-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QFt8WB/ZOGory8e7jAf2/Tjt/Zur/iG3mdDr8zK+YaHg2Ppi8pvzj9G89dWUlH0T LC3Y1vdutF97P0BOKwl7wQ== 0001191638-05-002108.txt : 20051027 0001191638-05-002108.hdr.sgml : 20051027 20051027060848 ACCESSION NUMBER: 0001191638-05-002108 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20051027 FILED AS OF DATE: 20051027 DATE AS OF CHANGE: 20051027 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SONY CORP CENTRAL INDEX KEY: 0000313838 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD AUDIO & VIDEO EQUIPMENT [3651] IRS NUMBER: 000000000 STATE OF INCORPORATION: M0 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06439 FILM NUMBER: 051158321 BUSINESS ADDRESS: STREET 1: 7-35 KITASHINAGAWA STREET 2: 6-CHOME SHINAGAWA-KU CITY: TOKYO 141 JAPAN STATE: M0 BUSINESS PHONE: 0354482180 MAIL ADDRESS: STREET 1: 7-35 KITASHINAGAWA STREET 2: 6-CHOME, SHINAGAWA-KU CITY: TOKYO 141 JAPAN STATE: M0 6-K 1 son200510276k.txt 2ND QUARTER RESULTS 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 October 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: October 27, 2005 List of materials Documents attached hereto: i) Press release announcing Sony Corporation's Consolidated Financial Results for the Second Quarter Ended September 30, 2005 Sony Corporation 6-7-35 Kitashinagawa Shinagawa-ku Tokyo 141-0001 Japan No: 05-063E 3:00 P.M. JST, October 27, 2005 Consolidated Financial Results for the Second Quarter Ended September 30, 2005 Tokyo, October 27, 2005 -- Sony Corporation today announced its consolidated results for the second quarter ended September 30, 2005 (July 1, 2005 to September 30, 2005).
(Billions of yen, millions of U.S. dollars, except per share amounts) Second quarter ended September 30 2004 2005 Change 2005* in Yen - ---------- ------ ------ ------ ------ Sales and operating Y1,702.3 Y1,703.0 +0.0% $15,071 revenue Operating income 43.4 65.9 +51.9 583 Income before income 63.3 95.4 +50.8 844 taxes Equity in net income 6.1 (2.6) - (23) (loss) of affiliated companies Net income 53.2 28.5 -46.5 252 Net income per share of common stock - Basic Y57.50 Y28.63 -50.2 $0.25 - Diluted 51.47 27.32 -46.9 0.24
* U.S. dollar amounts have been translated from yen, for convenience only, at the rate of Y113=U.S.$1, the approximate Tokyo foreign exchange market rate as of September 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 Second Quarter Ended September 30, 2005 - --------------------------------------------------------------- Sales and operating revenue ("sales") remained almost unchanged compared with the same quarter of the previous fiscal year; on a local currency basis sales decreased 1%. (For all references herein to results on a local currency basis, see Note I.) This reflects a decrease in sales resulting from 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 remained largely unchanged compared with the same quarter of the previous fiscal year. In terms of product categories within the Electronics segment, although sales of LCD flat panel televisions and video cameras increased, there was a decrease in sales of CRT televisions, plasma televisions and digital cameras. In the Game segment, sales increased 79.1% as a result of the contribution from hardware and software sales of the PlayStation Portable ("PSP"). In the Pictures segment, there was a 17.2% decrease in revenue primarily due to lower theatrical revenues. In the Financial Services segment, revenue increased by 39.7% mainly due to an improvement in gains and losses on investments at Sony Life Insurance Co., Ltd. ("Sony Life"). Operating income increased 51.9% (a 34% increase on a local currency basis) compared with the same quarter of the previous fiscal year. This includes a one time gain of Y73.5 billion ($650 million), which resulted from the transfer to the Japanese Government of the substitutional portion of Sony's Employee Pension Fund. Of this, a gain of Y63.9 billion ($565 million) was recorded within the Electronics segment. In addition, restructuring charges, which were recorded as operating expenses, for the second quarter amounted to Y32.9 billion ($291 million) compared to Y18.8 billion in the same quarter of the previous fiscal year. In the Electronics segment, restructuring charges were Y32.3 billion ($286 million) compared to Y15.6 billion in the same quarter of the previous fiscal year. In the Electronics segment, although there was a decrease in sales to outside customers, operating income was recorded solely as a result of a gain resulting from the transfer to the Japanese Government of the substitutional portion of Sony's Employee Pension Fund. In the Game segment, operating income was recorded in association with the favorable growth of the PSP business. In the Pictures segment, disappointing theatrical revenues resulted in an operating loss. In the Financial Services segment, there was a significant increase in operating income mainly attributable to the increase in gains on investments at Sony Life. Income before income taxes increased 50.8% compared to the same quarter of the previous fiscal year. An improvement in the net effect of other income and other expenses was mainly the result of a gain of Y20.7 billion ($183 million) on the change in interest resulting from the sale of a portion of stock in Monex Beans Holdings, Inc. ("Monex Beans"), previously an equity affiliate of Sony. In the same quarter of the previous year, Sony also recognized a gain of Y9.0 billion from a change in interest in subsidiaries and equity investees resulting from the establishment of Monex Beans, and a Y4.2 billion gain resulting from the initial public offering of So-net M3 Inc., a consolidated subsidiary of Sony Communications Network Corporation ("SCN"). Income taxes: During the current quarter, Sony recorded Y65.1 billion ($576 million) of income tax expense, resulting in an effective tax rate of 68.3%. This effective tax rate exceeded the Japanese statutory tax rate due primarily to the recording of both an additional tax provision for undistributed earnings of foreign subsidiaries and additional valuation allowances against deferred tax assets. Equity in net loss of affiliated companies of Y2.6 billion ($23 million) was recorded, a Y8.7 billion deterioration compared to the same quarter of the previous fiscal year. An equity loss of Y2.8 billion ($25 million) was recorded for S-LCD Corporation, a joint-venture with Samsung Electronics Co., Ltd. ("S-LCD"), for the manufacture of amorphous TFT LCD panels. Sony also recorded equity in net loss of approximately Y4.4 billion ($39 million) for Metro-Goldwyn-Mayer Inc. ("MGM")* and of Y3.2 billion ($29 million) for SONY BMG. The equity in net loss for MGM includes non-cash interest of Y1.5 billion ($13 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 Y7.0 billion ($62 million) to equity in net income, an increase of Y1.0 billion compared to the same quarter of the previous fiscal year. *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. Net income, as a result, decreased 46.5% 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 three and six month periods ended September 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 and first half 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 periods of the previous fiscal year in the Other segment include the consolidated results for SMEI's recorded music business for the period through July 31, 2004, 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) Second quarter ended September 30 2004 2005 Change in 2005 Yen - ---------- ------ ------ ------ ------ Sales and operating Y1,219.4 Y1,216.1 -0.3% $10,762 revenue Operating income 7.1 17.3 +144.6 153
