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 July 2005
Commission File Number: 001-06439
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.
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F,
Form 20-F X Form 40-F __
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934,
Yes No X
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b):82-______
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/ Nobuyuki Oneda
(Signature)
Nobuyuki Oneda
Executive Vice President and
Chief Financial Officer
Date: July 28, 2005
List of materials
Documents attached hereto:
i) Consolidated Financial Results for the First Quarter Ended June 30, 2005
Sony Corporation
6-7-35 Kitashinagawa
Shinagawa-ku
Tokyo 141-0001 Japan
No: 05-039E
3:00 P.M. JST,
July 28, 2005
Consolidated Financial Results
for the First Quarter Ended June 30, 2005
Tokyo, July 28, 2005 -- Sony Corporation today announced its
consolidated results for the first quarter ended June 30, 2005
(April 1, 2005 to June 30, 2005).
(Billions of yen, millions of U.S. dollars, except per share
amounts)
First quarter ended June 30
2004 2005 Change 2005*
in Yen
---------- ------ ------ ------ ------
Sales and operating Y1,612.1 Y1,559.4 -3.3% $14,177
revenue
Operating income (loss) 9.8 (15.3) - (139)
Income before income 6.6 12.9 +95.1 117
taxes
Equity in net income 20.1 (9.1) - (83)
(loss) of affiliated
companies
Net income (loss) 23.3 (7.3) - (66)
Net income (loss) per
share of common stock
- Basic Y25.10 (Y8.68) - ($0.08)
- Diluted 22.79 (8.68) - (0.08)
* U.S. dollar amounts have been translated from yen, for
convenience only, at the rate of Y110=U.S.$1, the approximate
Tokyo foreign exchange market rate as of June 30, 2005.
Unless otherwise specified, all amounts are on the basis of
Generally Accepted Accounting Principles in the U.S. ("U.S.
GAAP").
Consolidated Results for the First Quarter Ended June 30, 2005
--------------------------------------------------------------
Sales and operating revenue ("sales") decreased 3.3% compared
with the same quarter of the previous fiscal year; on a local
currency basis sales decreased 3%. (For all references herein to
results on a local currency basis, see Note I.) This
reflects the establishment of SONY BMG MUSIC ENTERTAINMENT
("SONY BMG") (please refer to Note to Operating Performance
Highlights by Business Segment).
Sales within the Electronics segment decreased 1.4%. Although
sales of flash memory and hard drive "Network Walkman" digital
audio players, LCD flat panel televisions and "VAIO" PCs
increased, there was a significant decrease in sales of CRT and
Plasma televisions. In the Game segment, sales increased 64.0%
as a result of an increase of both hardware and software sales.
In the Pictures segment, there was a 2.6% decrease in revenue
primarily due to lower theatrical revenues. In the Financial
Services segment, revenue increased by 15.1% mainly due to an
increase in revenue from insurance premiums at Sony Life
Insurance Co., Ltd. ("Sony Life").
An operating loss of Y15.3 billion ($139 million) was recorded,
which is a deterioration of Y25.1 billion (a Y30.7 billion
deterioration on a local currency basis) compared to the same
quarter of the previous fiscal year.
In the Electronics segment, an operating loss was recorded
mainly due to a continued deterioration in the cost of sales
ratio resulting from a decline in unit selling prices, as well
as a decrease in sales to outside customers. In the Game
segment, an increased operating loss was recorded as a result of
both increased advertising and marketing expenses and research
and development costs. In the Pictures segment, despite the
weaker than expected theatrical performance of films released
during the quarter, there was a slight increase in operating
income partially attributable to distribution fees recognized on
sales of Metro-Goldwyn-Mayer Inc. ("MGM") titles. In the
Financial Services segment, there was an increase in operating
income mainly attributable to the increase in revenue from
insurance premiums at Sony Life.
Restructuring charges, which are recorded as operating expenses,
amounted to Y15.9 billion ($144 million) for the quarter
compared to Y12.0 billion for the same quarter of the previous
fiscal year. In the Electronics segment, restructuring charges
were Y15.5 billion ($141 million) compared to Y10.8 billion in
the same quarter of the previous fiscal year.
Income before income taxes increased 95.1% due to an improvement
in the net effect of other income and expenses compared to the
same quarter of the previous fiscal year. This was mainly the
result of a gain of Y17.9 billion ($162 million) on change in
interest in subsidiaries and equity investees associated with
the sale of a portion of the stock in So-Net M3 Inc., a
consolidated subsidiary of Sony Communication Network
Corporation ("SCN"), and in DeNA Co., Ltd., an equity affiliate
of SCN accounted for by the equity method. Furthermore, in
addition to a decrease in net foreign exchange loss compared to
the same quarter of the previous fiscal year, there was also an
increase in royalty income.
Income taxes*: During the current quarter, Sony recorded Y12.1
billion ($109 million) of income tax expense, resulting in an
effective tax rate of 93.4%. This effective tax rate exceeded
the Japanese statutory tax rate due primarily to the recording
of valuation allowances against deferred tax assets by several
of Sony's domestic and overseas consolidated subsidiaries. In
the same quarter of the previous fiscal year, Sony recorded a
net tax benefit as a result of the reversal of deferred tax
liabilities on undistributed earnings from a foreign subsidiary.
*In June 2005, Sony Corporation received notification from the
Tokyo Regional Taxation Bureau ("TRTB") that profits reported
from its transactions with a number of its worldwide
subsidiaries (CD and DVD disc manufacturing operations) for the
five fiscal year period from 1998 through 2002 had been
reassessed. The TRTB concluded that the distribution of profits
between Sony and these subsidiaries had been under-allocated to
Sony Corporation. As a result, taxable income was reassessed
incorporating an additional Y21.4 billion, resulting in Sony
Corporation incurring an additional cash tax (including
corporation tax and others) of approximately Y4.5 billion. Sony
believes that its allocation of income was appropriate and that
the proper amount of tax has been paid within each jurisdiction.
As a result, Sony plans to promptly lodge a formal objection
against this decision with the TRTB. Simultaneous to this
process, Sony also plans to file a formal request (where
applicable) for bilateral consultations between the governments
of the relevant countries involved and Japan to obtain relief
from double taxation under the applicable tax treaties. Sony
believes that it will ultimately be able to resolve this issue
to its satisfaction. As a result of this reassessment, Sony does
not expect any material impact to its consolidated results.
Equity in net income (loss) of affiliated companies decreased
Y29.2 billion compared to the same quarter of the previous
fiscal year, resulting in the recording of an equity loss of
Y9.1 billion ($83 million). Equity in net income of affiliated
companies for the same quarter of the previous fiscal year
included the recording of Y12.8 billion as equity in net income
for InterTrust Technologies Corporation. This amount reflected
InterTrust's proceeds from a license agreement arising from the
settlement of a patent-related lawsuit.
An equity loss of Y7.6 billion ($69 million) was recorded for
S-LCD Corporation, a joint-venture with Samsung Electronics Co.,
Ltd., for the manufacture of amorphous TFT LCD panels, which
started shipments during the current quarter. Sony also recorded
equity in net loss of approximately Y6.5 billion ($59 million)
for MGM**. This includes non-cash interest of Y1.2 billion
($11 million) on cumulative preferred stock. This equity in net
loss is subject to adjustment reflecting the final allocation of
the purchase price for the acquisition.
Sony Ericsson Mobile Communications AB ("Sony Ericsson")
contributed Y4.6 billion ($42 million) to equity in net income,
a decrease of Y1.2 billion compared to the same quarter of the
previous fiscal year. In addition, SONY BMG's net income was
offset by restructuring charges associated with the merger of
Sony and Bertelsmann AG's recorded music businesses, and, as a
result, an equity loss of Y1.0 billion ($9 million) was recorded
for the joint venture.
