-----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, TQKNpHKbI83nvDS4jmne8aDmGvxcXCLBMtrRKa4Ba0e/yBdYlZkrB++TCM8O8PVY IY2/0Jbo+d02/NeWSX064g== 0001191638-06-002572.txt : 20061026 0001191638-06-002572.hdr.sgml : 20061026 20061026060044 ACCESSION NUMBER: 0001191638-06-002572 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20061026 FILED AS OF DATE: 20061026 DATE AS OF CHANGE: 20061026 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: 061164150 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 son200610266k.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 2006 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 26, 2006 List of materials Documents attached hereto: i) Press release announcing Consolidated Financial Results for the Second Quarter Ended September 30, 2006 Sony Corporation 6-7-35 Kitashinagawa Shinagawa-ku Tokyo 141-0001 Japan No: 06--101E 3:00 P.M. JST, October 26, 2006 Consolidated Financial Results for the Second Quarter Ended September 30, 2006 Tokyo, October 26, 2006 -- Sony Corporation today announced its consolidated results for the second quarter of the fiscal year ending March 31, 2007 (July 1, 2006 to September 30, 2006).
(Billions of yen, millions of U.S. dollars, except per share amounts) Second quarter ended September 30 2005 2006 Change 2006* in Yen - ---------- ------ ------ ------ ------ Sales and operating Y1,711.6 Y1,854.2 +8.3% $15,713 revenue** Operating income 74.6 (20.8) - (177) (loss) Income (loss) before 95.4 (26.1) - (221) income taxes Equity in net income (2.6) 19.7 - 167 (loss) of affiliated companies Net income 28.5 1.7 -94.1 14 Net income per share of common stock - Basic Y28.63 Y1.68 -94.1 $0.01 - Diluted 27.32 1.60 -94.1 0.01
Unless otherwise specified, all amounts are on the basis of Generally Accepted Accounting Principles in the U.S. ("U.S. GAAP"). * U.S. dollar amounts have been translated from yen, for convenience only, at the rate of Y118=U.S.$1, the approximate Tokyo foreign exchange market rate as of September 29, 2006. ** Effective April 1, 2006, Sony reclassified royalty income as a component of sales and operating revenue, rather than as a component of other income as previously recorded. In connection with this reclassification, sales and operating revenue, operating income and other income for the second quarter of the fiscal year ended March 31, 2006 have been reclassified to conform with the presentation of these items for the second quarter of the fiscal year ending March 31, 2007. Royalty income for the second quarters ended September 30, 2005 and 2006 was Y8.6 billion and Y7.3 billion, respectively. These amounts were recorded primarily within the Electronics segment. Consolidated Results for the Second Quarter Ended September 30, 2006 - --------------------------------------------------------------- Sales and operating revenue ("sales") increased 8.3% compared with the same quarter of the previous fiscal year; on a local currency basis sales increased 4%. (For all references herein to results on a local currency basis, see Note I). Sales within the Electronics segment increased 12.1%. Products such as "BRAVIA TM" LCD televisions, "VAIO" PCs, and "Cyber-shot TM" digital cameras contributed to the sales increase, although there was a decline in sales of such products as CRT televisions. In the Game segment, sales decreased 20.5% compared to the same quarter of the previous fiscal year primarily as a result of a decrease in hardware unit sales of PSP(R) (PlayStation(R)Portable) ("PSP"). In the Pictures segment, there was a 12.1% increase in revenue mainly due to the greater number of theatrical releases during the quarter, combined with higher theatrical revenue per film on titles including Talladega Nights: The Ballad of Ricky Bobby and Monster House. In the Financial Services segment, revenue decreased by 4.4% mainly due to a decrease in valuation gains in the general account and the separate account at Sony Life Insurance Co., Ltd. ("Sony Life"). An operating loss of Y20.8 billion ($177 million) was recorded, a deterioration of Y95.4 billion compared to the same quarter of the previous fiscal year. This includes the recording of a Y51.2 billion provision that relates to charges expected to be incurred as a result of the recall by Dell Inc., Apple Computer Inc. and Lenovo, Inc. of notebook computer battery packs that use lithium-ion battery cells manufactured by Sony and the subsequent global replacement program initiated by Sony for certain notebook computer battery packs used by Sony and other notebook computer manufacturers that use lithium-ion battery cells manufactured by Sony. The operating income recorded during the same quarter of the previous fiscal year includes a one time gain of Y73.5 billion resulting from the transfer to the Japanese Government of the substitutional portion of Sony's Employee Pension Fund. In the Electronics segment, there was an improvement in the cost of sales ratio, a decrease in loss on sale, disposal or impairment of fixed assets and an increase in sales to outside customers, as well as a positive impact from the depreciation of the yen. However, decreased operating income was recorded as a result of the absence of the above-mentioned transfer to the Japanese Government of the substitutional portion of Sony's Employee Pension Fund, of which Y64.5 billion yen was recorded within the Electronics segment during the same quarter of the previous fiscal year, and the notebook computer battery provision recorded during the current quarter. In the Game segment, an operating loss was recorded as a result of the recording of charges associated with preparation for the launch of the PLAYSTATION(R)3 ("PS3") platform. In the Pictures segment, the amount of operating loss increased primarily due to higher total marketing expenses resulting from a greater number of theatrical releases and the theatrical underperformance of Zoom and All The King's Men. In the Financial Services segment, there was a decrease in operating income mainly attributable to the decrease in valuation gains in the general account at Sony Life. Restructuring charges, recorded as operating expenses, for the second quarter amounted to Y5.3 billion ($45 million) compared to Y32.9 billion in the same quarter of the previous fiscal year. In the Electronics segment, restructuring charges were Y5.2 billion ($44 million) compared to Y32.3 billion in the same quarter of the previous fiscal year. A loss before income taxes of Y26.1 billion ($221 million) was recorded, a deterioration of Y121.5 billion compared to the same quarter of the previous year. This was the result of the fact that the net effect of other income and expenses was Y26.1 billion lower compared to the same quarter of the previous year, in addition to the deterioration in operating income (loss). The lower net effect of other income and expenses was primarily a result of the absence of the recording of a gain of Y20.7 billion on the change in interest resulting from the sale of a portion of stock in Monex Beans Holdings, Inc. which was recorded in the same quarter of the previous fiscal year and the recording of a net foreign exchange loss in the current quarter versus the net foreign exchange gain recorded in the same quarter of the previous fiscal year. Equity in net income (loss) of affiliated companies of Y19.7 billion ($167 million) was recorded, an improvement of Y22.3 billion from the equity in net loss recorded in the same quarter of the previous fiscal year. Sony recorded equity in net income for Sony Ericsson Mobile Communications AB ("Sony Ericsson") of Y21.8 billion ($185 million), an increase of Y14.8 billion compared to the same quarter of the previous year. S-LCD Corporation ("S-LCD"), a joint-venture with Samsung Electronics Co., Ltd. for the manufacture of amorphous TFT LCD panels, contributed Y1.6 billion ($14 million) to equity in net income (before the elimination of unrealized intercompany profits) as a result of a significant increase in LCD panel shipments, an improvement of Y4.4 billion compared to the same quarter of the previous fiscal year. Sony also recorded equity in net loss of Y2.2 billion ($19 million) for SONY BMG MUSIC ENTERTAINMENT ("SONY BMG"), a decrease in the amount of equity loss of Y1.0 billion compared to the same quarter of the previous fiscal year. An equity in net loss of Y2.8 billion ($24 million) for Metro-Goldwyn-Mayer Inc. ("MGM")* was recorded by Sony, a decrease in the amount of equity loss of Y1.6 billion compared to the same quarter of the previous fiscal year. The equity in net loss for MGM includes non-cash interest expense of Y2.1 billion ($18 million) on cumulative preferred stock compared to the Y1.5 billion of non-cash interest expense on cumulative preferred stock recorded in 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. As a result, net income decreased by 94.1% compared to the same quarter of the previous fiscal year. Operating Performance Highlights by Business Segment - ---------------------------------------------------- Electronics - -----------
(Billions of yen, millions of U.S. dollars) Second quarter ended September 30 2005 2006 Change in 2006 Yen - ---------- ------ ------ ------ ------ Sales and operating Y1,229.4 Y1,378.4 +12.1% $11,681 revenue Operating income 28.1 8.0 -71.4 68
Unless otherwise specified, all amounts are on a U.S. GAAP basis. Sales increased by 12.1% compared to the same quarter of the previous fiscal year (a 7% increase on a local currency basis). Sales to outside customers increased 16.7% compared to the same quarter of the previous fiscal year. There was an increase in sales of products including "BRAVIA" LCD televisions, "VAIO" PCs, and "Cyber-shot" digital cameras, all of which experienced favorable sales in all regions, partially offset by a decrease in sales of several products primarily CRT televisions. Operating income decreased by 71.4% compared with the same quarter of the previous fiscal year. An improvement in the cost of sales ratio, a decrease in loss on sale, disposal or impairment of fixed assets, an increase in sales to outside customers, as well as a positive impact from the depreciation of the yen favorably impacted operating income. However, these factors were more than offset by the absence of the Y64.5 billion gain which resulted from the transfer to the Japanese government of the substitutional portion of Sony's Employee Pension Fund recorded in the same quarter of the previous fiscal year, as well as by the recording in the current quarter of the Y51.2 billion provision for charges related to the notebook computer battery pack recall and subsequent global replacement program. With regard to products within the Electronics segment, there was a positive contribution to operating income from strong sales of "Cyber-shot" digital cameras and "BRAVIA" LCD televisions. Other products which contributed positively compared to the same quarter of the previous fiscal year included CRT televisions, where fixed costs have been lowered as a result of previous restructuring activities. Inventory, as of September 30, 2006, was Y971.6 billion ($8,234 million), a Y328.7 billion, or 51.1%, increase compared with the level as of September 30, 2005 and a Y164.0 billion, or 20.3%, increase compared with the level as of June 30, 2006. This increase was primarily a result of increased LCD television inventory as well as increased semiconductor inventory in preparation for the PS3 launch. 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.