Unless otherwise specified, all amounts are on a U.S. GAAP basis. Sales remained largely unchanged (a 2% decrease on a local currency basis). Sales to outside customers decreased 7.8% compared to the same quarter of the previous fiscal year. There was a decline in sales of CRT televisions which experienced a continued shift in demand towards flat panel televisions, plasma televisions and digital cameras, which both faced intense business competition. On the other hand, there was an increase in sales of several products including LCD flat panel televisions, which experienced increased sales in the U.S. and Europe, as well as DVD "Handycam" video cameras, which saw increased sales in all geographic areas, and digital high-definition "Handycam" video cameras, which saw increased sales in Japan. Operating income increased by Y10.2 billion or 144.6% compared with the same quarter of the previous fiscal year. Despite the decline in sales to outside customers as a result of the aforementioned factors, as well as an increase in the loss on impairment of assets particularly with regard to CRT television manufacturing facilities primarily in the U.S, there was an increase in income solely as a result of a Y63.9 billion ($565 million) gain, which resulted from the transfer to the Japanese government of the substitutional portion of Sony's Employee Pension Fund. With regard to products within the Electronics segment, products which had a negative impact on operating income included CRT televisions, which experienced a significant decrease in sales, CCDs and LCD televisions, which were both impacted by a decline in unit selling prices. On the other hand, "Handycam" video cameras experienced an increase in operating income due to good sales performance. Inventory, as of September 30, 2005, was Y642.4 billion ($5,685 million), a Y46.1 billion, or 6.7%, decrease compared with the level as of September 30, 2004 and a Y68.8 billion, or 12.0%, increase compared with the level as of June 30, 2005. 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 2,055 million, representing a year-on-year increase of Euro 377 million, or 22%, boosted by hit models such as 2 megapixel auto-focus camera phones and the "Walkman" phone. Units shipped in the quarter reached 13.8 million, a 29% increase compared to the same period last year, higher than market growth. Income before taxes was Euro 151 million and net income was Euro 104 million, which represents a year-on-year increase of Euro 15 million, or 11%, and Euro 14 million, or 16%, respectively. As a result, equity in net income of Y7.0 billion ($62 million) was recorded by Sony. Game
(Billions of yen, millions of U.S. dollars) Second quarter ended September 30 2004 2005 Change in 2005 Yen - ---------- ------ ------ ------ ------ Sales and operating Y119.6 Y214.2 +79.1% $1,896 revenue Operating income (loss) (0.0) 8.2 - 73
Unless otherwise specified, all amounts are on a U.S. GAAP basis. Sales increased 79.1% compared with the same quarter of the previous fiscal year (a 77% increase on a local currency basis). Hardware: In addition to the significant contribution to sales from PSP, an increase of PlayStation 2 ("PS2") unit sales in Europe and the U.S. compared to the same quarter of the previous fiscal year resulted in a significant increase in sales in all geographic areas. Software: Overall software sales increased as a result of the contribution to sales from PSP software, despite a decrease in PS2 software sales. On a regional basis, revenue significantly increased in Japan and Europe, although it slightly decreased in the U.S. Operating income of Y8.2 billion ($73 million) was recorded compared to a very small operating loss in the same quarter of the previous fiscal year mainly due to the favorable performance of the PS2 and PSP businesses. This was partially offset by an increase in selling, general and administrative expenses mainly reflecting advertising and marketing expenses associated with the launch of PSP incurred during the quarter, as well as continued aggressive research and development spending associated with the PLAYSTATION 3 business. Worldwide hardware production shipments:* -> PS2: 5.01 million units (an increase of 3.02 million units) -> PSP: 3.75 million units** Worldwide software production shipments:* -> PS2: 50 million units (a decrease of 6 million units) -> PSP: 9.0 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 September 30, 2005, was Y114.9 billion ($1,017 million), a Y61.5 billion, or 115.2%, increase compared with the level as of September 30, 2004 and a Y30.9 billion, or 36.7%, increase compared with the level as of June 30, 2005. Pictures
(Billions of yen, millions of U.S. dollars) Second quarter ended September 30 2004 2005 Change in 2005 Yen - ---------- ------ ------ ------ ------ Sales and operating Y191.7 Y158.9 -17.2% $1,406 revenue Operating income (loss) 27.4 (6.6) - (59)
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 discussions of certain portions of its results are specified as being on "a U.S. dollar basis." Sales decreased 17.2% compared with the same quarter of the previous fiscal year (18% decrease on a U.S dollar basis). Sales, on a U.S. dollar basis, decreased primarily due to lower theatrical revenues as a result of the strong performance of Spider-Man 2 in the prior year's second quarter coupled with the current year's disappointing performance of Stealth. An operating loss of Y6.6 billion ($59 million) was recorded as compared to operating income of Y27.4 billion in the same quarter of the previous fiscal year. The decrease is due to the same factors contributing to the revenue decrease discussed above. In addition, marketing costs related to forthcoming theatrical releases were significantly higher than those incurred in the prior year's second quarter. Television operating income decreased due to the comparative lack of major syndication revenues recognized on library product during the quarter. Financial Services
(Billions of yen, millions of U.S. dollars) Second quarter ended September 30 2004 2005 Change in 2005 Yen - ---------- ------ ------ ------ ------ Financial service Y125.9 Y175.9 +39.7% $1,556 revenue Operating income 14.9 40.0 +169.1 354
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 was Y175.9 billion ($1,556 million), a 39.7% increase 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 Y153.3 billion ($1,356 million), a Y47.4 billion, or 44.7% increase compared with the same quarter of the previous fiscal year. The reasons for this increase were an improvement in gains and losses from investments and an increase in revenue from insurance premiums reflecting a stable increase of insurance-in-force. Operating income was Y40.0 billion ($354 million), a Y25.2 billion, or 169.1% increase compared with the same quarter of the previous fiscal year, mainly as a result of an improvement in gains and losses on investments in the general account at Sony Life, primarily resulting from an improvement in valuation gains from stock conversion rights in convertible bonds. As a result of the abovementioned factors, operating income at Sony Life increased by Y21.5 billion or 121.9% to Y39.1 billion ($346 million). Other
(Billions of yen, millions of U.S. dollars) Second quarter ended September 30 2004 2005 Change in 2005 Yen - ---------- ------ ------ ------ ------ Sales and operating Y112.9 Y100.0 -11.4% $885 revenue Operating income 0.7 7.7 +972.7 69
Unless otherwise specified, all amounts are on a U.S. GAAP basis. Sales decreased 11.4% compared with the same quarter of the previous year. Sales in the Other segment for the second 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 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 for only the month of July 2004, as it was combined as of August 1, 2004 with Bertelsmann AG's recorded music business to form the SONY BMG joint venture. Sales at SMEJ decreased compared to the same quarter of the previous fiscal year due to the absence in the current quarter of a best selling album compared to the same quarter of the previous fiscal year when Porno Graffitti's two greatest hits albums were successful releases. Best selling singles during the quarter included GLAMOROUS SKY by NANA starring MIKA NAKASHIMA, Kizuna by ORANGE RANGE and the best selling DVD SHOGO HAMADA Visual Collection "Flash & Shadow" by Shogo Hamada also contributed to sales. Excluding sales recorded within Sony's music business, there was an increase in sales within the Other segment. This increase was mainly the result of favorable sales recorded at SCN, where contents businesses performed well during the quarter. Operating income of Y7.7 billion ($69 million) was recorded, representing an increase of Y7.0 billion compared to the same quarter of the previous fiscal year. This increase was mainly the result of the recording of a gain resulting from the transfer to the Japanese government of the substitutional portion of the Employee Pension Fund at several businesses within the segment including SMEJ. 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 $936 million, loss before income taxes of $58 million, and a net loss of $60 million during the quarter ended September 30, 2005. Loss before income taxes includes $43 million of restructuring charges and also reflects harsh market conditions in many territories worldwide, most notably the U.S., Germany, the U.K., Italy, Spain and Australia. As a result, equity in net loss of Y3.2 billion ($29 million) was recorded by Sony. Cash Flow The following charts show Sony's unaudited condensed statements of cash flow 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 - Excluding Financial Services segment - ------------------------------------------------