**On April 8, 2005, a consortium led by Sony Corporation of
America and its equity partners completed the acquisition of
MGM. As part of the acquisition, Sony invested $257 million in
exchange for 20% of the total equity. However, based on the
percentage of common stock owned, Sony records 45% of MGM's net
income (loss) as equity in net income (loss) of affiliated
companies.
As a result, a net loss of Y7.3 billion ($66 million) was
recorded, a decrease of Y30.5 billion compared to the same
quarter of the previous fiscal year.
Operating Performance Highlights by Business Segment
----------------------------------------------------
Note: As of August 1, 2004, Sony and Bertelsmann AG combined
their recorded music businesses in a joint venture. The newly
formed company, SONY BMG, is 50% owned by each parent company.
Under U.S. GAAP, SONY BMG is accounted for by Sony using the
equity method and, since August 1, 2004, 50% of net profits or
losses of this business have been included under "Equity in net
income (loss) of affiliated companies."
In connection with the establishment of this joint venture,
Sony's non-Japan based disc manufacturing and physical
distribution businesses, formerly included within the Music
segment, have been reclassified to the Electronics segment to
recognize the new management reporting structure whereby Sony's
Electronics segment has now assumed responsibility for these
businesses. Effective April 1, 2005, a similar change was made
with respect to Sony's Japan based disc manufacturing business.
Results for the first quarter ended June 30, 2004 in the
Electronics segment have been restated to account for these
reclassifications.
Effective April 1, 2005, Sony no longer breaks out its music
business as a reportable segment as it no longer meets the
materiality threshold. Accordingly, the results for Sony's music
business are now included within the Other segment and the prior
year's results have been reclassified to the Other segment for
comparative purposes. Results for the first quarter of this
fiscal year in the Other segment include the results of Sony
Music Entertainment Inc.'s ("SMEI") music publishing business
and Sony Music Entertainment (Japan) Inc. ("SMEJ"), excluding
Sony's Japan based disc manufacturing business which, as noted
above, has been reclassified to the Electronics segment.
However, results for the same quarter of the previous fiscal
year in the Other segment include the consolidated results for
SMEI's recorded music business for the first quarter, as well as
the results for SMEI's music publishing business and SMEJ
excluding Sony's Japan based disc manufacturing business.
Electronics
(Billions of yen, millions of U.S. dollars)
First quarter ended June 30
2004 2005 Change in 2005
Yen
---------- ------ ------ ------ ------
Sales and operating Y1,131.3 Y1,115.3 -1.4% $10,139
revenue
Operating income 8.3 (36.3) - (330)
(loss)
Unless otherwise specified, all amounts are on a U.S. GAAP
basis.
Sales decreased by 1.4% compared to the same quarter of the
previous fiscal year (a 1% decrease on a local currency basis).
In addition, sales to outside customers decreased 7.5% compared
to the same quarter of the previous fiscal year. There was a
significant decline in sales of CRT televisions, which
experienced a continued shift in demand towards flat panel
televisions, and Plasma televisions, which faced intense
business competition. On the other hand, there was an increase
in sales of several products including flash memory and hard
drive "Network Walkman" digital audio players, which experienced
increased sales in all regions, particularly in Japan and
Europe, LCD flat panel televisions, which experienced an
increase in unit sales in all regions and "VAIO" PCs, where
notebook PCs enjoyed strong sales.
An operating loss of Y36.3 billion ($330 million) was recorded,
a deterioration of Y44.6 billion compared with the Y8.3 billion
operating income recorded in the same quarter of the previous
fiscal year. This was primarily the result of a continued
deterioration in the cost of sales ratio as a result of a
decline in unit selling prices, as well as a decline in sales to
outside customers, despite being partially offset by favorable
foreign exchange rates and a reduction in the loss on the sale,
disposal and impairment of assets. With regard to products
within the Electronics segment, the increase in operating loss
was mainly attributable to LCD televisions and CCDs, which were
both impacted by a decline in unit selling prices. On the other
hand, "VAIO" PCs experienced an increase in operating income due
to good sales performance.
Inventory, as of June 30, 2005, was Y573.6 billion ($5,215
million), a Y33.3 billion, or 5.5%, decrease compared with the
level as of June 30, 2004 and a Y59.2 billion, or 11.5%,
increase compared with the level as of March 31, 2005.
Note: In association with the completion of business integration
of Sony Group's semiconductor manufacturing businesses in July
2004, it was decided to account for semiconductor manufacturing
operations inventory, previously recorded in the Game segment,
within the Electronics segment as of the quarter beginning July
1, 2004. (Regarding the integration of Sony Group's
semiconductor manufacturing operations, please refer to Note 6.)
Operating Results for Sony Ericsson Mobile Communications AB
The following operating results for Sony Ericsson, which is
accounted for by the equity method, are not consolidated in
Sony's consolidated financial statements. However, Sony believes
that this disclosure provides additional useful analytical
information to investors regarding operating performance. In
addition, please note that the operating results of Sony
Ericsson discussed below are reported on an International
Financial Reporting Standards basis, and thereby differ from the
operating results reported on a U.S. GAAP basis contained within
Sony's equity in net income (loss) of affiliated companies.
Sales for the quarter were Euro 1,614 million, representing a
year-on-year increase of Euro 110 million, or 7%. Sales were
boosted by a 14% increase in units shipped compared to the same
period last year, resulting in a total of 11.8 million units
shipped for the quarter.Income before taxes was Euro 87 million
and net income was Euro 75 million, which represents a
year-on-year decrease of Euro 26 million, or 23%, and Euro 14
million, or 16%, respectively, reflecting increased investment
in research and development to support a broadening product
portfolio. As a result, equity in net income of Y4.6 billion
($42 million) was recorded by Sony.
Game
(Billions of yen, millions of U.S. dollars)
First quarter ended June 30
2004 2005 Change in 2005
Yen
---------- ------ ------ ------ ------
Sales and operating Y105.4 Y172.8 +64.0% $1,571
revenue
Operating loss (2.9) (5.9) - (54)
Unless otherwise specified, all amounts are on a U.S. GAAP
basis.
Sales increased 64.0% compared with the same quarter of the
previous fiscal year (a 64% increase on a local currency basis).
Hardware: There was an increase in overall sales in the U.S.,
Europe and Japan as a result of an increase of PlayStation 2
("PS2") unit sales in Europe and the U.S. compared to the same
quarter of the previous fiscal year, in addition to the
contribution to sales from PlayStation Portable ("PSP").
Software: Overall software sales increased as a result of the
contribution to sales from PSP software, as well as the
continued strong sales of PS2. On a regional basis, although
revenue decreased in Japan, it increased in Europe and the U.S.
An operating loss of Y5.9 billion ($54 million) was recorded, an
increase of Y3.0 billion compared with the same quarter of the
previous fiscal year. This was mainly due to an increase in
selling, general and administrative expenses mainly reflecting
advertising and marketing expenses incurred during the current
quarter, as well as aggressive research and development spending
associated with future business, despite the favorable
performance and growth of the PS2 and PSP businesses
respectively.
Worldwide hardware production shipments:*
-> PS2: 3.53 million units (an increase of 2.82 million units)
-> PSP: 2.09 million units**
Worldwide software production shipments:*
-> PS2: 35 million units (a decrease of 3 million units)
-> PSP: 4.9 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.
** There were no sales of PSP during the same quarter of the
previous fiscal year.