(millions of Euros) Second quarter ended September 30 2005 2006 Change in Euros - ---------- ------ ------ ------ Sales and operating EUR2,055 EUR2,913 +42% revenue Income before income 151 433 +187 taxes Net income 104 298 +187
Sales for the quarter increased by 42% compared to the same quarter of the previous year. Results were boosted by sales of hit models such as "Cyber-shot" and "Walkman(R)" phones. As a result, equity in net income of Y21.8 billion ($185 million) was recorded by Sony. Game - ----
(Billions of yen, millions of U.S. dollars) Second quarter ended September 30 2005 2006 Change in 2006 Yen - ---------- ------ ------ ------ ------ Sales and operating Y214.2 Y170.3 -20.5% $1,443 revenue Operating income (loss) 8.2 (43.5) - (369)
Unless otherwise specified, all amounts are on a U.S. GAAP basis. Sales decreased 20.5% compared with the same quarter of the previous fiscal year (a 25% decrease on a local currency basis). Hardware: There was a decrease in sales in Japan, the U.S. and Europe mainly as a result of lower PSP and PlayStation(R)2 ("PS2") unit sales compared to the same quarter of the previous fiscal year, as well as a strategic price reduction for PS2 in those markets. Software: Although sales from PSP software increased compared to the same quarter of the previous fiscal year, overall software sales decreased as a result of lower PS2 software sales. An operating loss of Y43.5 billion ($369 million) was recorded, a decline compared to the Y8.2 billion operating income recorded during the same quarter of the previous fiscal year. This deterioration was due to the recording of charges associated with preparation for the launch of the PS3 platform, in addition to continued high research and development costs associated with PS3, although combined profit from the PS2 and PSP businesses was relatively unchanged. Worldwide hardware production shipments (and increase/decrease compared to the same quarter of the previous fiscal year):* -> PS2: 5.02 million units (an increase of 0.01 million units) -> PSP: 3.89 million units (an increase of 0.14 million units) Worldwide software production shipments (and increase/decrease compared to the same quarter of the previous fiscal year):* -> PS2: 47 million units (a decrease of 3 million units) -> PSP: 12.9 million units (an increase of 3.9 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. Inventory, as of September 30, 2006, was Y188.2 billion ($1,595 million), which represents a Y73.3 billion, or 63.8%, increase compared with the level as of September 30, 2005. This increase was due to the low level of overall PSP inventory as of September 30, 2005, following the launch of PSP in Europe, in addition to inventory recorded from PS3-related components as of September 30, 2006. Inventory, as of September 30, 2006, was a Y66.2 billion, or 54.3%, increase compared with the level as of June 30, 2006. Pictures - --------
(Billions of yen, millions of U.S. dollars) Second quarter ended September 30 2005 2006 Change in 2006 Yen - ---------- ------ ------ ------ ------ Sales and operating Y158.9 Y178.2 +12.1% $1,510 revenue Operating loss (6.6) (15.3) - (129)
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 increased 12.1% compared with the same quarter of the previous fiscal year (7% increase on a U.S. dollar basis). Sales increased primarily due to a greater number of theatrical releases in the current year's second quarter, combined with higher theatrical revenue per film on titles released during the quarter. This was partially offset by lower DVD revenues on theatrical films. Major theatrical releases that contributed to revenues during the quarter included Talladega Nights: The Ballad of Ricky Bobby, Monster House and Click. An operating loss of Y15.3 billion ($129 million) was recorded, a deterioration of Y8.6 billion compared to the same quarter of the previous fiscal year. Despite the sales increases noted above, motion picture operating income was adversely affected by higher total marketing expenses resulting from a greater number of theatrical releases and the theatrical underperformance of Zoom and All The King's Men. The lower DVD revenues noted above also contributed to the increased operating loss. Television operating income declined in the current quarter due to production and marketing expenses associated with new network and made-for-syndication television shows. Financial Services - ------------------
(Billions of yen, millions of U.S. dollars) Second quarter ended September 30 2005 2006 Change in 2006 Yen - ---------- ------ ------ ------ ------ Financial service Y175.9 Y168.1 -4.4% $1,425 revenue Operating income 40.0 24.6 -38.7 208
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 decreased 4.4% compared with the same quarter of the previous fiscal year, mainly due to a decrease in revenue at Sony Life. Although revenue from insurance premiums increased at Sony Life reflecting an increase in insurance-in-force, revenue at Sony Life decreased by Y9.1 billion or 5.9% to Y144.2 billion ($1,222 million), mainly as a result of lower valuation gains in the general account and the separate account. Operating income decreased by 38.7% compared with the same quarter of the previous fiscal year, mainly as a result of a decrease in valuation gains in the general account at Sony Life. Although revenue from insurance premiums at Sony Life increased, operating income at Sony Life decreased by Y13.5 billion or 34.5% to Y25.6 billion ($217 million) mainly as a result of a decrease in valuation gains from investments in the general account, including valuation gains from convertible bonds. All Other - ---------
(Billions of yen, millions of U.S. dollars) Second quarter ended September 30 2005 2006 Change in 2006 Yen - ---------- ------ ------ ------ ------ Sales and operating Y97.3 Y81.5 -16.3% $690 revenue Operating income 7.6 6.5 -14.3 55
Unless otherwise specified, all amounts are on a U.S. GAAP basis. Sales decreased 16.3% compared with the same quarter of the previous fiscal year. This sales decrease mainly reflects the sale, during the first quarter of the current fiscal year, of 51% of the stock in StylingLife Holdings Inc.("StylingLife"), a holding company that comprised six of Sony's retail businesses, to a wholly-owned subsidiary of Nikko Principal Investments Japan Ltd. Sales decreased at Sony Music Entertainment (Japan) Inc. ("SMEJ") due to lower intersegment sales in association with the transfer of business activity relating to Sony's disc custom press business from SMEJ to other segments within the Sony Group during the second quarter of the fiscal year. Excluding this impact, there was an increase in album and singles sales compared to the same quarter of the previous fiscal year. Best-selling albums and singles during the current quarter included Yuki's WAVE, Beyonce's B'Day and Shogo Hamada's The Best of Shogo Hamada vol.1 and vol.2. Operating income decreased by 14.3% compared to the same quarter of the previous fiscal year. This decrease was the result of the absence of the gain resulting from the transfer to the Japanese government of the substitutional portion of the Employee Pension Fund at several businesses within All Other including SMEJ which was recorded during the same quarter of the previous fiscal year. Excluding this impact, there was a significant increase in operating income within All Other mainly driven by an increase in operating income at Sony Music Entertainment Inc.'s U.S.-based music publishing business due to an improvement in the royalty expense-to-revenue ratio and at So-net Entertainment Corporation in association with increased revenue relating to an increase in optical fiber service subscribers. Excluding the above-mentioned impact of the transfer to the Japanese government of the substitutional portion of the Employee Pension Fund during the same quarter of the previous fiscal year and the decrease in intersegment sales at SMEJ, operating income at SMEJ was relatively unchanged compared to the same quarter of the previous fiscal year. 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.