(Billions of yen, millions of U.S. dollars) Six months ended September 30 Cash flow 2004 2005 Change 2005 in Yen - ---------- ------ ------ ------ ------ - - From operating activities Y35.0 (Y91.9) Y-126.9 ($813) - - From investing activities (330.1) (145.1) +185.0 (1,284) - - From financing activities (25.6) 97.1 +122.7 859 Cash and cash equivalents 592.9 519.7 -73.2 4,599 at beginning of the fiscal year Cash and cash equivalents 290.1 393.9 +103.8 3,486 as of September 30
Operating Activities: During the six months ended September 30, 2005, in addition to the recording of a net loss, compared with the net income recorded in the same period of the previous fiscal year, there was an increase in inventory mainly within the Electronics and Game segments resulting from increased production in anticipation of the year-end sales season. Investing Activities: During the six months ended September 30, 2005, Sony carried out capital investments mainly in relation to semiconductor manufacturing facilities. In addition, Sony also carried out the sale of securities investments. In the same period of the previous fiscal year, in addition to investment in semiconductor manufacturing facilities, Sony also carried out investment towards S-LCD. As a result, the total amount of cash flow from operating activities and from investing activities was a use of cash of Y237.0 billion ($2,097 million). Financing Activities: During the six months ended September 30, 2005, financing was carried out through the issuance of commercial paper and straight bonds. The proceeds from the issuance of a total of Y120 billion in straight bonds in Japan, including Y50 billion of bonds with a maturity of 5 years, Y40 billion with a maturity of 7 years and Y30 billion with a maturity of 10 years, was used by Sony to redeem a portion of its existing bonds. Cash and Cash Equivalents: In addition to the aforementioned information, the total balance of cash and cash equivalents, accounting for the effect of foreign currency exchange rate fluctuations, decreased Y125.8 billion compared to March 31, 2005, and increased by Y103.8 billion compared to September 30, 2004, to Y393.9 billion ($3,486 million) as of September 30, 2005. Cash Flow - Financial Services segment - --------------------------------------
(Billions of yen, millions of U.S. dollars) Six months ended September 30 Cash flow 2004 2005 Change 2005 in Yen - ---------- ------ ------ ------ ------ - - From operating activities Y83.6 Y50.9 Y-32.6 $451 - - From investing activities (344.7) (261.9) +82.7 (2,318) - - From financing activities 164.3 138.9 -25.4 1,229 Cash and cash equivalents 256.3 259.4 +3.1 2,295 at beginning of the fiscal year Cash and cash equivalents 159.5 187.3 +27.7 1,657 as of September 30
Operating Activities: Net cash from operating activities was generated 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 at Sony Life, as well as an increase in advance payments for housing loans and investments in marketable securities at Sony Bank. Financing Activities: Net cash from financing activities was generated as a result of an increase in policyholders' accounts at Sony Life and an increase in deposits from customers in the banking business. Cash and Cash Equivalents: As a result of the above, cash and cash equivalents decreased Y72.1 billion compared to March 31, 2005, and increased Y27.7 billion compared to September 30, 2004, to Y187.3 billion ($1,657 million) as of September 30, 2005. Notes Note I: During the quarter ended September 30, 2005, the average value of the yen was Y110.3 against the U.S. dollar and Y134.2 against the Euro, which was 1.2% lower against the U.S. dollar and 1.0% 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 and six months ended September 30, 2004 have been restated (see Note 9 regarding EITF Issue No. 04-8). Outlook for the Fiscal Year ending March 31, 2006 - ------------------------------------------------- On September 22, 2005, Sony announced organizational restructuring and adjusted its forecast to reflect additional restructuring costs to be incurred. Subsequent to this, Sony realized a gain that was higher than anticipated from the transfer to the Japanese Government of the substitutional portion of Sony's Employee Pension Fund. At this point in time, however, we have not revised our forecast for the fiscal year ending March 31, 2006 from the forecast announced on September 22, 2005, as stated below, since there continue to be many uncertainties in the business environment for the second half of the fiscal year. The forecast announced on September 22, 2005 - --------------------------------------------
Change from previous Forecast fiscal year -------- ----------- Sales and operating revenue Y7,250 billion +1% Operating income (loss) (20 billion) - (Restructuring charges included 140 billion +56%) within operating income Income before income taxes 40 billion -75% Equity in net income (loss) of (8 billion) - affiliated companies Net income (loss) (10 billion) -
Assumed foreign currency exchange rates for the second half of the fiscal year: approximately Y107 to the U.S. dollar and approximately Y130 to the Euro. 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. The forecast announced on April 27, 2005 - ----------------------------------------
Change from previous Forecast fiscal year -------- ----------- Capital expenditures Y410 billion +15% (additions to fixed assets) Depreciation and amortization* 390 billion +5 (Depreciation expenses for 320 billion +6) tangible assets Research and development expenses 520 billion +4
*Including amortization of intangible assets and amortization of deferred insurance acquisition costs. In addition, as was announced on April 26, 2005, Sony is considering the possibility of an initial public offering of SCN common stock. However, the impact of such an offering on Sony's financial results is not reflected within this forecast. 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 September 30 Sales and operating 2004 2005 Change 2005 revenue ---------- ------ ------ ------ ------ Electronics Customers Y1,182,004 Y1,090,250 -7.8% $9,648 Intersegment 37,351 125,825 1,114 ---------- ------ ------ ------ Total 1,219,355 1,216,075 -0.3 10,762 Game Customers 114,874 203,994 +77.6 1,805 Intersegment 4,771 10,252 91 ---------- ------ ------ ------ Total 119,645 214,246 +79.1 1,896 Pictures Customers 191,742 158,855 -17.2 1,406 Intersegment 0 0 0 ---------- ------ ------ ------ Total 191,742 158,855 -17.2 1,406 Financial Services Customers 119,643 170,103 +42.2 1,505 Intersegment 6,219 5,779 51 ---------- ------ ------ ------ Total 125,862 175,882 +39.7 1,556 Other Customers 94,009 79,794 -15.1 707 Intersegment 18,849 20,238 178 ---------- ------ ------ ------ Total 112,858 100,032 -11.4 885 Elimination (67,190) (162,094) - (1,434) ---------- ------ ------ ------ Consolidated total Y1,702,272 Y1,702,996 +0.0% $15,071
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 Y7,063 Y17,273 +144.6% $153 Game (11) 8,220 - 73 Pictures 27,418 (6,633) - (59) Financial Services 14,881 40,046 +169.1 354 Other 722 7,745 +972.7 69 ---------- ------ ------ ------ Total 50,073 66,651 +33.1 590 Corporate and (6,688) (734) - (7) elimination ---------- ------ ------ ------ Consolidated total Y43,385 Y65,917 +51.9% $583
Commencing April 1, 2005, Sony has partly realigned its business segment configuration. Results of the previous year have been reclassified to conform to the presentations for the current quarter (see notes 5 and 6).