Inventory, as of June 30, 2005, was Y84.0 billion ($764
million), a Y27.4 billion, or 24.6%, decrease compared with the
level as of June 30, 2004 and a Y6.6 billion, or 8.5%, increase
compared with the level as of March 31, 2005. (Regarding
inventory, please refer to the note in the above Electronics
segment.)
Pictures
(Billions of yen, millions of U.S. dollars)
First quarter ended June 30
2004 2005 Change in 2005
Yen
---------- ------ ------ ------ ------
Sales and operating Y148.2 Y144.4 -2.6% $1,313
revenue
Operating income 4.1 4.2 +3.5 39
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 2.6% compared with the same quarter of the
previous fiscal year (1% decrease on a U.S dollar basis). Sales,
on a U.S. dollar basis, decreased primarily due to lower
theatrical revenues on fewer films, partially offset by
distribution fees recognized on sales of MGM titles and an
increase in television advertising revenues generated from
several of SPE's international channels. Major contributors to
the current year's first quarter revenues included the home
entertainment releases of Hitch, Are We There Yet? and
Boogeyman.
Operating income increased 3.5% compared with the same quarter
of the previous fiscal year. The increase is partially
attributable to the MGM distribution fees, increased television
advertising revenue and the home entertainment releases noted
above. Partially offsetting these higher profits were the weaker
than expected U.S. theatrical performances of XXX: State of the
Union, Lords of Dogtown and Bewitched.
Financial Services
(Billions of yen, millions of U.S. dollars)
First quarter ended June 30
2004 2005 Change in 2005
Yen
---------- ------ ------ ------ ------
Financial service Y133.6 Y153.8 +15.1% $1,398
revenue
Operating income 10.4 21.9 +110.7 199
Unless otherwise specified, all amounts are on a U.S. GAAP
basis. Therefore, they differ from the results that Sony Life
discloses on a Japanese statutory basis.
Financial service revenue increased 15.1% compared with the same
quarter of the previous fiscal year, mainly due to an increase in
revenue at Sony Life. Revenue at Sony Life was Y127.6 billion
($1,160 million), a Y14.9 billion, or 13.3% increase compared
with the same quarter of the previous fiscal year. The main
reasons for this increase were an increase in revenue from
insurance premiums reflecting an increase in insurance-in-force
and an increase in valuation gains from stock conversion rights
in convertible bonds.
Operating income increased by Y11.5 billion or 110.7% compared
with the same quarter of the previous fiscal year, mainly as a
result of an increase of operating income at Sony Life due to the
increase in revenue mentioned above and an improvement in
gains and losses from investments in the general account at Sony
Life. As a result of the abovementioned factors, operating income
at Sony Life increased by Y12.0 billion or 114.1% to Y22.5
billion ($205 million).
Other
(Billions of yen, millions of U.S. dollars)
First quarter ended June 30
2004 2005 Change in 2005
Yen
---------- ------ ------ ------ ------
Sales and operating Y147.7 Y95.4 -35.4% $868
revenue
Operating income (loss) (3.2) 4.9 - 45
Unless otherwise specified, all amounts are on a U.S. GAAP
basis.
Sales decreased 35.4% compared with the same quarter of the
previous fiscal year. Sales in the Other segment, for the first
quarter of the current fiscal year, incorporate the results of
Sony's music businesses (please refer to Note to Operating
Performance Highlights by Business Segment) which include both
SMEI's music publishing business and SMEJ. There was a
significant decrease in sales within the Other segment
reflecting the fact that the results for the same quarter of the
previous fiscal year in the Other segment incorporated the
results for SMEI's recorded music business, which, as noted
above, was combined with Bertelsmann AG's recorded music
business to form the SONY BMG joint venture.
Sales at SMEJ increased compared with the same quarter of the
previous fiscal year as a result of increased album and singles
sales. Best-selling albums and singles during the quarter
included THUMP X by PORNO GRAFFITTI, AWAKE by L'Arc-en-Ciel and E
-Complete A Side Singles-by ZONE.
Excluding sales recorded within Sony's music business, there was
a slight increase in sales within the Other segment. This
increase was mainly the result of increases in sales recorded at
an imported general merchandise retail business and at SCN,
where the contents business performed well during the quarter.
Operating income of Y4.9 billion ($45 million) was recorded,
representing an improvement of Y8.1 billion as compared with the
operating loss in the same quarter of the previous fiscal year.
This improvement was mainly the result of both the fact that, as
noted above, the results for SMEI's recorded music business,
which recorded an operating loss in the same quarter of the
previous fiscal year, are now recorded as part of the results of
the SONY BMG joint venture, and the continued strong performance
at SMEJ. Operating income at SMEJ increased significantly
compared to the previous fiscal year due to an improvement in
the cost of sales ratio and the higher sales noted above.
Excluding the operating income recorded in the music business,
the Other segment recorded a small amount of operating income,
compared with the operating loss recorded in the same quarter of
the previous fiscal year, mainly as the result of cost
reductions within the segment.
Operating Results for SONY BMG MUSIC ENTERTAINMENT
The following operating results for SONY BMG, which is accounted
for by the equity method, are not consolidated in Sony's
consolidated financial statements. However, Sony believes that
this disclosure provides additional useful analytical
information to investors regarding operating performance.
SONY BMG recorded sales revenue of $1,019 million, loss before
income taxes of $23 million, and a net loss of $18 million
during the quarter ended June 30, 2005. Loss before income taxes
includes $93 million of restructuring charges. As a result,
equity in net loss of Y1.0 billion ($9 million) was recorded by
Sony.
Cash Flow
The following charts show Sony's unaudited condensed statements
of cash flows 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)
First quarter ended June 30
Cash flow 2004 2005 Change 2005
in Yen
---------- ------ ------ ------ ------
- From operating activities (Y72.9) (Y97.3) Y-24.5 ($885)
- From investing activities (174.9) (70.4) +104.5 (640)
- From financing activities (49.1) (28.4) +20.7 (258)
Cash and cash equivalents 592.9 519.7 -73.2 4,725
at beginning of the first
quarter
Cash and cash equivalents 309.2 327.7 +18.4 2,979
as of June 30
Operating Activities: During the quarter ended June 30, 2005,
although there was a decrease in notes and accounts receivable,
trade within the Electronics and Game segments, in addition to
the recording of a net loss, there was an increase in inventory
mainly within the Electronics segment and a decrease in notes
and accounts payable, trade, mainly within the Game segment.
Investing Activities: During the quarter ended June 30, 2005,
Sony made capital investments mainly in relation to
semiconductor manufacturing facilities and LCD television
assembly facilities.
As a result, the total amount of cash flow from operating
activities and from investing activities was a net use of cash
of Y167.8 billion ($1,525 million).
Financing Activities: During the quarter ended June 30, 2005,
cash was used to make dividend payments and redeem a portion of
short-term borrowings.
Cash and Cash Equivalents: The total balance of cash and cash
equivalents, accounting for the effect of foreign currency
exchange rate fluctuations, was Y327.7 billion ($2,979 million)
as of June 30, 2005, a decrease of Y192.1 billion compared to
March 31, 2005 and an increase of Y18.4 billion compared with
June 30, 2004.
Cash Flow - Financial Services segment
--------------------------------------
(Billions of yen, millions of U.S. dollars)
First quarter ended June 30
Cash flow 2004 2005 Change 2005
in Yen
---------- ------ ------ ------ ------
- From operating activities Y50.5 Y8.7 Y-41.9 $78
- From investing activities (209.8) (150.1) +59.7 (1,364)
- From financing activities 92.3 62.5 -29.8 568
Cash and cash equivalents 256.3 259.4 +3.1 2,358
at beginning of the first
quarter
Cash and cash equivalents 189.4 180.5 -8.9 1,640
as of June 30
Operating Activities: Net cash from operating activities
increased mainly due to an increase in revenue from insurance
premiums, reflecting primarily an increase in insurance-in-force
at Sony Life.