(millions of U.S. dollars) Second quarter ended September 30 2005 2006 Change in Dollars - ---------- ------ ------ ------ Sales and operating $936 $948 +1% revenue Loss before income (58) (31) - taxes Net loss (60) (39) -
SONY BMG recorded increased sales of 1% compared with the same period of the previous fiscal year primarily due to the benefit of foreign exchange rates. Loss before income taxes includes $39 million of restructuring charges, a year-on-year reduction of $4 million. Decreased loss before income taxes was primarily the result of lower legal and restructuring costs. As a result, equity in net loss of Y2.2 billion ($19 million) was recorded by Sony. Best selling albums during the quarter included Justin Timberlake's Future Sex/Love Sounds, Beyonce's B'Day, and Christina Aguilera's Back to Basics. In August 2004, Sony combined its recorded music business outside of Japan with the recorded music business of Bertelsmann AG ("Bertelsmann"), forming SONY BMG, upon approval from, among others, the European Commission competition authorities. On December 3, 2004, an association of independent recorded music companies applied for annulment of the decision to clear the merger. On July 13, 2006, the Court of First Instance overruled the Commission's decision to allow the merger to go forward, requiring the Commission to re-examine the merger. On October 3, 2006, Bertelsmann and Sony Corporation of America ("SCA") filed a joint appeal against the Court of First Instance's judgment. In addition, Bertelsmann and SCA are in the process of updating the notification filed in 2004 to permit the European Commission to reexamine the transaction. While the Commission completes its reexamination, Sony continues to account for the results of Sony BMG under the equity method. 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 2005 2006 Change 2006 in Yen - ---------- ------ ------ ------ ------ - - From operating activities (Y91.9) (Y191.2) Y -99.3 ($1,620) - - From investing activities (145.1) (217.5) -72.4 (1,843) - - From financing activities 97.1 191.2 +94.1 1,620 Cash and cash equivalents 519.7 585.5 +65.7 4,961 at beginning of the fiscal year Cash and cash equivalents 393.9 363.9 -30.0 3,084 as of September 30
Operating Activities: During the six months ended September 30, 2006, although net income was recorded, cash flow from operating activities resulted in a net use of cash primarily as a result of an increase in inventory within the Electronics and Game segments in preparation for the year-end sales season. Within the Electronics segment, there was an increase in LCD television inventory and semiconductor inventory for use in PS3. Investing Activities: During the six months ended September 30, 2006, although cash was generated from the transfer of 51% of the stock in StylingLife, cash was used by Sony within the Electronics segment primarily for the purchase of fixed assets, principally semiconductor manufacturing facilities, and part of the investment towards the manufacturing facilities for 8th generation TFT LCD panels at S-LCD. As a result, the total amount of cash flow from operating activities and from investing activities was a use of cash of Y408.7 billion ($3,463 million). Financing Activities: During the six months ended September 30, 2006, financing was carried out through the issuance of commercial paper and syndicated bank loans. These sources were partially offset by cash used to redeem straight bonds and make dividend payments. 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 Y221.6 billion compared to March 31, 2006, and decreased by Y30.0 billion compared to September 30, 2005, to Y363.9 billion ($3,084 million) as of September 30, 2006. Cash Flow - Financial Services segment - --------------------------------------
(Billions of yen, millions of U.S. dollars) Six months ended September 30 Cash flow 2005 2006 Change 2006 in Yen - ---------- ------ ------ ------ ------ - - From operating activities Y50.9 Y121.8 Y +70.8 $1,032 - - From investing activities (261.9) (113.2) +148.8 (959) - - From financing activities 138.9 65.2 -73.7 552 Cash and cash equivalents 259.4 117.6 -141.7 997 at beginning of the fiscal year Cash and cash equivalents 187.3 191.4 +4.2 1,622 as of September 30
Operating Activities: Net cash from operating activities was generated 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. Financing Activities: Despite a decrease in the balance of call money within the banking business, 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 increased Y73.8 billion compared to March 31, 2006, and increased Y4.2 billion compared to September 30, 2005, to Y191.4 billion ($1,622 million) as of September 30, 2006. Notes - ----- Note I: During the quarter ended September 30, 2006, the average value of the yen was Y115.3 against the U.S. dollar and Y146.6 against the Euro, which was 4.3% lower against the U.S. dollar and 8.5% 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 monthly 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 (loss)" in each business segment represents operating income (loss) recorded before intersegment transactions and unallocated corporate expenses are eliminated. Outlook for the Fiscal Year ending March 31, 2007 - -------------------------------------------------
Our forecast for the fiscal year ending March 31, 2007, as revised on October 19, 2006, is as per the table below: Change from Current previous Forecast* fiscal year --------- ----------- Sales and operating revenue Y8,230 billion +10% Operating income 50 billion -78 (Restructuring charges included within Operating income 40 billion -71) Income before income taxes 70 billion -76 Equity in net income of affiliated companies 40 billion +204 Net income 80 billion -35
*Assumed foreign currency exchange rates for the second half of the fiscal year: approximately Y114 to the U.S. dollar and approximately Y145 to the Euro. Please note that the above operating income forecast reflects the Y51.2 billion provision for charges related to the notebook computer battery pack recall and subsequent global replacement program. Our forecast for capital expenditures, depreciation and amortization or research and development costs, as per the table below, is unchanged from the forecast of July 27, 2006.
Change from previous Forecast fiscal year --------- ----------- Capital expenditures Y460 billion +20% (additions to fixed assets) Depreciation and amortization* 410 billion +7 (Depreciation expenses for 340 billion +9) tangible assets *Including amortization of intangible assets and amortization of deferred insurance acquisition costs. Research and development expenses 550 billion +3
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," "aim," "may" or "might" and words of similar meaning in connection with a discussion of future operations, financial performance, events or conditions. From time to 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, as well as achieve sufficient cost reductions for, its products and services, which are offered in highly competitive markets characterized by continual new product introductions, rapid development in technology and subjective and changing consumer preferences (particularly in the Electronics, Game and Pictures segments, and music business); (iv) Sony's ability to recoup large-scale investment required for technology development, increasing production capacity and by the Game segment for the development and introduction of a new platform; (v) Sony's ability to implement successfully personnel reduction and other business reorganization activities in its Electronics segment; (vi) Sony's ability to implement successfully its network strategy for its Electronics, Game and Pictures segments and All Other, 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; (vii) Sony's continued ability to devote sufficient resources to research and development and, with respect to capital expenditures, to correctly prioritize investments (particularly in the Electronics segment); (viii) shifts in customer demand for financial services such as life insurance and Sony's ability to conduct successful Asset Liability Management in the Financial Services segment; and (ix) the success of Sony's joint ventures and alliances. Risks and 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) Second quarter ended September 30 Sales and operating 2005 2006 Change 2006 revenue ---------- ------ ------ ------ ------ Electronics Customers Y1,101,562 Y1,286,026 +16.7% $10,899 Intersegment 127,817 92,364 782 ---------- ------ ------ ------ Total 1,229,379 1,378,390 +12.1 11,681 Game Customers 203,994 162,571 -20.3 1,378 Intersegment 10,252 7,749 65 ---------- ------ ------ ------ Total 214,246 170,320 -20.5 1,443 Pictures Customers 158,855 178,153 +12.1 1,510 Intersegment - - - ---------- ------ ------ ------ Total 158,855 178,153 +12.1 1,510 Financial Services Customers 170,103 162,198 -4.6 1,374 Intersegment 5,779 5,903 51 ---------- ------ ------ ------ Total 175,882 168,101 -4.4 1,425 All Other Customers 77,120 65,231 -15.4 552 Intersegment 20,193 16,255 138 ---------- ------ ------ ------ Total 97,313 81,486 -16.3 690 Elimination (164,041) (122,271) - (1,036) ---------- ------ ------ ------ Consolidated total Y1,711,634 Y1,854,179 +8.3% $15,713
Electronics intersegment amounts primarily consist of transactions with the Game segment, Pictures segment and All Other. All Other intersegment amounts primarily consist of transactions with the Electronics and Game segments.