(Millions of yen, millions of U.S. dollars) Six months ended September 30 Sales and operating 2004 2005 Change 2005 revenue ---------- ------ ------ ------- ------ Electronics Customers Y2,288,163 Y2,113,735 -7.6% $18,706 Intersegment 62,473 217,593 1,925 ---------- ------ ------ ------ Total 2,350,636 2,331,328 -0.8 20,631 Game Customers 214,935 369,471 +71.9 3,270 Intersegment 10,075 17,553 155 ---------- ------ ------ ------ Total 225,010 387,024 +72.0 3,425 Pictures Customers 339,933 303,236 -10.8 2,684 Intersegment 0 0 0 ---------- ------ ------ ------ Total 339,933 303,236 -10.8 2,684 Financial Services Customers 247,349 318,691 +28.8 2,820 Intersegment 12,137 11,005 98 ---------- ------ ------ ------ Total 259,486 329,696 +27.1 2,918 Other Customers 224,030 157,296 -29.8 1,391 Intersegment 36,528 38,179 339 ---------- ------ ------ ------ Total 260,558 195,475 -25.0 1,730 Elimination (121,213) (284,330) - (2,517) ---------- ------ ------ ------ Consolidated total Y3,314,410 Y3,262,429 -1.6% $28,871
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 Y15,340 Y(19,007) - $(168) Game (2,892) 2,325 - 21 Pictures 31,519 (2,387) - (21) Financial Services 25,284 61,969 +145.1% 548 Other (2,470) 12,640 - 112 ---------- ------ ------ ------ Total 66,781 55,540 -16.8 492 Corporate and (13,622) (4,905) - (44) elimination ---------- ------ ------ ------ Consolidated total Y53,159 Y50,635 -4.7% $ 448
Commencing April 1, 2005, Sony has partly realigned its business segment configuration. Results of the previous year have been reclassified to conform to the presentations for the current quarter (see notes 5 and 6). Electronics Sales and Operating Revenue to Customers by Product Category
(Millions of yen, millions of U.S. dollars) Three months ended September 30 Sales and operating 2004 2005 Change 2005 revenue ---------- ------ ------ ------ ------ Audio Y147,025 Y129,605 -11.8% $1,147 Video 245,876 247,327 +0.6 2,189 Televisions 211,099 171,731 -18.6 1,520 Information and 189,494 183,781 -3.0 1,626 Communications Semiconductors 74,992 61,909 -17.4 548 Components 160,381 156,279 -2.6 1,383 Other 153,137 139,618 -8.8 1,235 ---------- ------ ------ ------ Total Y1,182,004 Y1,090,250 -7.8% $9,648 Six months ended September 30 Sales and operating 2004 2005 Change 2005 revenue ---------- ------ ------ ------ ------ Audio Y 281,411 Y 246,944 -12.2% $2,185 Video 497,081 498,400 +0.3 4,411 Televisions 400,167 322,036 -19.5 2,850 Information and 371,630 367,087 -1.2 3,249 Communications Semiconductors 141,902 115,555 -18.6 1,023 Components 312,091 307,304 -1.5 2,719 Other 283,881 256,409 -9.7 2,269 ---------- ------ ------ ------ Total Y2,288,163 Y2,113,735 -7.6% $18,706
The above table is a breakdown of Electronics sales and operating revenue to customers in the Business Segment Information. The Electronics segment is managed as a single operating segment by Sony's management. However, Sony believes that the information in this table is useful to investors in understanding the product categories in this business segment. In addition, commencing April 1, 2005, Sony has partly realigned its product category configuration in the Electronics segment. Accordingly, results of the previous year have been restated (see note 7). Geographic Segment Information (Unaudited) - ------------------------------------------
(Millions of yen, millions of U.S. dollars) Three months ended September 30 Sales and operating 2004 2005 Change 2005 revenue ---------- ------ ------ ------ ------ Japan Y490,764 Y503,388 +2.6% $4,455 United States 457,670 436,297 -4.7 3,861 Europe 360,270 368,910 +2.4 3,265 Other Areas 393,568 394,401 +0.2 3,490 ---------- ------ ------ ------ Total Y1,702,272 Y1,702,996 +0.0% $15,071 Six months ended September 30 Sales and operating 2004 2005 Change 2005 revenue ---------- ------ ------ ------ ------ Japan Y975,396 Y971,660 -0.4% $8,599 United States 875,966 854,778 -2.4 7,564 Europe 735,603 700,033 -4.8 6,195 Other Areas 727,445 735,958 +1.2 6,513 ---------- ------ ------ ------ Total Y3,314,410 Y3,262,429 -1.6% $28,871
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 September 30 2004 2005 Change 2005 ------ ------ ------ ------ Sales and operating % revenue: Net sales Y1,568,026 Y1,517,412 $13,429 Financial service 119,643 170,103 1,505 revenue Other operating 14,603 15,481 137 revenue ------ ------ ------ 1,702,272 1,702,996 +0.0 15,071 Costs and expenses: Cost of sales 1,184,124 1,179,803 10,441 Selling, general and 361,683 300,279 2,657 administrative Financial service 105,216 130,228 1,153 expenses Loss on sale, 7,864 26,769 237 disposal or impairment of assets, net ------ ------ ------ 1,658,887 1,637,079 14,488 Operating income 43,385 65,917 +51.9 583 Other income: Interest and 3,109 4,674 41 dividends Royalty income 11,458 8,638 76 Foreign exchange - 326 3 gain, net Gain on sale of 1,337 4,259 38 securities investments, net Gain on change in 13,188 20,662 183 interest in subsidiaries and equity investees Other 5,834 5,068 45 ------ ------ ------ 34,926 43,627 386 Other expenses: Interest 7,031 7,135 63 Loss on devaluation 1,382 2,144 19 of securities investments Foreign exchange 251 - - loss, net Other 6,386 4,882 43 ------ ------ ------ 15,050 14,161 125 ------ ------ ------ Income before income 63,261 95,383 +50.8 844 taxes Income taxes 16,203 65,143 576 ------ ------ ------ Income before minority 47,058 30,240 -35.7 268 interest and equity in net income (loss) of affiliated companies Minority interest in (49) (837) (7) income (loss) of consolidated subsidiaries Equity in net income 6,103 (2,609) (23) (loss) of affiliated companies ------ ------ ------ Net income Y53,210 Y28,468 -46.5 $252 ------ ------ ------ Per share data: Common stock Net income - Basic Y57.50 Y28.63 -50.2 $0.25 - Diluted 51.47 27.32 -46.9 0.24 Subsidiary tracking stock Net income (loss) - Basic 4.25 (19.90) - (0.18)