Investing Activities: Payments for investments and advances
exceeded proceeds from maturities of marketable securities,
sales of securities investments and collections of advances
primarily as a result of investments in mainly Japanese fixed
income securities carried out as a result of an increase in
revenue from insurance premiums at Sony Life.
Financing Activities: In addition to the increase in
policyholders' accounts at Sony Life, deposits from customers in
the banking business increased primarily due to an increase in
the number of accounts.
Cash and Cash Equivalents: As a result of the above, the balance
of cash and cash equivalents was Y180.5 billion ($1,640 million)
as of June 30, 2005, which was a decrease of Y78.9 billion
compared to March 31, 2005 and a decrease of Y8.9 billion
compared to June 30, 2004.
Notes
Note I: During the quarter ended June 30, 2005, the average
value of the yen was Y106.7 against the U.S. dollar and Y134.1
against the Euro, which was 1.9% higher against the U.S. dollar
and 2.5% lower against the Euro, compared with the average rates
for the same quarter of the previous fiscal year. Operating
results on a local currency basis described herein reflect sales
and operating income obtained by applying the yen's average
exchange rate in the same quarter of the previous fiscal year to
local currency-denominated monthly sales, cost of sales, and
selling, general and administrative expenses in the current
quarter. Local currency basis results are not reflected in
Sony's financial statements and are not measures conforming with
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: In the third quarter ended December 31, 2004,
Sony adopted Emerging Issues Task Force ("EITF") Issue No. 04-8,
"The Effect of Contingently Convertible Instruments on Diluted
Earnings per Share." As a result of adopting EITF Issue No.
04-8, diluted earnings per share of net income (loss) for the three
months ended June 30, 2004 have been restated (see Note 9
regarding EITF Issue No. 04-8).
Outlook for the Fiscal Year ending March 31, 2006
-------------------------------------------------
Sony's forecast for consolidated operating results for the
fiscal year ending March 31, 2006 has been revised as per the
table below:
Change from
Current Previous April
Forecast Forecast Forecast
------ ------ ------
Sales and operating Y7,250 billion -3% Y7,450 billion
revenue
Operating income 30 billion -81 160 billion
(Restructuring charges 88 billion +22 72 billion)
included within
Operating income
Income before income 70 billion -59 170 billion
taxes
Equity in net income (8 billion) - 5 billion
(loss) of affiliated
companies
Net income 10 billion -88 80 billion
Assumed foreign currency exchange rates from the second quarter:
approximately Y107 to the U.S. dollar and approximately Y130 to
the Euro.
The principal reason for this revised forecast is that, in
addition to an increase in restructuring charges, a significant
deterioration in operating results is anticipated within the
television business in the Electronics segment primarily as a
result of lower than expected units sold compared to our initial
forecasts and a significantly greater than expected
deterioration in market prices. As a result, we anticipate an
overall slight decrease in sales and a significant increase in
operating loss within the Electronics segment for the fiscal
year ending March 31, 2006.
On the other hand, increased revenue and a slight increase in
operating income is expected to be recorded within the Financial
Services segment, reflecting the strong performance the segment
recorded during the first quarter. In addition, given the
current favorable condition of the business, we also expect
increased sales and slightly increased operating income to be
recorded within the Game segment.
There has been no significant change to our forecast as of April
27, 2005 for segments other than those mentioned above.
The above forecast includes restructuring charges, recorded as
operating expenses, of approximately Y88 billion expected to be
incurred across the Sony Group, primarily within the Electronics
segment, an increase of Y16 billion from the forecast as of
April 27, 2005, while Y90 billion of restructuring charges were
recorded for the fiscal year ended March 31, 2005.
On June 22, 2005, a new senior executive team took over
responsibility for managing the company. A detailed review is
now underway with regard to business strategy and operating
structure and the announcement of the resulting plan is expected
to take place in September 2005. In addition, as a consequence
of the recent trends in the CRT television business, management
continues to monitor whether there has been an impairment in the
related assets. There is the possibility that these reviews will
result in changes that will require additional restructuring
charges to be incurred or asset impairment write-downs and that
may impact the operating forecast detailed above. However, until
this review is completed, the company is unable to estimate the
impact of these changes and therefore the revised forecast above
does not include any such effects.
In addition, the forecast for operating income and income before
income taxes reflects an estimated gain of approximately Y60
billion in association with the transfer to the Japanese
Government of the substitutional portion of Sony's Employee
Pension Fund related to the benefit obligation associated with
past employee service. Furthermore, Y35 billion of this
estimated gain is reflected in the forecast for net income after
deductions for the effect of income taxes.
Our forecast for capital expenditures, depreciation and
amortization or research and development costs, as per the table
below, is unchanged from the forecast of April 27, 2005.
Forecast Change from
previous
fiscal year
------ ------
Capital expenditures Y410 billion +15%
(additions to fixed assets)
Depreciation and amortization* 390 billion +5
(Depreciation expenses for tangible 320 billion +6)
assets
* Including amortization of intangible assets and amortization
of deferred insurance acquisition costs.
Research and development expenses 520 billion +4
As of June 30, 2005, Sony had deferred tax assets on tax loss
carry forwards in relation to Japanese local income taxes
totaling Y77.6 billion. However, there is a possibility that,
depending on future operating performance, Sony may establish a
valuation allowance against part or all of its deferred tax
assets that would be charged to income as an increase in tax
expense. It should be noted, though, that the forecast above
does not include this possibility.
For your reference, further details about valuation allowances
against deferred tax assets can be found under the "Deferred Tax
Asset Valuation" section of "Critical Accounting Policies" in
Item 5. Operating and Financial Review and Prospects of Sony
Corporation's Annual Report on Form 20-F for the fiscal year
ended March 31, 2005.
URL: http://www.sec.gov/Archives/edgar/data/313838/
000114554905001127/k00949e20vf.htm
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, 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 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 and Pictures
segments, and music business); (iv) Sony's ability to implement
successfully personnel reduction and other business
reorganization activities in its Electronics segment, and music
business; (v) Sony's ability to implement successfully its
network strategy for its Electronics, Pictures and Other
segments, including the music business, and to develop and
implement successful sales and distribution strategies in its
Pictures segment and music business 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)
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
(viii) the success of Sony's joint ventures and alliances. Risks
and uncertainties also include the impact of any future events
with material unforeseen impacts.
Business Segment Information (Unaudited)
----------------------------------------
(Millions of yen, millions of U.S. dollars)
Three months ended June 30
Sales and operating 2004 2005 Change 2005
revenue
---------- ------ ------ ------ ------
Electronics
Customers Y1,106,159 Y1,023,485 -7.5% $9,304
Intersegment 25,122 91,768 835
---------- ------ ------ ------ ------
Total 1,131,281 1,115,253 -1.4 10,139
Game
Customers 100,061 165,477 +65.4 1,504
Intersegment 5,304 7,301 67
---------- ------ ------ ------ ------
Total 105,365 172,778 +64.0 1,571
Pictures
Customers 148,191 144,381 -2.6 1,313
Intersegment 0 0 0
---------- ------ ------ ------ ------
Total 148,191 144,381 -2.6 1,313
Financial Services
Customers 127,706 148,588 +16.4 1,351
Intersegment 5,918 5,226 47
---------- ------ ------ ------ ------
Total 133,624 153,814 +15.1 1,398
Other
Customers 130,021 77,502 -40.4 705
Intersegment 17,679 17,941 163
---------- ------ ------ ------ ------
Total 147,700 95,443 -35.4 868
Elimination (54,023) (122,236) - (1,112)
---------- ------ ------ ------ ------
Consolidated total Y1,612,138 Y1,559,433 -3.3% $14,177
Electronics intersegment amounts primarily consist of
transactions with the Game, Pictures and Other segments.