Operating income (loss) 2005 2006 Change 2006 ---------- ------ ------ ------ ------ Electronics Y28,081 Y8,027 -71.4% $68 Game 8,220 (43,527) - (369) Pictures (6,633) (15,277) - (129) Financial Services 40,046 24,567 -38.7 208 All Other 7,585 6,497 -14.3 55 ---------- ------ ------ ------ Total 77,299 (19,713) - (167) Corporate and (2,744) (1,120) - (10) elimination ---------- ------ ------ ------ Consolidated total Y74,555 Y(20,833) -% $(177) (Millions of yen, millions of U.S. dollars) Six months ended September 30 Sales and operating 2005 2006 Change 2006 revenue ---------- ------ ------ ------- ------ Electronics Customers Y2,136,493 Y2,517,666 +17.8% $21,336 Intersegment 221,259 141,616 1,200 ---------- ------ ------ ------ Total 2,357,752 2,659,282 +12.8 22,536 Game Customers 369,471 279,597 -24.3 2,369 Intersegment 17,553 13,212 112 ---------- ------ ------ ------ Total 387,024 292,809 -24.3 2,481 Pictures Customers 303,236 382,904 +26.3 3,245 Intersegment - - - ---------- ------ ------ ------ Total 303,236 382,904 +26.3 3,245 Financial Services Customers 318,691 280,738 -11.9 2,379 Intersegment 11,005 11,464 97 ---------- ------ ------ ------ Total 329,696 292,202 -11.4 2,476 All Other Customers 151,876 137,510 -9.5 1,166 Intersegment 38,499 32,115 272 ---------- ------ ------ ------ Total 190,375 169,625 -10.9 1,438 Elimination (288,316) (198,407) - (1,681) ---------- ------ ------ ------ Consolidated total Y3,279,767 Y3,598,415 +9.7% $30,495
Electronics intersegment amounts primarily consist of transactions with the Game segment, Pictures segment and All Other. All Other intersegment amounts primarily consist of transactions with the Electronics and Game segments.
Operating income (loss) 2005 2006 Change 2006 ---------- ------ ------ ------ ------ Electronics Y1,404 Y55,446 +3,849.1% $470 Game 2,325 (70,330) - (596) Pictures (2,387) (16,442) - (139) Financial Services 61,969 29,146 -53.0 247 All Other 12,818 11,228 -12.4 95 ---------- ------ ------ ------ Total 76,129 9,048 -88.1 77 Corporate and (8,156) (2,833) - (24) elimination ---------- ------ ------ ------ Consolidated total Y67,973 Y6,215 -90.9% $53 Electronics Sales and Operating Revenue to Customers by Product Category (Millions of yen, millions of U.S. dollars) Second quarter ended September 30 Sales and operating 2005 2006 Change 2006 revenue ---------- ------ ------ ------ ------ Audio Y129,605 Y121,655 -6.1% $1,031 Video 247,628 282,920 +14.3 2,398 Televisions 171,430 251,486 +46.7 2,131 Information and 184,984 220,341 +19.1 1,867 Communications Semiconductors 43,534 52,482 +20.6 445 Components 193,103 221,335 +14.6 1,876 Other 131,278 135,807 +3.4 1,151 ---------- ------ ------ ------ Total Y1,101,562 Y1,286,026 +16.7% $10,899 Six months ended September 30 Sales and operating 2005 2006 Change 2006 revenue ---------- ------ ------ ------ ------ Audio Y246,944 Y237,947 -3.6% $2,017 Video 498,959 553,101 +10.9 4,687 Televisions 321,477 513,540 +59.7 4,352 Information and 369,160 433,491 +17.4 3,674 Communications Semiconductors 82,907 100,473 +21.2 851 Components 375,933 426,071 +13.3 3,611 Other 241,113 253,043 +4.9 2,144 ---------- ------ ------ ------ Total Y2,136,493 Y2,517,666 +17.8% $21,336
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. Commencing April 1, 2006, Sony has partly realigned its product category configuration in the Electronics segment. Accordingly, results for the same period of the previous fiscal year have been reclassified. The primary change is as shown below;
Main Product Previous Product Category New Product Category - ------------ ------------------------- -------------------- Low- "Semiconductors" --> "Components" temperature polysilicon thin film transistor LCD Chemical "Other" --> "Components" component
Geographic Segment Information (Unaudited) - ------------------------------ (Millions of yen, millions of U.S. dollars) Second quarter ended September 30 Sales and operating 2005 2006 Change 2006 revenue ---------- ------ ------ ------ ------ Japan Y512,026 Y497,433 -2.9% $4,216 United States 436,297 479,469 +9.9 4,063 Europe 368,910 417,019 +13.0 3,534 Other Areas 394,401 460,258 +16.7 3,900 ---------- ------ ------ ------ Total Y1,711,634 Y1,854,179 +8.3% $15,713 Six months ended September 30 Sales and operating 2005 2006 Change 2006 revenue ---------- ------ ------ ------ ------ Japan Y988,996 Y973,631 -1.6% $8,251 United States 854,778 927,386 +8.5 7,859 Europe 700,035 815,871 +16.5 6,914 Other Areas 735,958 881,527 +19.8 7,471 ---------- ------ ------ ------ Total Y3,279,767 Y3,598,415 +9.7% $30,495 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) Second quarter ended September 30 2005 2006 Change 2006 ------ ------ ------ ------ Sales and operating % revenue: Net sales Y1,517,412 Y1,667,547 $14,132 Financial service 170,103 162,198 1,374 revenue Other operating 24,119 24,434 207 revenue ------ ------ ------ 1,711,634 1,854,179 +8.3 15,713 Costs and expenses: Cost of sales 1,179,803 1,286,412 10,902 Selling, general and 300,279 449,250 3,807 administrative Financial service 130,228 137,623 1,166 expenses Loss on sale, 26,769 1,727 15 disposal or impairment of assets, net ------ ------ ------ 1,637,079 1,875,012 15,890 Operating income (loss) 74,555 (20,833) - (177) Other income: Interest and 4,674 4,848 41 dividends Foreign exchange 326 - - gain, net Gain on sale of 4,259 551 5 securities investments, net Gain on change in 20,662 2,029 18 interest in subsidiaries and equity investees Other 5,068 5,664 48 ------ ------ ------ 34,989 13,092 112 Other expenses: Interest 7,135 5,974 51 Loss on devaluation 2,144 734 6 of securities investments Foreign exchange - 6,036 51 loss, net Other 4,882 5,637 48 ------ ------ ------ 14,161 18,381 156 ------ ------ ------ Income (loss) before 95,383 (26,122) - (221) income taxes Income taxes 65,143 (7,551) (64) ------ ------ ------ Income (loss) before 30,240 (18,571) - (157) minority interest and equity in net income (loss) of affiliated companies Minority interest in (837) (530) (4) income (loss) of consolidated subsidiaries Equity in net income (2,609) 19,721 167 (loss) of affiliated companies ------ ------ ------ Net income Y28,468 Y1,680 -94.1 $14 ------ ------ ------ Per share data: Common stock Net income - Basic Y28.63 Y1.68 -94.1 $0.01 - Diluted 27.32 1.60 -94.1 0.01 Subsidiary tracking stock Net income (loss) - Basic* (19.90) - - - * See Note 3 (Millions of yen, millions of U.S. dollars, except per share amounts) Six months ended September 30 2005 2006 Change 2006 ------ ------ ------ ------ Sales and operating % revenue: Net sales Y2,915,146 Y3,267,083 $27,687 Financial service 318,691 280,738 2,379 revenue Other operating 45,930 50,594 429 revenue ------ ------ ------ 3,279,767 3,598,415 +9.7 30,495 Costs and expenses: Cost of sales 2,276,579 2,498,491 21,174 Selling, general 649,755 833,137 7,060 and administrative Financial service 256,865 251,574 2,132 expenses Loss on sale, 28,595 8,998 76 disposal or impairment of assets, net ------ ------ ------ 3,211,794 3,592,200 30,442 Operating income 67,973 6,215 -90.9 53 Other income: Interest and 10,843 11,942 101 dividends Gain on sale 6,400 4,452 38 of securities investments, net Gain on change in 38,531 20,075 170 interest in subsidiaries and equity investees Other 10,826 10,431 88 ------ ------ ------ 66,600 46,900 397 Other expenses: Interest 11,981 11,385 97 Loss on devaluation 2,944 750 6 of securities investments Foreign exchange 1,066 3,494 30 loss, net Other 10,296 9,580 81 ------ ------ ------ 26,287 25,209 214 ------ ------ ------ Income before income 108,286 27,906 -74.2 236 taxes Income taxes 77,194 17,216 145 ------ ------ ------ Income before minority 31,092 10,690 -65.6 91 interest and equity in net income (loss) of affiliated companies Minority interest in (1,808) 62 1 income (loss) of consolidated subsidiaries Equity in net (11,695) 23,343 198 income (loss) of affiliated companies ------ ------ ------ Net income Y21,205 Y33,971 +60.2 $288 ------ ------ ------ Per share data: Common stock Net income - Basic Y19.95 Y33.93 +70.1 $0.29 - Diluted 19.01 32.36 +70.2 0.27 Subsidiary tracking stock Net income - Basic* 430.74 - - - * See Note 3 Consolidated Balance Sheets (Unaudited) - --------------------------- (Millions of yen, millions of U.S. dollars) September 30 March 31 September 30 September 30 ASSETS 2005 2006 2006 2006 -------- -------- -------- ------- Current assets: Cash and cash Y 581,200 Y 703,098 Y 555,330 $ 4,706 equivalents Marketable 508,017 536,968 471,332 3,994 securities Notes and 1,087,120 1,075,071 1,233,207 10,451 accounts receivable, trade Allowance for (78,352) (89,563) (82,340) (698) doubtful accounts and sales returns Inventories 805,856 804,724 1,152,646 9,768 Deferred income 138,160 221,311 251,374 2,130 taxes Prepaid expenses 552,876 517,915 636,325 5,394 and other current assets -------- -------- -------- ------- 3,594,877 3,769,524 4,217,874 35,745 Film costs 343,998 360,372 370,905 3,143 Investments and advances: Affiliated 263,524 285,870 339,702 2,879 companies Securities 2,900,196 3,234,037 3,310,692 28,057 investments and other -------- -------- -------- ------- 3,163,720 3,519,907 3,650,394 30,936 Property, plant and equipment: Land 181,130 178,844 172,242 1,460 Buildings 936,291 926,783 939,040 7,958 Machinery and 2,304,687 2,327,676 2,437,235 20,655 equipment Construction in 90,822 116,149 93,568 793 progress Less-Accumulated (2,133,025) (2,160,905) (2,200,498) (18,649) depreciation -------- -------- -------- ------- 1,379,905 1,388,547 1,441,587 12,217 Other assets: Intangibles, net 192,688 207,034 213,422 1,809 Goodwill 291,021 299,024 300,627 2,548 Deferred 384,917 383,156 389,695 3,303 insurance acquisition costs Deferred income 205,019 178,751 159,563 1,352 taxes Other 452,169 501,438 399,578 3,385 -------- -------- -------- ------- 1,525,814 1,569,403 1,462,885 12,397 -------- -------- -------- ------- Y 10,008,314 Y 10,607,753 Y 11,143,645 $ 94,438 -------- -------- -------- ------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term Y 202,882 Y 142,766 Y 247,953 $ 2,101 borrowings Current portion 165,091 193,555 111,620 946 of long-term debt Notes and 854,982 813,332 975,543 8,267 accounts payable, trade Accounts 756,985 854,886 908,378 7,698 payable, other and accrued expenses Accrued income 33,211 87,295 26,810 227 and other taxes Deposits from 591,540 599,952 682,717 5,786 customers in the banking business Other 489,937 508,442 490,134 4,154 -------- -------- -------- ------- 3,094,628 3,200,228 3,443,155 29,179 Long-term liabilities: Long-term debt 690,320 764,898 868,231 7,358 Accrued pension 221,915 182,247 169,667 1,438 and severance costs Deferred income 143,793 216,497 238,021 2,017 taxes Future insurance 2,598,208 2,744,321 2,880,479 24,411 policy benefits and other Other 234,321 258,609 267,088 2,264 -------- -------- -------- ------- 3,888,557 4,166,572 4,423,486 37,488 Minority interest 25,947 37,101 40,259 341 in consolidated subsidiaries Stockholders' equity: Capital stock 621,724 624,124 625,194 5,298 Additional 1,134,304 1,136,638 1,139,185 9,654 paid-in capital Retained 1,512,723 1,602,654 1,620,312 13,731 earnings Accumulated (266,656) (156,437) (144,619) (1,225) other comprehensive income Treasury stock, (2,913) (3,127) (3,327) (28) at cost -------- -------- -------- ------- 2,999,182 3,203,852 3,236,745 27,430 -------- -------- -------- ------- Y 10,008,314 Y 10,607,753 Y 11,143,645 $ 94,438 -------- -------- -------- -------
Consolidated Statements of Cash Flows (Unaudited) - -------------------------------------
(Millions of yen, millions of U.S. dollars) Six months ended September 30 2005 2006 2006 ------ ------ ------ Cash flows from operating activities: Net income Y 21,205 Y 33,971 $ 288 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and 181,416 184,919 1,567 amortization, including amortization of deferred insurance acquisition costs Amortization of 170,624 148,714 1,260 film costs Accrual for (3,503) (8,479) (72) pension and severance costs, less payments Gain on the (73,472) - - transfer to the Japanese Government of the substitutional portion of employee pension fund Loss on sale, 28,595 8,998 76 disposal or impairment of assets, net Gain on sale or (3,456) (3,702) (32) loss on devaluation of securities investments, net (Gain) Loss on (17,394) 3,864 33 evaluation of marketable securities held in the financial service business for trading purpose Gain on change (38,531) (20,075) (170) in interest in subsidiaries and equity investees Deferred income 67,569 (4,575) (39) taxes Equity in net 12,443 (21,987) (186) (income) loss of affiliated companies, net of dividends Changes in assets and liabilities: Increase in (22,704) (154,431) (1,309) notes and accounts receivable, trade Increase in (158,851) (338,190) (2,866) inventories Increase in (218,406) (157,992) (1,339) film costs Increase in 39,971 159,742 1,354 notes and accounts payable, trade Decrease in (22,790) (49,918) (423) accrued income and other taxes Increase in 62,113 76,270 646 future insurance policy benefits and other Increase in (32,080) (30,152) (255) deferred insurance acquisition costs (Increase) Decrease (13,216) 18,874 160 in marketable securities held in the financial service business for trading purpose Increase in (58,603) (26,462) (224) other current assets Increase in 18,029 37,034 314 other current liabilities Other 20,144 70,802 600 ------ ------ ------ Net cash used (40,897) (72,775) (617) in operating activities ------ ------ ------ Cash flows from investing activities: Payments for (234,310) (258,061) (2,187) purchases of fixed assets Proceeds from 9,978 25,098 213 sales of fixed assets Payments for (712,454) (470,577) (3,988) investments and advances by financial service business Payments for (15,217) (32,751) (277) investments and advances (other than financial service business) Proceeds from 471,167 374,782 3,176 maturities of marketable securities, sales of securities investments and collections of advances by financial service business Proceeds from 16,873 4,139 35 maturities of marketable securities, sales of securities investments and collections of advances (other than financial service business) Proceeds from 49,578 32,165 272 sales of subsidiaries' and equity investees' stocks Other (283) 667 6 ------ ------ ------ Net cash used (414,668) (324,538) (2,750) in investing activities ------ ------ ------ Cash flows from financing activities: Proceeds from 121,280 125,047 1,060 issuance of long-term debt Payments of (115,563) (103,479) (877) long-term debt Increase in 101,073 187,021 1,585 short-term borrowings Increase in 116,856 142,793 1,210 deposits from customers in the financial service business Increase 31,500 (87,700) (743) (Decrease) in call money and bills sold in the banking business Dividends paid (12,368) (12,514) (106) Other 753 2,449 20 ------ ------ ------ Net cash 243,531 253,617 2,149 provided by financing activities ------ ------ ------ Effect of exchange 14,131 (4,072) (34) rate changes on cash and cash equivalents ------ ------ ------ Net decrease in (197,903) (147,768) (1,252) cash and cash equivalents Cash and cash 779,103 703,098 5,958 equivalents at beginning of the fiscal year ------ ------ ------ Cash and cash Y 581,200 Y 555,330 $ 4,706 equivalents at September 30 ------ ------ ------
The following information shows change in additional paid-in capital and change in retained earnings for the six months of the fiscal year ended March 31, 2006, and consolidated statement of changes in stockholders' equity for the six months of the fiscal year ending March 31, 2007. Sony discloses these supplemental information in accordance with disclosure requirements of the Japanese Securities and Exchange Law, to which Sony, as a Japanese public company, is subject. Additional Paid-in Capital and Retained Earnings (Unaudited) - ------------------------------------------------
(Millions of yen) Six months ended September 30 2005 ------ Additional Paid-in Capital: Balance at March 31,2005 Y 1,134,222 Exercise of stock acquisition rights 16 Stock based compensation 66 ------ Balance at September 30, 2005 Y 1,134,304 ------ (Millions of yen) Six months ended September 30 2005 ------ Retained Earnings: Balance at March 31, 2005 Y 1,506,082 Net income 21,205 Cash dividends (12,456) Reissuance of treasury stock (1,349) Common stock issue costs, net of tax (759) ------ Balance at September 30, 2005 Y 1,512,723 ------
Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - ---------------------------------------------------------- (Millions of yen) Common Additional Retained Accumu- Treasury Total stock paid-in earnings lated stock, capital other at cost compre- hensive income ------ ------ ------ ------ ------ ------ Balance Y624,124 Y1,136,638 Y1,602,654 Y(156,437) Y(3,127) Y3,203,852 at March 31, 2006 Exercise 478 478 956 of stock acquisition rights Conversion 592 592 1,184 of convertible bonds Stock 1,472 1,472 based compensation Comprehensive income: Net income 33,971 33,971 Cumulative (3,785) (3,785) effect of an accounting change, net of tax Other comprehensive income, net of tax Unrealized (21,689) (21,689) gains on securities Unrealized (1,026) (1,026) losses on derivative instruments Minimum (2,647) (2,647) pension liability adjustment Foreign 37,180 37,180 currency translation adjustments ------ Total 42,004 comprehensive income ------ Stock (11) (11) issue costs, net of tax Dividends (12,517) (12,517) declared Purchase of (226) (226) treasury stock Reissuance 5 26 31 of treasury stock ------ ------ ------ ------ ------ ------ Balance Y625,194 Y1,139,185 Y1,620,312 Y(144,619) Y(3,327) Y3,236,745 at September 30, 2006 ------ ------ ------ ------ ------ ------ (Millions of U.S. dollars) Common Additional Retained Accumu- Treasury Total stock paid-in earnings lated stock, capital other at cost compre- hensive income ------ ------ ------ ------ ------ ------ Balance $ 5,289 $ 9,633 $ 13,582 $ (1,326) $ (27) $ 27,151 at March 31, 2006 Exercise 4 4 8 of stock acquisition rights Conversion 5 5 10 of convertible bonds Stock 12 12 based compensation Comprehensive income: Net income 288 288 Cumulative (33) (33) effect of an accounting change, net of tax Other comprehensive income, net of tax Unrealized (184) (184) gains on securities Unrealized (8) (8) losses on derivative instruments Minimum (22) (22) pension liability adjustment Foreign 315 315 currency translation adjustments ------ Total 356 comprehensive ------ income Stock (0) (0) issue costs, net of tax Dividends (106) (106) declared Purchase of (1) (1) treasury stock Reissuance 0 0 0 of treasury stock ------ ------ ------ ------ ------ ------ Balance $ 5,298 $ 9,654 $ 13,731 $ (1,225) $ (28) $ 27,430 at September 30, 2006 ------ ------ ------ ------ ------ ------
(Notes) 1. U.S. dollar amounts have been translated from yen, for convenience only, at the rate of Y118 = U.S. $1, the approximate Tokyo foreign exchange market rate as of September 29, 2006. 2. As of September 30, 2006, Sony had 947 consolidated subsidiaries (including variable interest entities). It has applied the equity accounting method in respect to 59 affiliated companies. 3. Prior to December 1, 2005, Sony calculated and presented per share data separately for Sony's common stock and for the subsidiary tracking stock applying "two-class" method based on Statement of Financial Accounting Standards ("FAS") No.128, "Earnings per Share". On October 26, 2005, the Board of Directors of Sony Corporation decided to terminate all shares of subsidiary tracking stock with the method of compulsory conversion to shares of Sony's common stock. All shares of subsidiary tracking stock were converted to shares of Sony's common stock on December 1, 2005. As a result of the conversion, earnings per share of the subsidiary tracking stock has not been presented since the third quarter of the fiscal year ended March 31, 2006. Weighted-average number of outstanding shares used for computation of earnings per share of common stock are as follows. The dilutive effect in the weighted-average number of outstanding shares mainly resulted from convertible bonds.