(Millions of yen, millions of U.S. dollars, except per share amounts) Six months ended September 30 2004 2005 Change 2005 ------ ------ ------ ------ Sales and operating % revenue: Net sales Y3,039,147 Y2,915,146 $25,798 Financial service 247,349 318,691 2,820 revenue Other operating 27,914 28,592 253 revenue ------ ------ ------ 3,314,410 3,262,429 -1.6 28,871 Costs and expenses: Cost of sales 2,287,395 2,276,579 20,147 Selling, general 738,620 649,755 5,750 and administrative Financial service 222,510 256,865 2,273 expenses Loss on sale, 12,726 28,595 253 disposal or impairment of assets, net ------ ------ ------ 3,261,251 3,211,794 28,423 Operating income 53,159 50,635 -4.7 448 Other income: Interest and 8,090 10,843 96 dividends Royalty income 17,119 17,338 153 Gain on sale of 2,026 6,400 57 securities investments, net Gain on change in 13,495 38,531 341 interest in subsidiaries and equity investees Other 12,683 10,826 96 ------ ------ ------ 53,413 83,938 743 Other expenses: Interest 14,558 11,981 106 Loss on devaluation 2,313 2,944 26 of securities investments Foreign exchange 5,934 1,066 10 loss, net Other 13,892 10,296 91 ------ ------ ------ 36,697 26,287 233 ------ ------ ------ Income before income 69,875 108,286 +55.0 958 taxes Income taxes 14,361 77,194 683 ------ ------ ------ Income before 55,514 31,092 -44.0 275 minority interest, equity in net income (loss) of affiliated companies and cumulative effect of an accounting change Minority interest 572 (1,808) (16) in income (loss) of consolidated subsidiaries Equity in net 26,245 (11,695) (103) income (loss) of affiliated companies ------ ------ ------ Income before 81,187 21,205 -73.9 188 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 Y76,474 Y21,205 -72.3 $188 ------ ------ ------ Per share data: Common stock Income before cumulative effect of an accounting change - Basic Y87.70 Y - - $ - - Diluted 78.77 - - - Net income - Basic 82.61 19.95 -75.9 0.18 - Diluted 74.26 19.01 -74.4 0.17 Subsidiary tracking stock Net income - Basic 18.12 430.74 2,277.2 3.81
Additional Paid-in Capital and Retained Earnings (Unaudited) - ------------------------------------------------------------ The following information shows change in additional paid-in capital for the six months ended September 30, 2004 and 2005 and change in retained earnings for the six months ended September 30, 2004 and 2005. Sony discloses this supplemental information in accordance with disclosure requirements of the Japanese Securities and Exchange Law, to which Sony, as a Japanese public company, is subject.
(Millions of yen, millions of U.S. dollars) Six months ended September 30 2004 2005 2005 ------ ------ ------ Additional Paid-in Capital: Balance, beginning of year Y992,817 Y1,134,222 $10,037 Conversion of convertible bonds 26 - - Exercise of stock acquisition - 16 0 rights Stock based compensation - 66 1 Reissuance of treasury stock (342) - - ------ ------ ------ Balance as of September 30 Y992,501 Y1,134,304 $10,038 (Millions of yen, millions of U.S. dollars) Six months ended September 30 2004 2005 2005 ------ ------ ------ Retained Earnings: Balance, beginning of year Y1,367,060 Y1,506,082 $13,328 Net income 76,474 21,205 188 Cash dividends (11,573) (12,456) (110) Reissuance of treasury stock (237) (1,349) (12) Common stock issue costs, net (5) (759) (7) of tax ------ ------ ------ Balance as of September 30 Y1,431,719 Y1,512,723 $13,387
Consolidated Balance Sheets (Unaudited)
(Millions of yen, millions of U.S. dollars) September 30 March 31 September 30 September 30 ASSETS 2004 2005 2005 2005 -------- -------- -------- ------- Current assets: Cash and cash Y 449,626 Y 779,103 Y 581,200 $ 5,143 equivalents Time deposits 3,325 1,492 1,857 16 Marketable 533,373 460,202 508,017 4,496 securities Notes and 1,133,252 1,113,071 1,087,120 9,621 accounts receivable, trade Allowance for (76,966) (87,709) (78,352) (693) doubtful accounts and sales returns Inventories 781,361 631,349 805,856 7,131 Deferred income 128,595 141,154 138,160 1,223 taxes Prepaid expenses 463,670 517,509 551,019 4,876 and other current assets -------- -------- -------- ------- 3,416,236 3,556,171 3,594,877 31,813 Film costs 270,090 278,961 343,998 3,044 Investments and advances: Affiliated 252,966 252,905 263,524 2,332 companies Securities 2,410,396 2,492,784 2,900,196 25,666 investments and other -------- -------- -------- ------- 2,663,362 2,745,689 3,163,720 27,998 Property, plant and equipment: Land 186,168 182,900 181,130 1,603 Buildings 929,142 925,796 936,291 8,286 Machinery and 2,096,564 2,192,038 2,304,687 20,395 equipment Construction in 144,570 92,611 90,822 804 progress Less-Accumulated (1,973,005) (2,020,946) (2,133,025) (18,876) depreciation -------- -------- -------- ------- 1,383,439 1,372,399 1,379,905 12,212 Other assets: Intangibles, net 208,251 187,024 192,688 1,705 Goodwill 274,662 283,923 291,021 2,575 Deferred 366,983 374,805 384,917 3,406 insurance acquisition costs Deferred income 177,973 240,396 205,019 1,814 taxes Other 492,160 459,732 452,169 4,002 -------- -------- -------- ------- 1,520,029 1,545,880 1,525,814 13,502 -------- -------- -------- ------- Y 9,253,156 Y 9,499,100 Y 10,008,314 $ 88,569 -------- -------- -------- ------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term Y 158,151 Y 63,396 Y 202,882 $ 1,795 borrowings Current portion 452,986 166,870 165,091 1,461 of long-term debt Notes and 826,719 806,044 854,982 7,566 accounts payable, trade Accounts 731,145 746,466 756,985 6,699 payable, other and accrued expenses Accrued income 42,968 55,651 33,211 294 and other taxes Deposits from 451,231 546,718 591,540 5,235 customers in the banking business Other 371,978 424,223 489,937 4,336 -------- -------- -------- ------- 3,035,178 2,809,368 3,094,628 27,386 Long-term liabilities: Long-term debt 677,262 678,992 690,320 6,109 Accrued pension 325,664 352,402 221,915 1,964 and severance costs Deferred income 67,470 72,227 143,793 1,273 taxes Future insurance 2,314,369 2,464,295 2,598,208 22,993 policy benefits and other Other 267,809 227,631 234,321 2,073 -------- -------- -------- ------- 3,652,574 3,795,547 3,888,557 34,412 Minority interest 24,171 23,847 25,947 230 in consolidated subsidiaries Stockholders' equity: Capital stock 480,293 621,709 621,724 5,502 Additional 992,501 1,134,222 1,134,304 10,038 paid-in capital Retained 1,431,719 1,506,082 1,512,723 13,387 earnings Accumulated (357,467) (385,675) (266,656) (2,360) other comprehensive income Treasury stock, (5,813) (6,000) (2,913) (26) at cost -------- -------- -------- ------- 2,541,233 2,870,338 2,999,182 26,541 -------- -------- -------- ------- Y 9,253,156 Y 9,499,100 Y 10,008,314 $ 88,569 -------- -------- -------- -------
Consolidated Statements of Cash Flows (Unaudited)