Other intersegment amounts primarily consist of transactions
with the Electronics and Game segments.
Operating income (loss) 2004 2005 Change 2005
---------- ------ ------ ------ ------
Electronics Y8,277 Y(36,280) - $(330)
Game (2,881) (5,895) - (54)
Pictures 4,101 4,246 +3.5% 39
Financial Services 10,403 21,923 +110.7% 199
Other (3,192) 4,895 - 45
---------- ------ ------ ------ ------
Total 16,708 (11,111) - (101)
Unallocated corporate (6,934) (4,171) - (38)
expenses and
elimination
---------- ------ ------ ------ ------
Consolidated total Y9,774 Y(15,282) - $(139)
Commencing with the first quarter ended June 30, 2005, Sony has
partly realigned its business segment configuration.
Results in the first quarter of the previous year have been
reclassified to conform to the presentations for the current
quarter.
(See Note 5.)
Electronics Sales and Operating Revenue to Customers by Product
Category
(Millions of yen, millions of U.S. dollars)
Three months ended June 30
Sales and operating 2004 2005 Change 2005
revenue
---------- ------ ------ ------ ------
Audio Y134,386 Y117,339 -12.7% $1,067
Video 251,205 251,073 -0.1 2,282
Televisions 189,068 150,305 -20.5 1,366
Information and 182,136 183,306 +0.6 1,666
Communications
Semiconductors 66,910 53,646 -19.8 488
Components 151,710 151,025 -0.5 1,373
Other 130,744 116,791 -10.7 1,062
---------- ------ ------ ------ ------
Total Y1,106,159 Y1,023,485 -7.5% $9,304
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 sales contributions of the
products in this business segment. In addition, commencing with
the first quarter ended June 30, 2005, Sony has partly realigned
its product category configuration in the Electronics segment.
(See Note 7.)
Geographic Segment Information (Unaudited)
------------------------------------------
(Millions of yen, millions of U.S. dollars)
Three months ended June 30
Sales and operating 2004 2005 Change 2005
revenue
---------- ------ ------ ------ ------
Japan Y484,632 Y468,272 -3.4% $4,257
United States 418,296 418,481 +0.0 3,805
Europe 375,333 331,123 -11.8 3,010
Other Areas 333,877 341,557 +2.3 3,105
---------- ------ ------ ------ ------
Total Y1,612,138 Y1,559,433 -3.3% $14,177
Classification of Geographic Segment Information shows sales and
operating revenue recognized by location of customers.
Consolidated Statements of Income (Unaudited)
---------------------------------------------
(Millions of yen, millions of U.S. dollars, except per share
amounts)
Three months ended June 30
2004 2005 Change 2005
------ ------ ------ ------
Sales and operating %
revenue:
Net sales Y1,471,121 Y1,397,734 $12,707
Financial service 127,706 148,588 1,351
revenue
Other operating 13,311 13,111 119
revenue
------ ------ ------ ------
1,612,138 1,559,433 -3.3 14,177
Costs and expenses:
Cost of sales 1,103,271 1,096,776 9,971
Selling, general 376,937 349,476 3,177
and administrative
Financial service 117,294 126,637 1,151
expenses
Loss on sale, 4,862 1,826 17
disposal or
impairment of
assets, net
------ ------ ------ ------
1,602,364 1,574,715 14,316
Operating income (loss) 9,774 (15,282) - (139)
Other income:
Interest and 4,981 6,169 56
dividends
Royalty income 5,661 8,700 79
Gain on sale of 689 2,141 20
securities
investments, net
Gain on change in 307 17,869 162
interest in
subsidiaries and
equity investees
Other 6,849 5,758 52
------ ------ ------ ------
18,487 40,637 369
Other expenses:
Interest 7,527 4,846 44
Loss on 931 800 7
devaluation of
securities
investments
Foreign exchange 5,683 1,392 13
loss, net
Other 7,506 5,414 49
------ ------ ------ ------
21,647 12,452 113
------ ------ ------ ------
Income before income 6,614 12,903 +95.1 117
taxes
Income taxes (1,842) 12,051 109
Income before 8,456 852 -89.9 8
minority interest,
equity in net income
(loss) of affiliated
companies and
cumulative effect of
an accounting change
Minority interest in 621 (971) (9)
income (loss) of
consolidated
subsidiaries
Equity in net 20,142 (9,086) (83)
income (loss) of
affiliated
companies
------ ------ ------ ------
Income (loss) before 27,977 (7,263) - (66)
cumulative effect of
an accounting change
Cumulative effect (4,713) - -
of an accounting
change
(2004: Net of
income taxes of
Y2,675 million)
------ ------ ------ ------
Net income (loss) Y23,264 Y(7,263) - $(66)
------ ------ ------ ------
Per share data:
Common stock
Income (loss) before
cumulative effect of
an accounting change
- Basic Y30.20 Y(8.68) - $(0.08)
- Diluted 27.30 (8.68) - (0.08)
Net income (loss)
- Basic 25.10 (8.68) - (0.08)
- Diluted 22.79 (8.68) - (0.08)
Subsidiary
tracking stock
Net income
- Basic 13.87 449.14 +3,138.2 4.08
Consolidated Balance Sheets (Unaudited)
---------------------------------------
(Millions of yen, millions of U.S. dollars)
June 30 March 31 June 30 June 30
ASSETS 2004 2005 2005 2005
------ ------ ------ ------
Current assets:
Cash and cash Y498,587 Y779,103 Y508,103 $4,619
equivalents
Time deposits 6,184 1,492 1,346 12
Marketable 494,219 460,202 479,801 4,362
securities
Notes and accounts 1,113,384 1,113,071 1,021,903 9,290
receivable, trade
Allowance for (109,555) (87,709) (82,622) (751)
doubtful
accounts and
sales returns
Inventories 761,962 631,349 702,107 6,383
Deferred income 123,965 141,154 131,738 1,198
taxes
Prepaid expenses 440,486 517,509 431,961 3,927
and other
current assets
------ ------ ------ ------
3,329,232 3,556,171 3,194,337 29,040
Film costs 259,792 278,961 313,940 2,854
Investments and
advances:
Affiliated 168,222 252,905 273,221 2,484
companies
Securities 2,386,537 2,492,784 2,746,073 24,964
investments and
other
------ ------ ------ ------
2,554,759 2,745,689 3,019,294 27,448
Property, plant
and equipment:
Land 186,620 182,900 183,007 1,664
Buildings 934,311 925,796 927,776 8,434
Machinery and 2,085,402 2,192,038 2,213,789 20,125
equipment
Construction in 117,456 92,611 118,638 1,079
progress
Less-Accumulated (1,952,104) (2,020,946)(2,054,443) (18,677)
depreciation
------ ------ ------ ------
1,371,685 1,372,399 1,388,767 12,625
Other assets:
Intangibles, net 233,271 187,024 192,902 1,754
Goodwill 287,278 283,923 288,028 2,618
Deferred insurance 363,401 374,805 380,238 3,457
acquisition costs
Deferred income 228,203 240,396 242,917 2,208
taxes
Other 522,106 459,732 454,050 4,128
------ ------ ------ ------
1,634,259 1,545,880 1,558,135 14,165
------ ------ ------ ------
Y9,149,727 Y9,499,100 Y9,474,473 $86,132
------ ------ ------ ------
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Current liabilities:
Short-term Y103,828 Y63,396 Y54,147 $492
borrowings
Current portion 354,045 166,870 162,969 1,482
of long-term
debt
Notes and 762,582 806,044 758,955 6,900
accounts
payable, trade
Accounts 783,635 746,466 666,433 6,058
payable, other
and accrued
expenses
Accrued income 45,257 55,651 28,550 260
and other taxes
Deposits from 413,654 546,718 574,814 5,226
customers in the
banking business
Other 457,630 424,223 439,507 3,995
------ ------ ------ ------
2,920,631 2,809,368 2,685,375 24,413
Long-term liabilities:
Long-term debt 781,089 678,992 678,303 6,166