Weighted-average number of outstanding shares (Thousands of shares) Second quarter ended September 30 2005 2006 ----- ---- Net income - Basic 996,523 1,001,293 - Diluted 1,044,215 1,049,549 Weighted-average number of outstanding shares (Thousands of shares) Six months ended September 30 2005 2006 ----- ---- Net income - Basic 996,305 1,001,250 - Diluted 1,044,040 1,049,803
4. Effective April 1, 2006, Sony reclassified royalty income as a component of sales and operating revenue, rather than as a component of other income as previously recorded. In connection with this reclassification, sales and operating revenue, operating income (loss) and other income for the second quarter and the six months of the fiscal year ended March 31, 2006 have been reclassified to conform with the presentation of these items for the second quarter and the six months of the fiscal year ending March 31, 2007. Royalty income for the second quarter and the six months of the fiscal year ended March 31, 2006, was Y8.6 billion and Y17.3 billion, respectively. Royalty income for the second quater and the six months of the fiscal year ending March 31, 2007 was Y7.3 billion and Y15.9 billion, respectively. These amounts were recorded primarily within the Electronics segment. 5. In December 2004, the FASB issued FAS No. 123 (revised 2004), "Share-Based Payment" ("FAS No. 123(R)"). This statement requires the use of the fair value based method of accounting for employee stock-based compensation and eliminates the alternative to use of the intrinsic value method prescribed by APB No. 25. With limited exceptions, FAS No. 123(R) requires that the grant-date fair value of share-based payments to employees be expensed over the period the service is received. Sony had accounted for its employee stock-based compensation in accordance with the intrinsic value method prescribed by APB No. 25 and its related interpretations and had disclosed the net effect on net income and net income per share allocated to the common stock if Sony had applied the fair value recognition provisions of FAS No. 123 to stock-based compensation. Sony adopted FAS No. 123(R) on April 1, 2006. Sony elected the modified prospective method of transition prescribed in FAS No. 123(R), which requires that compensation expense be recorded for all unvested stock acquisition rights as the requisite service is rendered beginning with the first period of adoption. As a result of adoption of FAS No. 123(R), Sony's operating income (loss) decreased (increased) Y697 million and Y1,397 million for the second quarter and the six months of the fiscal year ending March 31, 2007, respectively. 6. In February 2006, the Financial Accounting Standards Board ("FASB") issued FAS No. 155, "Accounting for Certain Hybrid Financial Instruments", an amendment of FAS No. 133 and FAS No. 140. This statement permits an entity to elect fair value remeasurement for any hybrid financial instrument if the hybrid instrument contains an embedded derivative that would otherwise be required to be bifurcated and accounted for separately under FAS No. 133. The election to measure the hybrid instrument at fair value is made on an instrument-by-instrument basis and is irreversible. The statement is effective for all financial instruments acquired, issued, or subject to a remeasurement event occurring after the beginning of an entity's fiscal years beginning after September 15, 2006, with earlier adoption permitted as of the beginning of fiscal year, provided that financial statements for any interim period of that fiscal year have not been issued. Sony early adopted FAS No. 155 on April 1, 2006. As a result of adoption of FAS No. 155, Sony's operating income (loss) increased (decreased) approximately Y1.7 billion and Y0.1 billion for the second quarter and the six months of the fiscal year ending March 31, 2007, respectively. Additionally, on April 1, 2006, Sony recognized Y3,785 million of loss (net of income taxes of Y2,148million) as a cumulative-effect adjustment to beginning retained earnings.
Other Consolidated Financial Data (Millions of yen, millions of U.S. dollars) Second quarter ended September 30 2005 2006 Change 2006 ------- ------- ----- ----- Capital expenditures Y 87,798 Y 90,024 +2.5% $ 763 (additions to property, plant and equipment) Depreciation and 92,752 93,654 + 1.0 794 amortization expenses* (Depreciation expenses for (74,845) (74,490) -0.5 (631) tangible assets) R&D expenses 131,369 143,485 + 9.2 1,216 (Millions of yen, millions of U.S. dollars) Six months ended September 30 2005 2006 Change 2006 ------- ------- ----- ----- Capital expenditures Y 185,781 Y 224,080 +20.6% $ 1,899 (additions to property, plant and equipment) Depreciation and 181,416 184,919 + 1.9 1,567 amortization expenses* (Depreciation expenses for (146,726) (145,492) -0.8 (1,233) tangible assets) R&D expenses 249,757 262,855 + 5.2 2,228
* Including amortization expenses for intangible assets and for deferred insurance acquisition costs (Condensed Financial Services Financial Statements ) 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 (Unaudited) - ------------------------------ (Millions of yen, millions of U.S. dollars) Second quarter ended September 30 Financial Services 2005 2006 Change 2006 ------ ----- ----- ----- % Financial service Y 175,882 Y 168,101 -4.4 $ 1,425 revenue Financial service 135,836 143,534 +5.7 1,217 expenses ------ ----- ----- Operating income 40,046 24,567 -38.7 208 Other income 23,351 121 -99.5 1 (expenses), net ------ ----- ----- Income before income 63,397 24,688 -61.1 209 taxes Income taxes and other 23,555 9,395 -60.1 79 ------ ----- ----- Net income Y 39,842 Y 15,293 -61.6 $ 130 ------ ----- ----- (Millions of yen, millions of U.S. dollars) Second quarter ended September 30 Sony without 2005 2006 Change 2006 Financial Services ------ ----- ---- ----- % Net sales and Y 1,543,763 Y 1,694,094 +9.7 $ 14,357 operating revenue Costs and 1,509,712 1,739,841 +15.2 14,745 expenses ------ ----- ----- Operating income (loss) 34,051 (45,747) - (388) Other income (2,196) (5,065) - (43) (expenses), net ------ ----- ----- Income (loss) before 31,855 (50,812) - (431) income taxes Income taxes and other 43,361 (37,199) - (316) ------ ----- ----- Net income (loss) Y (11,506) Y (13,613) - $ (115) ------ ----- ----- (Millions of yen, millions of U.S. dollars) Second quarter ended September 30 Consolidated 2005 2006 Change 2006 ------ ----- ---- ----- % Financial service Y 170,103 Y 162,198 -4.6 $ 1,374 revenue Net sales and 1,541,531 1,691,981 +9.8 14,339 operating revenue ------ ----- ----- 1,711,634 1,854,179 +8.3 15,713 Costs and expenses 1,637,079 1,875,012 +14.5 15,890 ------ ----- ----- Operating income (loss) 74,555 (20,833) - (177) Other income 20,828 (5,289) - (44) (expenses), net ------ ----- ----- Income (loss) before 95,383 (26,122) - (221) income taxes Income taxes and other 66,915 (27,802) - (235) ------ ----- ----- Net income Y 28,468 Y 1,680 -94.1 $ 14 ------ ----- ----- Condensed Statements of Income (Unaudited) - ------------------------------ (Millions of yen, millions of U.S. dollars) Six months ended September 30 Financial Services 2005 2006 Change 2006 ------ ----- ----- ----- % Financial service Y 329,696 Y 292,202 -11.4 $ 2,476 revenue Financial service 267,727 263,056 -1.7 2,229 expenses ------ ----- ----- Operating income 61,969 29,146 -53.0 247 Other income 23,234 64 -99.7 1 (expenses), net ------ ----- ----- Income before 85,203 29,210 -65.7 248 income taxes Income taxes and other 33,289 10,796 -67.6 92 ------ ----- ----- Net income Y 51,914 Y 18,414 -64.5 $ 156 ------ ----- ----- (Millions of yen, millions of U.S. dollars) Six months ended September 30 Sony without 2005 2006 Change 2006 Financial Services ------ ----- ---- ----- % Net sales and Y 2,965,256 Y 3,322,377 +12.0 $ 28,156 operating revenue Costs and expenses 2,960,116 3,345,971 +13.0 28,356 ------ ----- ----- Operating income 5,140 (23,594) - (200) (loss) Other income 17,813 28,400 +59.4 241 (expenses), net ------ ----- ----- Income before 22,953 4,806 -79.1 41 income taxes Income taxes and other 53,793 (17,026) - (144) ------ ----- ----- Net income (loss) Y (30,840) Y 21,832 - $ 185 ------ ----- ----- (Millions of yen, millions of U.S. dollars) Six months ended September 30 Consolidated 2005 2006 Change 2006 ------ ----- ---- ----- % Financial service Y 318,691 Y 280,738 -11.9 $ 2,379 revenue Net sales and 2,961,076 3,317,677 +12.0 28,116 operating revenue ------ ----- ----- 3,279,767 3,598,415 +9.7 30,495 Costs and expenses 3,211,794 3,592,200 +11.8 30,442 ------ ----- ----- Operating income 67,973 6,215 -90.9 53 Other income 40,313 21,691 -46.2 183 (expenses), net ------ ----- ----- Income before 108,286 27,906 -74.2 236 income taxes Income taxes and other 87,081 (6,065) - (52) ------ ----- ----- Net income Y 21,205 Y 33,971 +60.2 $ 288 ------ ----- -----