(Millions of yen, millions of U.S. dollars) Six months ended September 30 2004 2005 2005 ------ ------ ------ Cash flows from operating activities: Net income Y 76,474 Y 21,205 $ 188 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and 176,704 181,416 1,605 amortization, including amortization of deferred insurance acquisition costs Amortization of film costs 127,305 170,624 1,510 Accrual for pension and 11,269 (3,503) (31) severance costs, less payments Gain on the transfer to the - (73,472) (650) Japanese Government of the substitutional portio n of employee pension fund Loss on sale, disposal or 12,726 28,595 253 impairment of assets, net Gain on sale or loss on 287 (3,456) (31) devaluation of securities investments, net Gain on change in interest in (13,495) (38,531) (341) subsidiaries and equity investees Deferred income taxes (11,274) 67,569 598 Equity in net (income) (25,661) 12,443 110 losses of affiliated companies, net of dividends Cumulative effect of an 4,713 - - accounting change Changes in assets and liabilities: Increase in notes and (43,346) (22,704) (201) accounts receivable, trade Increase in inventories (109,507) (158,851) (1,406) Increase in film costs (127,647) (218,406) (1,933) Increase in notes and 48,286 39,971 354 accounts payable, trade Decrease in accrued income (13,669) (22,790) (202) and other taxes Increase in future 63,841 62,113 550 insurance policy benefits and other Increase in deferred (32,597) (32,080) (284) insurance acquisition costs Increase in marketable (16,270) (13,216) (117) securities held in the financial service business for trading purpose Increase in other (47,262) (58,603) (519) current assets Increase (decrease) in (20,970) 18,029 160 other current liabilities Other 52,000 2,750 25 ------ ------ ------ Net cash provided by 111,907 (40,897) (362) (used in) operating activities Cash flows from investing activities: Payments for purchases of (251,558) (234,310) (2,074) fixed assets Proceeds from sales of fixed 18,397 9,978 88 assets Payments for investments and (723,732) (712,454) (6,305) advances by financial service business Payments for investments and (136,082) (15,217) (135) advances (other than financial service business) Proceeds from maturities of 401,202 471,167 4,170 marketable securities, sales of securities investments and collections of advances by financial service business Proceeds from maturities of 19,973 50,293 445 marketable securities, sales of securities investments and collections of advances (other than financial service business) Other 1,046 15,875 141 ------ ------ ------ Net cash used in investing (670,754) (414,668) (3,670) activities ------ ------ ------ Cash flows from financing activities: Proceeds from issuance of 9,589 121,280 1,073 long-term debt Payments of long-term debt (53,511) (115,563) (1,023) Increase in short-term 31,221 101,073 894 borrowings Increase in deposits from 129,335 116,856 1,034 customers in the financial service business Increase in call money and 35,209 31,500 279 bills sold in the banking business Dividends paid (11,441) (12,368) (109) Other 956 753 7 ------ ------ ------ Net cash provided by 141,358 243,531 2,155 financing activities ------ ------ ------ Effect of exchange rate 17,904 14,131 125 changes on cash and cash equivalents ------ ------ ------ Net decrease in cash and cash (399,585) (197,903) (1,752) equivalents Cash and cash equivalents at 849,211 779,103 6,895 beginning of the fiscal year ------ ------ ------ Cash and cash equivalents at Y 449,626 Y 581,200 $ 5,143 September 30 ------ ------ ------
(Notes) 1. U.S. dollar amounts have been translated from yen, for convenience only, at the rate of Y113 = U.S. $1, the approximate Tokyo foreign exchange market rate as of September 30, 2005. 2. As of September 30, 2005, Sony had 920 consolidated subsidiaries (including variable interest entities). It has applied the equity accounting method in respect to56 affiliated companies. 3. Sony calculates and presents per share data separately for Sony's common stock and for the subsidiary tracking stock which is linked to the economic value of Sony Communication Network Corporation, based on Statement of Financial Accounting Standards ("FAS") No.128, "Earnings per Share". The holders of the tracking stock have the right to participate in earnings, together with common stock holders. Accordingly, Sony calculates per share data by the "two-class" method based on FAS No.128. Under this method, basic net income per share for each class of stock is calculated based on the earnings allocated to each class of stock for the applicable period, divided by the weighted-average number of outstanding shares in each class during the applicable period. The earnings allocated to the subsidiary tracking stock are determined based on the subsidiary tracking stockholders' economic interest in the targeted subsidiary's earnings available for dividends or change in accumulated losses that do not include those of the targeted subsidiary's subsidiaries. The earnings allocated to common stock are calculated by subtracting the earnings allocated to the subsidiary tracking stock from Sony's net income for the period. Weighted-average shares used for computation of earnings per share of common stock are as follows. The dilutive effect in the weighted-average shares for the three months and six months ended September 30, 2004 and 2005 mainly resulted from convertible bonds.
Weighted-average shares (Thousands of shares) Three months ended September 30 2004 2005 Net income ----- ---- - Basic 925,227 996,523 - Diluted 1,045,097 1,044,215 Weighted-average shares (Thousands of shares) Six months ended September 30 2004 2005 ---- ---- Income before cumulative effect of an accounting change and net income - Basic 925,091 996,305 - Diluted 1,045,007 1,044,040
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 and six months ended September 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 and six months ended September 30, 2004 are 3,072 thousand shares. Weighted-average shares used for the three months and six months ended September 30, 2005 are 3,083 and 3,077 thousand shares, respectively. There were no potentially dilutive securities or options granted for earnings per share of the subsidiary tracking stock. 4. Sony's comprehensive income is comprised of net income and other comprehensive income. Other comprehensive income includes changes in unrealized gains or losses on securities, unrealized gains or losses on derivative instruments, minimum pension liabilities adjustments and foreign currency translation adjustments. Net income, other comprehensive income and comprehensive income for the three months and six months ended September 30, 2004 and 2005 were as follows:
(Millions of yen, millions of U.S. dollars) Three months ended Six months ended September 30 September 30 -------------------------- -------------------------- 2004 2005 2005 2004 2005 2005 - --------------------------------------------------------------------- Net income Y53,210 Y28,468 $252 Y76,474 Y21,205 $188 Other comprehensive income: Unrealized 2,649 24,595 218 (12,514) 32,974 292 gains (losses) on securities Unrealized (151) (758) (7) (2,413) 732 6 gains (losses) on derivative instruments Minimum 21,316 31,663 280 20,953 31,432 278 pension liabilities adjustments Foreign 56,243 37,640 333 86,466 53,881 477 currency translation adjustments ------------------------------------------------------- 80,057 93,140 824 92,492 119,019 1,053 - --------------------------------------------------------------------- Comprehensive Y133,267 Y121,608 $1,076 Y168,966 Y140,224 $1,241 income - ---------------------------------------------------------------------