Accrued pension 377,213 352,402 351,141 3,192
and severance
costs
Deferred income 88,469 72,227 76,889 699
taxes
Future insurance 2,265,008 2,464,295 2,521,860 22,926
policy benefits
and other
Other 276,082 227,631 244,682 2,225
------ ------ ------ ------
3,787,861 3,795,547 3,872,875 35,208
Minority interest 23,287 23,847 27,870 253
in consolidated
subsidiaries
Stockholders' equity:
Capital stock 480,285 621,709 621,717 5,652
Additional 992,834 1,134,222 1,134,263 10,311
paid-in capital
Retained 1,390,321 1,506,082 1,498,227 13,620
earnings
Accumulated (437,524) (385,675) (359,796) (3,270)
other comprehensive
income
Treasury stock, (7,968) (6,000) (6,058) (55)
at cost
------ ------ ------ ------
2,417,948 2,870,338 2,888,353 26,258
------ ------ ------ ------
Y9,149,727 Y9,499,100 Y9,474,473 $86,132
------ ------ ------ ------
Consolidated Statements of Cash Flows (Unaudited)
-------------------------------------------------
(Millions of yen, millions of U.S. dollars)
Three months ended June 30
2004 2005 2005
------ ------ ------
Cash flows from operating
activities:
Net income (loss) Y 23,264 Y(7,263) $(66)
Adjustments to reconcile net
income (loss) to net cash used
in operating activities
Depreciation and amortization, 85,531 88,664 806
including amortization of
deferred insurance acquisition
costs
Amortization of film costs 55,055 53,654 488
Accrual for pension and 7,820 (1,101) (10)
severance costs, less payments
Loss on sale, disposal or 4,862 1,826 17
impairment of assets, net
Gain on sales or loss on 242 (1,341) (13)
devaluation of securities
investments, net
Gain on change in interest in (307) (17,869) (162)
subsidiaries and equity
investees
Deferred income taxes (15,627) (2,624) (24)
Equity in net (income) losses (19,668) 9,406 86
of affiliated companies, net
of dividends
Cumulative effect of an 4,713 - -
accounting change
Changes in assets and
liabilities:
Decrease in notes and accounts 24,663 96,786 880
receivable, trade
Increase in inventories (88,947) (64,677) (588)
Increase in film costs (51,412) (79,247) (720)
Decrease in notes and accounts (21,838) (50,570) (460)
payable, trade
Decrease in accrued income and (13,674) (23,849) (217)
other taxes
Increase in future insurance 40,771 19,248 175
policy benefits and other
Increase in deferred insurance (15,940) (16,023) (146)
acquisition costs
Increase in marketable (12,343) (13,956) (127)
securities held in the
financial service
business for trading purpose
Increase in other current (22,203) (30,814) (280)
assets
Decrease in other current (25,363) (65,074) (592)
liabilities
Other 17,917 16,192 147
------ ------ ------
Net cash used in operating (22,484) (88,632) (806)
activities
------ ------ ------
Cash flows from investing
activities:
Payments for purchases of (128,891) (114,074) (1,037)
fixed assets
Proceeds from sales of fixed 14,359 7,232 66
assets
Payments for investments and (414,488) (301,423) (2,740)
advances by financial service
business
Payments for investments and (67,182) (13,136) (119)
advances (other than financial
service business)
Proceeds from maturities of 214,755 169,551 1,541
marketable securities, sales
of securities investments and
collections of advances by
financial service business
Proceeds from maturities of 6,552 12,388 113
marketable securities, sales
of securities investments and
collections of advances (other
than financial service business)
Other (1,132) 16,331 148
------ ------ ------
Net cash used in investing (376,027) (223,131) (2,028)
activities
------ ------ ------
Cash flows from financing
activities:
Proceeds from issuance of 8,574 717 7
long-term debt
Payments of long-term debt (39,461) (6,644) (60)
Decrease in short-term (3,073) (11,095) (101)
borrowings
Increase in deposits from 65,155 66,162 601
customers in the financial
service business
Increase in call money and 15,000 400 4
bills sold in the banking
business
Dividends paid (11,577) (12,474) (114)
Other 31 (414) (4)
------ ------ ------
Net cash provided by financing 34,649 36,652 333
activities
------ ------ ------
Effect of exchange rate 13,238 4,111 37
changes on cash and cash
equivalents
------ ------ ------
Net decrease in cash and cash (350,624) (271,000) (2,464)
equivalents
Cash and cash equivalents at 849,211 779,103 7,083
beginning of the fiscal year
------ ------ ------
Cash and cash equivalents at Y498,587 Y508,103 $4,619
June 30
------ ------ ------
(Notes)
1. U.S. dollar amounts have been translated from yen, for
convenience only, at the rate of Y110 = U.S. $1, the approximate
Tokyo foreign exchange market rate as of June 30, 2005.
2. As of June 30, 2005, Sony had 929 consolidated
subsidiaries (including variable interest entities). It has
applied the equity accounting method in respect to 57 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 ended June 30, 2004
mainly resulted from convertible bonds.
Weighted-average shares (Thousands of shares)
----------------------- Three months ended June 30
2004 2005
------ ------
Income (loss) before cumulative
effect of an accounting change
and net income (loss)
- Basic 924,955 996,087
- Diluted 1,044,951 996,087
By adopting the Emerging Issues Task Force ("EITF") Issue No.
04-8, "The Effect of Contingently Convertible Instruments on
Diluted Earnings per Share", issued in July 2004, diluted
earnings per share of income before cumulative effect of an
accounting change and net income for the three months ended June
30, 2004 were retroactively restated (see Note 9).
Weighted-average shares used for computation of earnings per
share of the subsidiary tracking stock for the three months
ended June 30, 2004 and 2005 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 (loss), other comprehensive income and
comprehensive income for the three months ended June 30, 2004
and 2005 were as follows:
(Millions of yen, millions of U.S. dollars)
Three months ended June 30
------ ------ ------
2004 2005 2005
------ ------ ------
Net income (loss) Y23,264 Y(7,263) $(66)
Other comprehensive income :
Unrealized gains (losses) on (15,163) 8,379 76
securities
Unrealized gains (losses) on (2,262) 1,490 14
derivative instruments
Minimum pension liabilities (363) (231) (2)
adjustments
Foreign currency translation 30,223 16,241 147
adjustments
------ ------ ------
12,435 25,879 235
---------- ------ ------ ------
Comprehensive income Y35,699 Y18,616 $169
---------- ------ ------ ------
5. As of August 1, 2004, Sony and Bertelsmann AG combined
their recorded music businesses in a joint venture. In
connection with the establishment of this joint venture, the
non-Japan based disc manufacturing and physical distribution
businesses, formerly included within the Music segment, have
been reclassified to "Other" category in the Electronics
segment. In addition, effective April 1, 2005, a similar change
was made with respect to the Japan based disc manufacturing
businesses. Results for the three months ended June 30, 2004 in
the Electronics segment have been restated to account for these
reclassifications.