Condensed Balance Sheet (Unaudited) - ----------------------- (Millions of yen, millions of U.S. dollars) Financial September March September September Services 30 31 30 30 ASSETS 2005 2006 2006 2006 ----- ------- ------ ------ Current assets: Cash and cash Y 187,269 Y 117,630 Y 191,438 $ 1,622 equivalents Marketable 503,946 532,895 468,256 3,968 securities Other 204,377 200,929 274,626 2,328 ----- ------- ------ ------ 895,592 851,454 934,320 7,918 Investments and 2,788,864 3,128,748 3,220,740 27,294 advances Property, plant 34,053 37,422 39,427 334 and equipment Other assets: Deferred 384,917 383,156 389,695 3,303 insurance acquisition costs Other 122,102 164,827 97,983 830 ----- ------- ------ ------ 507,019 547,983 487,678 4,133 ----- ------- ------ ------ Y 4,225,528 Y 4,565,607 Y 4,682,165 $ 39,679 ----- ------- ------ ------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term Y 70,862 Y 136,723 Y 67,548 $ 572 borrowings Notes and 10,643 11,707 12,601 107 accounts payable, trade Deposits 591,540 599,952 682,717 5,786 from customers in the banking business Other 147,191 169,956 113,157 959 ----- ------- ------ ------ 820,236 918,338 876,023 7,424 Long-term liabilities: Long-term 131,507 128,097 129,415 1,097 debt Accrued 13,641 13,479 13,222 112 pension and severance costs Future 2,598,208 2,744,321 2,880,479 24,411 insurance policy benefits and other Other 158,976 173,354 200,367 1,697 ----- ------- ------ ------ 2,902,332 3,059,251 3,223,483 27,317 Minority 4,279 4,089 4,228 36 interest in consolidated subsidiaries Stockholders' 498,681 583,929 578,431 4,902 equity ----- ------- ------ ------ Y 4,225,528 Y 4,565,607 Y 4,682,165 $ 39,679 ----- ------- ------ ------ Sony without (Millions of yen, millions of U.S. dollars) Financial September March September September Services 30 31 30 30 ASSETS 2005 2006 2006 2006 ----- ------- ------ ------ Current assets: Cash and cash Y 393,931 Y 585,468 Y 363,892 $ 3,084 equivalents Marketable 4,071 4,073 3,076 26 securities Notes and 1,000,575 973,675 1,132,099 9,594 accounts receivable, trade Other 1,317,568 1,393,306 1,825,897 15,474 ----- ------- ------ ------ 2,716,145 2,956,522 3,324,964 28,178 Film costs 343,998 360,372 370,905 3,143 Investments and 464,700 477,089 509,565 4,318 advances Investments in 187,400 187,400 187,400 1,588 Financial Services, at cost Property, plant 1,345,852 1,351,125 1,402,160 11,883 and equipment Other assets 1,106,129 1,059,786 1,021,756 8,659 ----- ------- ------ ------ Y 6,164,224 Y 6,392,294 Y 6,816,750 $ 57,769 ----- ------- ------ ------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term Y 311,405 Y 225,082 Y 329,624 $ 2,793 borrowings Notes and 847,049 804,394 963,939 8,169 accounts payable, trade Other 1,144,494 1,299,809 1,324,318 11,223 ----- ------- ------ ------ 2,302,948 2,329,285 2,617,881 22,185 Long-term liabilities: Long-term 638,502 701,372 802,173 6,798 debt Accrued 208,274 168,768 156,445 1,326 pension and severance costs Other 304,974 352,457 358,479 3,038 ----- ------- ------ ------ 1,151,750 1,222,597 1,317,097 11,162 Minority 21,717 32,623 35,593 302 interest in consolidated subsidiaries Stockholders' 2,687,809 2,807,789 2,846,179 24,120 equity ----- ------- ------ ------ Y 6,164,224 Y 6,392,294 Y 6,816,750 $ 57,769 ----- ------- ------ ------ (Millions of yen, millions of U.S. dollars) Consolidated September 30 March 31 September 30September 30 ASSETS 2005 2006 2006 2006 ----- ------- ------ ------ Current assets: Cash and Y 581,200 Y 703,098 Y 555,330 $ 4,706 cash equivalents Marketable 508,017 536,968 471,332 3,994 securities Notes and 1,008,768 985,508 1,150,867 9,753 accounts receivable, trade Other 1,496,892 1,543,950 2,040,345 17,292 ----- ------- ------ ------ 3,594,877 3,769,524 4,217,874 35,745 Film costs 343,998 360,372 370,905 3,143 Investments and 3,163,720 3,519,907 3,650,394 30,936 advances Property, plant 1,379,905 1,388,547 1,441,587 12,217 and equipment Other assets: Deferred 384,917 383,156 389,695 3,303 insurance acquisition costs Other 1,140,897 1,186,247 1,073,190 9,094 ----- ------- ------ ------ 1,525,814 1,569,403 1,462,885 12,397 ----- ------- ------ ------ Y 10,008,314 Y 10,607,753 Y 11,143,645 $ 94,438 ----- ------- ------ ------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term Y 367,973 Y 336,321 Y 359,573 $ 3,047 borrowings Notes and 854,982 813,332 975,543 8,267 accounts payable, trade Deposits 591,540 599,952 682,717 5,786 from customers in the banking business Other 1,280,133 1,450,623 1,425,322 12,079 ----- ------- ------ ------ 3,094,628 3,200,228 3,443,155 29,179 Long-term liabilities: Long-term 690,320 764,898 868,231 7,358 debt Accrued 221,915 182,247 169,667 1,438 pension and severance costs Future 2,598,208 2,744,321 2,880,479 24,411 insurance policy benefits and other Other 378,114 475,106 505,109 4,281 ----- ------- ------ ------ 3,888,557 4,166,572 4,423,486 37,488 Minority 25,947 37,101 40,259 341 interest in consolidated subsidiaries Stockholders' 2,999,182 3,203,852 3,236,745 27,430 equity ----- ------- ------ ------ Y 10,008,314 Y 10,607,753 Y 11,143,645 $ 94,438 ----- ------- ------ ------
Condensed Statements of Cash Flows (Unaudited) - ---------------------------------- (Millions of yen, millions of U.S. dollars) Six months ended September 30 Financial Services 2005 2006 2006 ----- ----- ------ Net cash provided Y 50,949 Y 121,798 $ 1,032 by operating activities Net cash used in (261,946) (113,193) (959) investing activities Net cash provided 138,895 65,203 552 by financing activities ----- ----- ------ Net increase (72,102) 73,808 625 (decrease) in cash and cash equivalents Cash and cash 259,371 117,630 997 equivalents at beginning of the fiscal year ----- ----- ------ Cash and cash Y 187,269 Y 191,438 $ 1,622 equivalents at September 30 ----- ----- ------ (Millions of yen, millions of U.S. dollars) Six months ended September 30 Sony without Financial 2005 2006 2006 Services ----- ----- ------ Net cash used in Y (91,879) Y (191,169) $ (1,620) operating activities Net cash used in (145,119) (217,499) (1,843) investing activities Net cash provided 97,066 191,164 1,620 by financing activities Effect of exchange 14,131 (4,072) (34) rate changes on cash and cash equivalents ----- ----- ------ Net decrease in (125,801) (221,576) (1,877) cash and cash equivalents Cash and cash 519,732 585,468 4,961 equivalents at beginning of the fiscal year ----- ----- ------ Cash and cash Y 393,931 Y 363,892 $ 3,084 equivalents at September 30 ----- ----- ------ (Millions of yen, millions of U.S. dollars) Six months ended September 30 Consolidated 2005 2006 2006 ----- ----- ------ Net cash used in Y (40,897) Y (72,775) $ (617) operating activities Net cash used in (414,668) (324,538) (2,750) investing activities Net cash provided 243,531 253,617 2,149 by financing activities Effect of exchange 14,131 (4,072) (34) rate changes on cash and cash equivalents ----- ----- ------ Net decrease in (197,903) (147,768) (1,252) cash and cash equivalents Cash and cash 779,103 703,098 5,958 equivalents at beginning of the fiscal year ----- ----- ------ Cash and cash Y 581,200 Y 555,330 $ 4,706 equivalents at September 30 ----- ----- ------
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