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 same period of the previous year 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 same period of the previous year 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 for the same period of the previous year have been reclassified. The primary change is as shown below: Main Product Previous Product Category New Product Category - ------------ ------------------------- -------------------- Professional "Televisions" --> "Information and - -use 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 for the six months ended September 30, 2004 decreased by Y968 million. 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. 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 and six months ended September 30, 2004 were restated. Sony's diluted EPS of net income for the three months ended September 30, 2004 decreased by Y2.29, compared to those before adopting EITF Issue No. 04-8. Sony's diluted EPS of income before cumulative effect of an accounting change and net income for the six months ended September 30, 2004 decreased by Y3.52 and Y3.32, respectively, compared to those before adopting EITF Issue No. 04-8. 10. In December 2004, the FASB issued FAS No. 153, "Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29". This statement requires that exchanges of productive assets be accounted for at fair value unless fair value cannot be reasonably determined or the transaction lacks commercial substance. This statement is effective for nonmonetary asset exchanges occurring in the fiscal periods beginning after June 15, 2005. Sony adopted FAS No.153 during the quarter ended September 30, 2005. The adoption of FAS No.153 did not have a material impact on Sony's results of operations and financial position. Other Consolidated Financial Data
(Millions of yen, millions of U.S. dollars) Three months ended September 30 2004 2005 Change 2005 ------- ------- ----- ----- Capital expenditures Y 90,051 Y 87,798 -2.5% $ 777 (additions to property, plant and equipment) Depreciation and 91,173 92,752 +1.7 821 amortization expenses* (Depreciation expenses (72,579) (74,845) +3.1 (662) for tangible assets) R&D expenses 127,018 131,369 +3.4 1,163 Six months ended September 30 2004 2005 Change 2005 ------- ------- ----- ----- Capital expenditures Y 178,122 Y 185,781 +4.3% $ 1,644 (additions to property, plant and equipment) Depreciation and 176,704 181,416 +2.7 1,605 amortization expenses* (Depreciation (141,486) (146,726) +3.7 (1,298) expenses for tangible assets) R&D expenses 250,600 249,757 -0.3 2,210
* 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 September 30 Financial Services 2004 2005 Change 2005 ------ ----- ---- ----- % Financial service Y 125,862 Y 175,882 +39.7 $ 1,556 revenue Financial service 110,981 135,836 +22.4 1,202 expenses ------ ----- ----- Operating income 14,881 40,046 +169.1 354 Other income (expenses), 8,955 23,351 +160.8 207 net ------ ----- ----- Income before income 23,836 63,397 +166.0 561 taxes Income taxes and other 9,632 23,555 +144.5 208 ------ ----- ----- Net income Y 14,204 Y 39,842 +180.5 $ 353 ------ ----- ----- (Millions of yen, millions of U.S. dollars) Three months ended September 30 Sony without 2004 2005 Change 2005 Financial Services ------ ----- ---- ----- % Net sales and Y 1,584,969 Y 1,535,125 -3.1 $ 13,585 operating revenue Costs and expenses 1,556,733 1,509,731 -3.0 13,360 ------ ----- ----- Operating income 28,236 25,394 -10.1 225 Other income 17,688 6,461 -63.5 57 (expenses), net ------ ----- ----- Income before income 45,924 31,855 -30.6 282 taxes Income taxes and 418 43,361 +10,273.4 384 other ------ ----- ----- Net income (loss) Y 45,506 Y (11,506) - $ (102) ------ ----- ----- (Millions of yen, millions of U.S. dollars) Three months ended September 30 Consolidated 2004 2005 Change 2005 ------ ----- ---- ----- % Financial service Y 119,643 Y 170,103 +42.2 $ 1,505 revenue Net sales and 1,582,629 1,532,893 -3.1 13,566 operating revenue ------ ----- ----- 1,702,272 1,702,996 +0.0 15,071 Costs and expenses 1,658,887 1,637,079 -1.3 14,488 ------ ----- ----- Operating income 43,385 65,917 +51.9 583 Other income 19,876 29,466 +48.2 261 (expenses), net ------ ----- ----- Income before income 63,261 95,383 +50.8 844 taxes Income taxes and other 10,051 66,915 +565.8 592 ------ ----- ----- Net income Y 53,210 Y 28,468 -46.5 $ 252 ------ ----- ----- (Millions of yen, millions of U.S. dollars) Condensed Statements of Income Six months ended September 30 - ------------------------------ Financial Services 2004 2005 Change 2005 ------ ----- ---- ----- % Financial service Y 259,486 Y 329,696 +27.1 $ 2,918 revenue Financial service 234,202 267,727 +14.3 2,370 expenses ------ ----- ----- Operating income 25,284 61,969 +145.1 548 Other income (expenses), 8,893 23,234 +161.3 206 net ------ ----- ----- Income before income taxes 34,177 85,203 +149.3 754 Income taxes and other 13,458 33,289 +147.4 295 ------ ----- ----- Income before cumulative 20,719 51,914 +150.6 459 effect of an accounting change Cumulative effect of an (4,713) - - - accounting change ------ ----- ----- Net income Y 16,006 Y 51,914 +224.3 $ 459 ------ ----- ----- (Millions of yen, millions of U.S. dollars) Six months ended September 30 Sony without Financial 2004 2005 Change 2005 Services ------ ----- ---- ----- % Net sales and Y 3,071,378 Y 2,947,918 -4.0 $ 26,088 operating revenue Costs and expenses 3,043,660 2,960,161 -2.7 26,196 ------ ----- ----- Operating income 27,718 (12,243) - (108) (loss) Other income 14,479 35,196 +143.1 311 (expenses), net ------ ----- ----- Income before income 42,197 22,953 -45.6 203 taxes Income taxes and other (24,771) 53,793 - 476 ------ ----- ----- Net income (loss) Y 66,968 Y (30,840) - $ (273) ------ ----- ----- (Millions of yen, millions of U.S. dollars) Six months ended September 30 Consolidated 2004 2005 Change 2005 ------ ----- ---- ----- % Financial service Y 247,349 Y 318,691 +28.8 $ 2,820 revenue Net sales and 3,067,061 2,943,738 -4.0 26,051 operating revenue ------ ----- ----- 3,314,410 3,262,429 -1.6 28,871 Costs and expenses 3,261,251 3,211,794 -1.5 28,423 ------ ----- ----- Operating income 53,159 50,635 -4.7 448 Other income 16,716 57,651 +244.9 510 (expenses), net ------ ----- ----- Income before income 69,875 108,286 +55.0 958 taxes Income taxes and other (11,312) 87,081 - 770 ------ ----- ----- Income before 81,187 21,205 -73.9 188 cumulative effect of an accounting change Cumulative effect of (4,713) - - - an accounting change ------ ----- ----- Net income Y 76,474 Y 21,205 -72.3 $ 188 ------ ----- -----
Condensed Balance Sheets - ------------------------ (Millions of yen, millions of U.S. dollars)
