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PlayStation Hack to Cost Sony $171M; Quake Costs Far Higher

May 23, 2011

Sony Japan office

Sony said Monday that the effects of the Japan earthquake and tax provisions will drag the company into a $3.18 billion loss for its 2011 fiscal year. Costs from the PlayStation Network hack are expected to total $171 million, the company said.

The direct impact on Sony's sales for the earthquake is expected to be about 22 billion yen, or $268.9 million, Sony said. The effect on operating income is expected to be much greater, however: 17 billion yen ($207.8 million) for fiscal 2011, and 150 billion yen ($1.83 billion) for fiscal 2012, which ends in March 2012.

Sony believes that it will report consolidated revenue of 7,181 billion yen $87.8 billion) for the fiscal year ended March 31, down 0.3 percent from its February estimates, before the impact of the March earthquake. Sony's statements Monday are still estimates; Sony will formally announce its earnings on May 26.

However, Sony said that it had to set aside a massive 360 billion yen, or $4.4 billion, to establish a valuation allowance against certain deferred tax assets, which U.S. accounting laws require, "primarily by the negative impact of the Great East Japan Earthquake," Sony chief financial officer Masaru Kato said in prepared remarks.

That will drag Sony's net income down from an estimated 70 billion yen to a loss of 260 billion yen, or about $3.18 billion, Sony said.

The direct impact of the quake was 22 billion yen ($268.9 million) on 2011 revenue, and 17 billion yen ($207.8 million) in 2011 operating income, Sony said. Of the drop in operating income, Sony accounted for 12 billion yen in idle manufacturing costs, as well as 5 billion yen as a result of a net margin loss form a decrease in the sales after the quake.

"Our supply chain was significantly damaged by the earthquake and tsunami," Kato said. "In addition to direct damages, component procurement conditions and power outages are also affecting our operation."

For the fiscal 2012 year, however, which ends in March 2012, Sony estimates that the earthquake will cost Sony 150 billion yen ($1.83 billion) in consolidated operating income.

"With respect to our forecast for consolidated results for the fiscal year ending March 2012, even after taking into account the impact of the Earthquake, we are expecting our consolidated sales to grow year-on-year and operating income to be flat year-on-year," Kato said. "Additionally, we expect net income or loss attributable to Sony Corporation's stockholders is expected to be positive for the whole fiscal year ending March 2012."

Sony also estimated its costs from the hack of its PlayStation Network at 14 billion yen, or $171 million. Those numbers include estimates for the identity theft program that chief executive Howard Stringer announced in his apology, as well as the costs of the "Welcome Back" package. Sony announced shortly thereafter. There will also be custoer support costs, legal costs, and a potential impact on profits due to lower future revenues, Kato said.

"These amounts are our reasonable assumption based on the information currently available to Sony," Kato said. "So far, we have not received any confirmed reports of customer identity theft issues, nor confirmed any misuse of credit cards from the cyber-attack. Those are key variables, and if that changes, the costs could change. In addition, in connection with the data breach, class action lawsuits have been filed against Sony and certain of its subsidiaries and regulatory inquiries have begun; however, those are all at a preliminary stage, so we are not able to include the possible outcome of any of them in our results forecast for the fiscal year ending March 2012 at this moment."




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