annual report with respect to Sony’s current plans, estimates, strategies and beliefs and other statements that are not historical Electronics 20 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,” Game 28 “prospects,” “forecast,” “estimate,” “project,” “anticipate,” “aim,” “may” or “might” and words of similar meaning in connection with a discussion of future operations, financial performance, events or conditions. From time to Entertainment 32 time, oral or written forward-looking statements may also be included in other materials released to the public. These statements are based on Financial Services 37 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 All Other 39 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 Research and Development 40 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 Corporate Governance/New Directors and operates, as well as the economic conditions in Sony’s markets, particularly levels of consumer spending; (ii) exchange rates, particularly between the Corporate Executive Officers 42 yen and the U.S. dollar, the 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, Corporate Social Responsibility 44 as well as achieve sufficient cost reductions for, its products and services, which are offered in highly competitive markets characterized by continual new product introductions, rapid development in technology and subjective Financial Section 47 and changing consumer preferences (particularly in the Electronics, Game and Pictures segments, and music business); (iv) Sony’s ability to recoup large-scale investment required for technology development, increasing Stock Information 140 production capacity and by the Game segment for the development and introduction of a new platform; (v) Sony’s ability to implement successfully personnel reduction and other business reorganization activities in its Stock Acquisition Rights and Bond Information 141 Electronics segment; (vi) Sony’s ability to implement successfully its network strategy for its Electronics, Game and Pictures segments, All Other and the music business, and to develop and implement successful sales and Investor Information 142 distribution strategies in its Pictures segment and music business in light of the Internet and other technological developments; (vii) 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); (viii) shifts in customer demand for financial services such as life insurance and Sony’s ability to conduct successful Asset Liability Management in the Financial Services segment; and (ix) the success of Sony’s joint ventures and alliances. Risks and Printed on 100% recycled paper. uncertainties also include the impact of any future events with material Printed using VOC (volatile organic compound)-free vegetable oil-based ink. unforeseen impacts. Financial Highlights Sony Corporation and Consolidated Subsidiaries—Years ended March 31 Dollars in millions* Yen in millions Percent except per except per share amounts and number of employees change share amounts 2004 2005 2006 2006/2005 2006 FOR THE YEAR Sales and operating revenue . ¥7,496,391 ¥7,159,616 ¥ 7,475,436 +4.4.% $63,893 Operating income . 98,902 113,919 191,255 +67.9. 1,635 Income before income taxes . 144,067 157,207 286,329 +82.1. 2,447 Income taxes . 52,774 16,044 176,515 +1,000.2. 1,508 Equity in net income of affiliated companies . 1,714 29,039 13,176 –54.6. 113 Net income . 88,511 163,838 123,616 –24.5. 1,057 Cash flows from operating activities . 632,635 646,997 399,858 –38.2. 3,418 Cash flows from investing activities . (761,792) (931,172) (871,264) — (7,447) Per share data: (Yen, dollars) Net income —Basic . ¥ 95.97. ¥ 175.90. ¥ 122.58. –30.3.% $ 1.05. —Diluted . 87.00. 158.07. 116.88. –26.1. 1.00. Cash dividends . 25.00. 25.00. 25.00. — 0.21. AT YEAR-END Stockholders’ equity . ¥2,378,002 ¥2,870,338 ¥ 3,203,852 +11.6.% $27,383 Total assets . 9,090,662 9,499,100 10,607,753 +11.7. 90,665 Number of employees . 162,000 151,400 158,500 +4.7.% * U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥117=U.S.$1, the approximate Tokyo foreign exchange market rate as of March 31, 2006. Please refer to page 80 for detailed footnotes to the table above. In the year ended March 31, 2006, consolidated sales and operating Sales and operating revenue and operating income revenue rose 4.4% from the previous year, to ¥7,475.4 billion. This (Yen in billions) 0 2,000 4,000 6,000 8,000 result was largely attributable to increases in the Game and Financial Services businesses. 2004 Operating income increased 67.9%, to ¥191.3 billion, primarily due to an improvement in gains and losses on investments at Sony Life 2005 Insurance Co., Ltd., accounted for in the Financial Services business. The increase in operating income included a one-time net gain of ¥73.5 billion resulting from the transfer to the Japanese government of the 2006 substitutional portion of Sony’s Employee Pension Fund. Restructuring charges, recorded as operating expenses, amounted to ¥138.7 billion, 0 200 400 600 800 (Yen in billions) compared with ¥90.0 billion in the previous period. ■ Sales and operating revenue (top axis) ■ Operating income (bottom axis) Income before income taxes climbed 82.1%, to ¥286.3 billion, * Years ended March 31 reflecting a gain on a change in interest in subsidiaries and equity investees. Net income and ROE The effective tax rate was 61.6%, exceeding the Japanese statutory (Yen in billions) 0 50 100 150 200 rate, primarily as a consequence of the recording of additional valuation 3.8% allowance against deferred tax assets by Sony Corporation and certain 2004 of its subsidiaries in Japan and overseas, and the recording of an additional tax provision for the undistributed earnings of overseas 6.2% subsidiaries. 2005 Equity in net income of affiliated companies declined 54.6%, to ¥13.2 4.1% billion. This reflected the impact in the previous period of proceeds 2006 recorded by equity-method affiliate InterTrust Technologies Corporation from a patent-related settlement. 0 2 468 (%) As a result of the above factors, net income decreased 24.5% from ■ Net income ● Return on equity the previous period, to ¥123.6 billion. * Years ended March 31 1 To Our Shareholders A Message from Howard Stringer, CEO 2 Just over a year ago, I was asked to assume the role of CEO of simpler, yet more highly focused, customer-driven organization. Sony. While truly honored by this opportunity, my experience in In September 2005, we announced our mid-term corporate running Sony’s North American operations over the prior eight strategy, outlining a revitalization plan that achieved a distinct years gave me an acute sense of the challenges that lay ahead for balance between restructuring initiatives designed to reduce costs, revitalizing Sony on a global basis. The world in which we operate and strategic growth initiatives designed to foster continued has been undergoing rapid and seismic changes—creating both innovation. A key component of the plan was a new organizational opportunities and threats for us at the same time. I knew that structure that would break down internal barriers, encourage staying ahead of this curve would require us to provide truly communication across all of our businesses and enable these differentiated products and services to the market. To do this, initiatives to succeed. In its simplest form, this new plan attempts we would not only have to improve our organizational structure, to achieve three key objectives: (i) eliminate “silos;” (ii) sharpen our resource allocation and focus, but, as importantly, we would need focus; and (iii) create unique and sustainable competitive advantages. to reinvigorate the Sony founders’ spirit for the digital age. I have As part of our new plan, Sony made firm commitments to the always been proud to work for this great company but believe— financial community regarding cost savings initiatives and also as I am certain many of you do—that Sony could do even better. identified certain areas that we believed would be key to our future With this in mind, I accepted the opportunity—along with my growth—such as high definition (HD), software development, digital partner, President and Electronics CEO, Ryoji Chubachi—to content and Cell technology, among others. We outlined our key rejuvenate Sony. financial target of reaching a consolidated operating profit margin Soon after the new management team’s formation in 2005, we of five percent (before restructuring and one-time charges) by the established a global cross-company team tasked with diagnosing year ending March 31, 2008, and made a commitment to enhance Sony’s key issues and challenges and providing workable solutions.