Financial September 30 March 31 September 30 September 30 Services ASSETS 2004 2005 2005 2005 ----- ------- ------ ------ Current assets: Cash and Y 159,523 Y 259,371 Y 187,269 $ 1,657 cash equivalents Marketable 529,302 456,130 503,946 4,460 securities Other 164,919 274,690 204,377 1,809 ----- ------- ------ ------ 853,744 990,191 895,592 7,926 Investments 2,297,300 2,378,966 2,788,864 24,680 and advances Property, 39,828 38,551 34,053 301 plant and equipment Other assets: Deferred 366,983 374,805 384,917 3,406 insurance acquisition costs Other 102,369 103,004 122,102 1,081 ----- ------- ------ ------ 469,352 477,809 507,019 4,487 ----- ------- ------ ------ Y 3,660,224 Y 3,885,517 Y 4,225,528 $ 37,394 ----- ------- ------ ------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term Y 117,715 Y 45,358 Y 70,862 $ 627 borrowings Notes and 7,378 7,099 10,643 94 accounts payable, trade Deposits 451,231 546,718 591,540 5,235 from customers in the banking business Other 96,269 109,438 147,191 1,303 ----- ------- ------ ------ 672,593 708,613 820,236 7,259 Long-term liabilities: Long-term 137,249 135,750 131,507 1,164 debt Accrued 11,163 14,362 13,641 121 pension and severance costs Future 2,314,369 2,464,295 2,598,208 22,993 insurance policy benefits and other Other 130,237 142,272 158,976 1,406 ----- ------- ------ ------ 2,593,018 2,756,679 2,902,332 25,684 Minority 5,567 5,476 4,279 38 interest in consolidated subsidiaries Stockholders' 389,046 414,749 498,681 4,413 equity ----- ------- ------ ------ Y 3,660,224 Y 3,885,517 Y 4,225,528 $ 37,394 ----- ------- ------ ------ (Millions of yen, millions of U.S. dollars) Sony without September 30 March 31 September 30 September 30 Financial Services ASSETS 2004 2005 2005 2005 ----- ------- ------ ------ Current assets: Cash and Y 290,103 Y 519,732 Y 393,931 $ 3,486 cash equivalents Marketable 4,071 4,072 4,071 36 securities Notes and 989,216 952,692 1,000,575 8,855 accounts receivable, trade Other 1,294,395 1,116,353 1,317,568 11,660 ----- ------- ------ ------ 2,577,785 2,592,849 2,716,145 24,037 Film costs 270,090 278,961 343,998 3,044 Investments 500,041 445,446 464,700 4,112 and advances Investments 187,400 187,400 187,400 1,658 in Financial Services, at cost Property, 1,343,611 1,333,848 1,345,852 11,911 plant and equipment Other assets 1,165,449 1,189,398 1,106,129 9,789 ----- ------- ------ ------ Y 6,044,376 Y 6,027,902 Y 6,164,224 $ 54,551 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term Y 508,649 Y 204,027 Y 311,405 $ 2,756 borrowings Notes and 822,333 801,252 847,049 7,496 accounts payable, trade Other 1,057,377 1,132,201 1,144,494 10,128 ----- ------- ------ ------ 2,388,359 2,137,480 2,302,948 20,380 Long-term liabilities: Long-term 671,067 627,367 638,502 5,650 debt Accrued 314,500 338,040 208,274 1,843 pension and severance costs Other 302,589 263,520 304,974 2,700 ----- ------- ------ ------ 1,288,156 1,228,927 1,151,750 10,193 Minority 18,704 18,471 21,717 192 interest in consolidated subsidiaries Stockholders' 2,349,157 2,643,024 2,687,809 23,786 equity ----- ------- ------ ------ Y 6,044,376 Y 6,027,902 Y 6,164,224 $ 54,551 ----- ------- ------ ------ (Millions of yen, millions of U.S. dollars) Consolidated September 30 March 31 September 30 September 30 ASSETS 2004 2005 2005 2005 ----- ------- ------ ------ Current assets: Cash and Y 449,626 Y 779,103 Y 581,200 $ 5,143 cash equivalents Marketable 533,373 460,202 508,017 4,496 securities Notes and 1,056,286 1,025,362 1,008,768 8,928 accounts receivable, trade Other 1,376,951 1,291,504 1,496,892 13,246 ----- ------- ------ ------ 3,416,236 3,556,171 3,594,877 31,813 Film costs 270,090 278,961 343,998 3,044 Investments 2,663,362 2,745,689 3,163,720 27,998 and advances Property, 1,383,439 1,372,399 1,379,905 12,212 plant and equipment Other assets: Deferred 366,983 374,805 384,917 3,406 insurance acquisition costs Other 1,153,046 1,171,075 1,140,897 10,096 ----- ------- ------ ------ 1,520,029 1,545,880 1,525,814 13,502 ----- ------- ------ ------ Y 9,253,156 Y 9,499,100 Y 10,008,314 $ 88,569 ----- ------- ------ ------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term Y 611,137 Y 230,266 Y 367,973 $ 3,256 borrowings Notes and 826,719 806,044 854,982 7,566 accounts payable, trade Deposits 451,231 546,718 591,540 5,235 from customers in the banking business Other 1,146,091 1,226,340 1,280,133 11,329 ----- ------- ------ ------ 3,035,178 2,809,368 3,094,628 27,386 Long-term liabilities: Long-term 677,262 678,992 690,320 6,109 debt Accrued 325,664 352,402 221,915 1,964 pension and severance costs Future 2,314,369 2,464,295 2,598,208 22,993 insurance policy benefits and other Other 335,279 299,858 378,114 3,346 ----- ------- ------ ------ 3,652,574 3,795,547 3,888,557 34,412 Minority 24,171 23,847 25,947 230 interest in consolidated subsidiaries Stockholders' 2,541,233 2,870,338 2,999,182 26,541 equity ----- ------- ------ ------ Y 9,253,156 Y 9,499,100 Y 10,008,314 $ 88,569
(Millions of yen, millions of U.S. dollars)
Condensed Statements of Cash Flows Six months ended September 30 - ---------------------------------- Financial Services 2004 2005 2005 ----- ----- ------ Net cash provided by operating Y 83,562 Y 50,949 $ 451 activities Net cash used in investing (344,674) (261,946) (2,318) activities Net cash provided by financing 164,319 138,895 1,229 activities ----- ----- ------ Net decrease in cash and cash (96,793) (72,102) (638) equivalents Cash and cash equivalents at 256,316 259,371 2,295 beginning of the fiscal year ----- ----- ------ Cash and cash equivalents at Y 159,523 Y 187,269 $ 1,657 September 30 ----- ----- ------ (Millions of yen, millions of U.S. dollars) Six months ended September 30 Sony without Financial 2004 2005 2005 Services ----- ----- ------ Net cash provided by (used in) Y 34,975 Y (91,879) $ (813) operating activities Net cash used in investing (330,078) (145,119) (1,284) activities Net cash provided by (used in) (25,593) 97,066 859 financing activities Effect of exchange rate 17,904 14,131 125 changes on cash and cash equivalents ----- ----- ------ Net decrease in cash and cash (302,792) (125,801) (1,113) equivalents Cash and cash equivalents at 592,895 519,732 4,599 beginning of the fiscal year ----- ----- ------ Cash and cash equivalents at Y 290,103 Y 393,931 $ 3,486 September 30 ----- ----- ------ (Millions of yen, millions of U.S. dollars) Six months ended September 30 Consolidated 2004 2005 2005 ----- ----- ------ Net cash provided by (used in) Y 111,907 Y (40,897) $ (362) operating activities Net cash used in investing (670,754) (414,668) (3,670) activities Net cash provided by financing 141,358 243,531 2,155 activities Effect of exchange rate 17,904 14,131 125 changes on cash and cash equivalents ----- ----- ------ Net decrease in cash and cash (399,585) (197,903) (1,752) equivalents Cash and cash equivalents at 849,211 779,103 6,895 beginning of the fiscal year ----- ----- ------ Cash and cash equivalents at Y 449,626 Y 581,200 $ 5,143 September 30 ----- ----- ------
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