As a result of these changes in the Music segment, Sony no
longer breaks out the Music segment as a reportable segment as
it no longer meets the materiality threshold. Effective April 1,
2005, results for the Music segment are included within the
Other segment. Accordingly, results for the three months ended
June 30, 2004 in the Electronics and the Other segments have
been restated to conform to the presentation for this year.
6. In July 2004, in order to establish a more efficient
and coordinated semiconductor supply structure, the Sony group
has integrated its semiconductor manufacturing business by
transferring Sony Computer Entertainment's semiconductor
manufacturing operation from the Game segment to the Electronics
segment. As a result of this transfer, sales revenue and
expenditures associated with this operation are now recorded
within the "Semiconductor" category in the Electronics segment.
The results for the three months ended June 30, 2004 have not
been restated as such comparable figures cannot be practically
obtained given that it was not operated as a separate line of
business within the Game segment. This integration of the
semiconductor manufacturing businesses is a part of Sony's
semiconductor strategy of utilizing semiconductor technologies
and manufacturing equipment originally developed or designed for
the Game business within the Sony group as a whole.
7. Commencing April 1, 2005, Sony has partly realigned
its product category configuration in the Electronics segment.
Accordingly, results of the previous year have been
reclassified. The primary change is as shown below:
Main Product Previous Product New Product Category
Category
Professional-use "Televisions" -> "Information and
projector Communications"
8. In July 2003, the Accounting Standards Executive
Committee of the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") 03-1,
"Accounting and Reporting by Insurance Enterprises for Certain
Nontraditional Long-Duration Contracts and for Separate
Accounts". SOP 03-1 requires insurance enterprises to record
additional reserves for long-duration life insurance contracts
with minimum guarantee or annuity receivable options.
Additionally, SOP 03-1 provides guidance for the presentation of
separate accounts. This statement is effective for fiscal years
beginning after December 15, 2003. Sony adopted SOP 03-1 on
April 1, 2004. As a result of the adoption of SOP 03-1, Sony's
operating income decreased by Y968 million for the three months
ended June 30, 2004. Additionally, on April 1, 2004, Sony
recognized Y4,713 million of loss (net of income taxes of Y2,675
million) as a cumulative effect of an accounting change. In
addition, the separate account assets, which are defined by
insurance business law in Japan and were previously included in
"Security investments and other" on the consolidated balance
sheet, were excluded from the category of separate accounts
under the provision of SOP 03-1. Accordingly, the separate
account assets are now treated as general accounts and included
in "Marketable securities" on the consolidated balance sheet.
9. In July 2004, the EITF issued EITF Issue No. 04-8,
"The Effect of Contingently Convertible Instruments on Diluted
Earnings per Share". In accordance with FAS No.128, Sony had not
included in the computation of diluted earnings per share
("EPS") the number of potential common stock upon the conversion
of contingently convertible debt instruments ("Co-Cos") that
have not met the conditions to exercise the stock acquisition
rights. EITF Issue No. 04-8 requires that the maximum number of
common stock that could be issued upon the conversion of Co-Cos
be included in diluted EPS computations from the date of
issuance regardless of whether the conditions to exercise the
rights have been met. EITF Issue No. 04-8 is effective for
reporting periods ending after December 15, 2004. Sony adopted
EITF Issue No. 04-8 during the quarter ended December 31, 2004.
As a result of the adoption of EITF Issue No. 04-8, Sony's
diluted EPS of income before cumulative effect of an accounting
change and net income for the three months ended June 30, 2004
were restated. Sony's diluted EPS of income before cumulative
effect of an accounting change and net income for the three
months ended June 30, 2004 were decreased by Y1.22 and Y1.02,
respectively, compared to those before adopting EITF Issue No.
04-8.
Other Consolidated Financial Data
(Millions of yen, millions of U.S. dollars)
Three months ended June 30
2004 2005 Change 2005
------ ------ ------ ------
Capital expenditures Y88,071 Y97,983 +11.3% $891
(additions to property,
plant and equipment)
Depreciation and 85,531 88,664 +3.7 806
amortization expenses*
(Depreciation expenses (68,907) (71,881) (+4.3) (653)
for property, plant and
equipment)
R&D expenses 123,582 118,388 -4.2 1,076
* 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.
Condensed Statements of Income
------------------------------
(Millions of yen, millions of U.S. dollars)
Three months ended June 30
Financial Services 2004 2005 Change 2005
------ ------ ------ ------
%
Financial service revenue Y133,624 Y153,814 +15.1 $1,398
Financial service expenses 123,221 131,891 +7.0 1,199
------ ------ ------ ------
Operating income 10,403 21,923 +110.7 199
Other income (expenses), (62) (117) - (1)
net
------ ------ ------ ------
Income before income taxes 10,341 21,806 +110.9 198
Income taxes and other 3,826 9,734 +154.4 88
------ ------ ------ ------
Income before cumulative 6,515 12,072 +85.3 110
effect of an accounting
change
Cumulative effect of an (4,713) - - -
accounting change
------ ------ ------ ------
Net income Y1,802 Y12,072 +569.9 $110
------ ------ ------ ------
(Millions of yen, millions of U.S. dollars)
Sony without Financial Three months ended June 30
Services 2004 2005 Change 2005
------ ------ ------ ------
%
Net sales and operating Y1,486,409 Y1,412,793 -5.0 $12,844
revenue
Costs and expenses 1,486,927 1,450,430 -2.5 13,186
------ ------ ------ ------
Operating income (loss) (518) (37,637) - (342)
Other income (3,209) 28,735 - 261
(expenses), net
------ ------ ------ ------
Income (loss) before (3,727) (8,902) - (81)
income taxes
Income taxes and other (25,189) 10,432 - 95
------ ------ ------ ------
Net income (loss) Y21,462 Y(19,334) - $(176)
------ ------ ------ ------
(Millions of yen, millions of U.S. dollars)
Three months ended June 30
Consolidated 2004 2005 Change 2005
------ ------ ------ ------
%
Financial Y127,706 Y148,588 +16.4 $1,351
service revenue
Net sales and 1,484,432 1,410,845 -5.0 12,826
operating revenue
------ ------ ------ ------
1,612,138 1,559,433 -3.3 14,177
Costs and expenses 1,602,364 1,574,715 -1.7 14,316
------ ------ ------ ------
Operating income (loss) 9,774 (15,282) - (139)
Other income (3,160) 28,185 - 256
(expenses), net
------ ------ ------ ------
Income before 6,614 12,903 +95.1 117
income taxes
Income taxes and (21,363) 20,166 - 183
other
------ ------ ------ ------
Income (loss) before 27,977 (7,263) - (66)
cumulative effect of an
accounting change
Cumulative (4,713) - - -
effect of an
accounting change
------ ------ ------ ------
Net income (loss) Y23,264 Y(7,263) - $(66)
------ ------ ------ ------
Condensed Balance Sheets
------------------------
(Millions of yen, millions of U.S. dollars)
Financial Services June 30 March 31 June 30 June 30
ASSETS 2004 2005 2005 2005
------ ------ ------ ------
Current assets:
Cash and cash Y189,381 Y259,371 Y180,452 $1,640
equivalents
Marketable 490,144 456,130 475,728 4,325
securities
Notes and 72,339 77,023 77,968 709
accounts
receivable, trade
Other 81,891 197,667 100,926 918
------ ------ ------ ------
833,755 990,191 835,074 7,592
Investments and 2,250,950 2,378,966 2,644,653 24,042
advances
Property, plant and 40,819 38,551 33,866 308
equipment
Other assets:
Deferred 363,401 374,805 380,238 3,457
insurance
acquisition costs
Other 108,956 103,004 104,991 954
------ ------ ------ ------
472,357 477,809 485,229 4,411
------ ------ ------ ------
Y3,597,881 Y3,885,517 Y3,998,822 $36,353
------ ------ ------ ------
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Current
liabilities:
Short-term Y103,176 Y45,358 Y42,346 $385
borrowings
Notes and 7,176 7,099 8,232 75
accounts payable,
trade
Deposits from 413,654 546,718 574,814 5,226
customers in the
banking business
Other 158,775 109,438 112,359 1,021
------ ------ ------ ------
682,781 708,613 737,751 6,707
Long-term
liabilities:
Long-term debt 135,993 135,750 134,879 1,226
Accrued pension 10,748 14,362 14,685 133
and severance
costs
Future insurance 2,265,008 2,464,295 2,521,860 22,926
policy benefits
and other
Other 120,406 142,272 149,169 1,357
------ ------ ------ ------
2,532,155 2,756,679 2,820,593 25,642
Minority interest 5,820 5,476 5,402 49
in consolidated
subsidiaries
Stockholders' 377,125 414,749 435,076 3,955
equity
------ ------ ------ ------
Y3,597,881 Y3,885,517 Y3,998,822 $36,353
------ ------ ------ ------
(Millions of yen, millions of U.S. dollars)
Sony without June 30 March 31 June 30 June 30
Financial Services 2004 2005 2005 2005
------ ------ ------ ------
ASSETS
Current assets:
Cash and cash Y309,206 Y519,732 Y327,651 $2,979
equivalents
Marketable 4,075 4,072 4,073 37
securities
Notes and 935,065 952,692 865,106 7,864
accounts
receivable, trade
Other 1,274,358 1,116,353 1,189,093 10,810
------ ------ ------ ------
2,522,704 2,592,849 2,385,923 21,690
Film costs 259,792 278,961 313,940 2,854
Investments and 423,858 445,446 465,380 4,231
advances
Investments in 197,073 187,400 187,400 1,704
Financial Services,
at cost
Property, plant and 1,330,866 1,333,848 1,354,901 12,317
equipment
Other assets 1,272,866 1,189,398 1,199,863 10,908
------ ------ ------ ------
Y6,007,159 Y6,027,902 Y5,907,407 $53,704
------ ------ ------ ------
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Current
liabilities:
Short-term Y373,908 Y204,027 Y191,677 $1,742
borrowings
Notes and 757,236 801,252 752,804 6,844
accounts payable,
trade
Other 1,144,546 1,132,201 1,040,032 9,455
------ ------ ------ ------
2,275,690 2,137,480 1,984,513 18,041
Long-term
liabilities:
Long-term debt 777,738 627,367 626,821 5,698
Accrued pension 366,465 338,040 336,456 3,059
and severance
costs
Other 331,854 263,520 296,385 2,694
------ ------ ------ ------
1,476,057 1,228,927 1,259,662 11,451
Minority interest 17,567 18,471 22,517 205
in consolidated
subsidiaries
Stockholders' 2,237,845 2,643,024 2,640,715 24,007
equity
------ ------ ------ ------
Y6,007,159 Y6,027,902 Y5,907,407 $53,704
------ ------ ------ ------
(Millions of yen, millions of U.S. dollars)
Consolidated June 30 March 31 June 30 June 30
ASSETS 2004 2005 2005 2005
------ ------ ------ ------
Current assets:
Cash and cash Y498,587 Y779,103 Y508,103 $4,619
equivalents
Marketable 494,219 460,202 479,801 4,362
securities
Notes and 1,003,829 1,025,362 939,281 8,539
accounts
receivable, trade
Other 1,332,597 1,291,504 1,267,152 11,520
------ ------ ------ ------
3,329,232 3,556,171 3,194,337 29,040
Film costs 259,792 278,961 313,940 2,854
Investments and 2,554,759 2,745,689 3,019,294 27,448
advances
Property, plant and 1,371,685 1,372,399 1,388,767 12,625
equipment
Other assets:
Deferred 363,401 374,805 380,238 3,457
insurance
acquisition costs
Other 1,270,858 1,171,075 1,177,897 10,708
------ ------ ------ ------
1,634,259 1,545,880 1,558,135 14,165
------ ------ ------ ------
Y9,149,727 Y9,499,100 Y9,474,473 $86,132
------ ------ ------ ------
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Current
liabilities:
Short-term Y457,873 Y230,266 Y217,116 $1,974
borrowings
Notes and 762,582 806,044 758,955 6,900
accounts payable,
trade
Deposits from 413,654 546,718 574,814 5,226
customers in the
banking business
Other 1,286,522 1,226,340 1,134,490 10,313
------ ------ ------ ------
2,920,631 2,809,368 2,685,375 24,413
Long-term
liabilities:
Long-term debt 781,089 678,992 678,303 6,166
Accrued pension 377,213 352,402 351,141 3,192
and severance
costs
Future insurance 2,265,008 2,464,295 2,521,860 22,926
policy benefits
and other
Other 364,551 299,858 321,571 2,924
------ ------ ------ ------
3,787,861 3,795,547 3,872,875 35,208
Minority interest 23,287 23,847 27,870 253
in consolidated
subsidiaries
Stockholders' 2,417,948 2,870,338 2,888,353 26,258
equity
------ ------ ------ ------
Y9,149,727 Y9,499,100 Y9,474,473 $86,132
------ ------ ------ ------
Condensed Statements of Cash Flows
----------------------------------
(Millions of yen, millions of U.S. dollars)
Three months ended June 30
Financial Services 2004 2005 2005
------ ------ ------
Net cash provided by operating Y50,544 Y8,650 $78
activities
Net cash used in investing (209,778) (150,060) (1,364)
activities
Net cash provided by financing 92,299 62,491 568
activities
------ ------ ------
Net decrease in cash and cash (66,935) (78,919) (718)
equivalents
Cash and cash equivalents at 256,316 259,371 2,358
beginning of the fiscal year
------ ------ ------
Cash and cash equivalents at Y189,381 Y180,452 $1,640
June 30
------ ------ ------
(Millions of yen, millions of U.S. dollars)
Sony without Financial Three months ended June 30
Services 2004 2005 2005
------ ------ ------
Net cash used in operating Y(72,863) Y(97,332) $(885)
activities
Net cash used in investing (174,929) (70,426) (640)
activities
Net cash used in financing (49,135) (28,434) (258)
activities
Effect of exchange rate 13,238 4,111 37
changes on cash and cash
equivalents
------ ------ ------
Net decrease in cash and cash (283,689) (192,081) (1,746)
equivalents
Cash and cash equivalents at 592,895 519,732 4,725
beginning of the fiscal year
------ ------ ------
Cash and cash equivalents at Y309,206 Y327,651 $2,979
June 30
------ ------ ------
(Millions of yen, millions of U.S. dollars)
Three months ended June 30
Consolidated 2004 2005 2005
------ ------ ------
Net cash used in operating Y(22,484) Y(88,632) $(806)
activities
Net cash used in investing (376,027) (223,131) (2,028)
activities
Net cash provided by financing 34,649 36,652 333
activities
Effect of exchange rate 13,238 4,111 37
changes on cash and cash
equivalents
------ ------ ------
Net decrease in cash and cash (350,624) (271,000) (2,464)
equivalents
Cash and cash equivalents at 849,211 779,103 7,083
beginning of the fiscal year
------ ------ ------
Cash and cash equivalents at Y498,587 Y508,103 $4,619
June 30
------ ------ ------
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----------------------------
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