Sony Corporation Announces Consolidated Financial Results for the First Quarter Ended June 30, 2002
Large Improvement in Consolidated Operating Income
PRNewswire
07/25/2002
Largest First Quarter Sales Ever Recorded
TOKYO, July 25 /PRNewswire-FirstCall/ -- Sony Corporation announced today its consolidated results for the first quarter ended June 30, 2002 (April 1, 2002 to June 30, 2002).
Highlights
* At a time of continued uncertainty in the global economic
environment, partly attributable to a lower yen compared with the
same quarter of the previous year, Sony's consolidated sales
increased to Y1,721.8 billion ($14 billion), the largest first
quarter sales in our history. Operating income increased
significantly to Y51.9 billion ($436 million).
* In the Electronics business, while sales were almost unchanged,
operating income increased significantly due to the contribution of
strong-selling consumer AV products, the benefit of improvements in
profitability from business unit restructuring, and the transfer of
the loss-making mobile phone business to an affiliate accounted for
under the equity method.
* In the Pictures business, the success of the motion picture slate,
including the record-breaking performance of Spider-Man and a
worldwide increase in DVD software sales, yielded a significant
increase in both sales and operating income.
* The Music business recorded an operating loss primarily as a result of
the continued contraction of the global market, despite implementation
of ongoing restructuring initiatives.
* A gain was recorded on the sale of Sony's equity interest in the
U.S.-based Telemundo Communications Group, Inc. and its subsidiaries.
* As a result of the increasingly difficult operating environment
including the yen's appreciation, Sony revised its sales forecast for
the fiscal year ending March 31, 2003, announced in April, from
Y8,000 billion ($67 billion) to Y7,700 billion ($65 billion) while
maintaining its profit forecast.
(Billions of yen, millions of U.S. dollars, except per share amounts)
First quarter ended June 30
2001 2002 Change 2002*
Sales and operating
revenue Y1,633.5 Y1,721.8 + 5.4% $14,469
Operating income 3.0 51.9 + 1,627.3 436
Income (loss) before
income taxes (14.3) 116.6 -- 980
Net income (loss) (30.1) 57.2 -- 481
Net income (loss) per
share for common stock
- Basic (32.75) 62.23 -- $0.52
- Diluted (32.75) 57.90 -- 0.49
* U.S. dollar amounts have been translated from yen, for convenience
only, at the rate of Y119=U.S.$1, the approximate Tokyo foreign
exchange market rate as of June 28, 2002.
Remarks by Nobuyuki Idei, Chairman and CEO of Sony Corporation
The uncertain global economic environment showed no clear sign of recovery in Sony's first quarter (the three months ended June 30, 2002). However, Sony vastly exceeded our original performance forecast, achieving the largest first quarter sales in our history and a significant increase in operating income compared with the same quarter of the previous year.
In addition to the headcount reductions and manufacturing facilities reorganization begun in 1999, Sony accelerated its efforts to improve its financial structure in the previous fiscal year by establishing the design and manufacturing platform-company EMCS, withdrawing and downsizing poor-performing businesses, reducing fixed costs through restructuring and further reducing material costs. These actions spurred a recovery in operating income, particularly in the Electronics business.
Network-capable products that are expected to grow in the future, such as "Net MD" network personal audio and the "CLIE" personal data assistant, also began to contribute to profitability.
The theatrical success of Spider-Man, which exceeded $675 million in worldwide box office as of the end of June 2002, and which was the highest grossing film in the history of our Pictures business, made a large contribution to profitability during the quarter.
Despite these successes, we anticipate that the operating environment in the current fiscal year will become even more severe, putting pressure on profitability due to the appreciation of the yen and weak consumer confidence. In response to this environment, we will continue to restructure and reduce investment while striving to further improve profitability through the introduction of competitive products and services.
Consolidated Results for the First Quarter
Note I: During the first quarter ended June 30, 2002, the average value of the yen was Y126.0 against the U.S. dollar and Y115.1 against the euro, which was 3.4% lower against the U.S. dollar and 8.1% lower against the euro, compared with the average rate of the first quarter of the previous fiscal year. Operating results on a local currency basis described in the following pages reflect sales and operating revenue ("sales") and operating income (loss) obtained by applying the yen's average exchange rate in the first quarter of the previous fiscal year to local currency-denominated monthly sales, cost of sales, and selling, general and administrative expenses in the first quarter of the current fiscal year. Local currency basis results are not reflected in Sony's financial statements and are not measures conforming with Generally Accepted Accounting Principles in the U.S. ("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 information to investors regarding operating performance.
Note II: Commencing with the first quarter ended June 30, 2002, Sony has partly realigned its business segment configuration and Electronics segment product category configuration. In accordance with this realignment, results of the first quarter of the previous fiscal year have been reclassified to conform to the presentation for the first quarter ended June 30, 2002. Sales of related businesses in the Network Application and Contents Service Sector ("NACS"), established in April 2002 of this year to enhance network businesses, are included in the "Other" segment. In addition to Sony Communications Network Corporation, which was originally contained in the "Other" segment, NACS-related businesses include an information system related business, a subscriber-based wireless access system ("WLL") business and an IC card business formerly contained in the "Other" category of the Electronics segment.
Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Sales were Y1,721.8 billion ($14 billion), an increase of 5.4% year on year (2% increase on a local currency basis).
* The increase resulted from a lower yen compared with the same quarter
of the previous year and a significant increase in the sales of the
Pictures segment.
Operating income was Y51.9 billion ($436 million), an increase of Y48.9 billion, or 1,627.3%, year on year (980% increase on a local currency basis).
* Operating income increased Y47.6 billion in the Electronics segment
and Y12.0 billion in the Pictures segment. Operating performance
improved Y5.7 billion in the Game business. Operating income
deteriorated Y14.6 billion in the Music segment, resulting in an
operating loss.
* Although selling, general and administrative (SGA) expenses increased
Y14.3 billion because of the lower yen and higher marketing expenses
in the Pictures business, the absence of expenses for mobile phone
quality-related issues recorded in the same quarter of the previous
year caused a 0.4 percentage point improvement in the ratio of SGA to
sales.
Income before income taxes of Y116.6 billion ($980 million) was recorded compared with a loss before income taxes of Y14.3 billion in the first quarter of the previous year, an improvement of Y131.0 billion year on year.
* In addition to the increase in operating income, other income
increased Y68.0 billion and other expenses decreased Y14.1 billion.
-- Other income increased primarily because Sony recorded a
Y66.5 billion gain* on the sale of its equity in Telemundo
Communications Group, Inc. and its subsidiaries ("Telemundo"), a
U.S.-based Spanish language television network and station group
that was accounted for by the equity method.
(*The dollar amount of the gain recorded on the sale of Telemundo
at Sony's U.S.-based subsidiary was $511 million.)
-- Interest expense decreased Y5.3 billion as a result of lower
average balances of short-term borrowings and refinancing of
certain long-term debt at lower interest rates.
-- Loss on devaluation of securities investments increased
Y2.7 billion to Y11.5 billion ($97 million).
-- A Y5.7 billion ($48 million) foreign exchange gain was recorded,
compared with a loss of Y4.6 billion in the same quarter of the
previous year.
Net income of Y57.2 billion ($481 million) was recorded, compared with a net loss of Y30.1 billion in the first quarter of the previous year, an increase of Y87.3 billion year on year.
* Income taxes increased Y33.4 billion and equity in net losses of
affiliated companies increased Y3.8 billion. Moreover, in the same
quarter of the previous year, Y6.0 billion in profit was recorded for
a cumulative effect of accounting changes.
-- Income taxes increased due to higher income before income taxes.
The effective income tax rate was 46.0%.
-- Equity in net losses of affiliated companies increased because
Sony recorded a Y4.8 billion ($40 million) loss for its portion of
the loss generated by Sony Ericsson Mobile Communications, AB, a
mobile handset joint venture established in October 2001.
Operating Performance Highlights by Business Segment
Note III: "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 IV: Sales of mobile handsets are no longer recorded in the "Information and Communications" product category of the Electronics segment as of the second half of the prior fiscal year. From the second half of the prior fiscal year, sales of mobile handsets manufactured for Sony Ericsson Mobile Communications, AB, established in October 2001, are recorded in the "Other" product category of the Electronics segment.
Electronics
(Billions of yen, millions of U.S. dollars)
First quarter ended June 30
2001 2002 Change 2002
Sales and operating
revenue Y1,220.0 Y1,218.9 - 0.1% $10,243
Operating income 1.5 49.1 3,221.6 413
Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Sales were Y1,218.9 billion ($10 billion), almost unchanged year on year (3% decrease on a local currency basis).
* On a product category basis, sales increased in "Televisions" by 27.7%,
in "Components" by 5.9%, in "Video" by 5.7%, and in "Information and
Communications" (excluding the results of the mobile phone business in
the prior year) by 4.0%.
* Sales decreased in "Semiconductors" by 7.5% and in "Audio" by 4.9%.
-- On a local currency basis:
~ Products with significant increases in sales were
WEGA televisions (including projection TVs), VAIO PCs
(especially desktops), digital still cameras ("Cyber Shot"
and others) and personal digital assistants ("CLIE").
~ Products with significant decreases in sales were
computer displays, car audio and broadcast- and
professional-use products.
~ On a geographic basis, sales in Japan decreased
(especially sales of notebook PCs and video cameras),
while sales in all other regions increased (especially sales
of CRT-based televisions).
Operating income was Y49.1 billion ($413 million), an increase of Y47.6 billion, or 3,221.6%, year on year (2,007% increase on a local currency basis).
* Reasons for the significant increase in operating income include:
-- The fact that the mobile phone business that recorded losses
in the same quarter of the previous year became an equity
affiliate as a result of the establishment of the joint venture
with Ericsson.
-- An improvement in the profitability of consumer AV products
including digital still cameras, televisions and video cameras.
-- Further cost reductions and increased productivity from the
activities of the manufacturing platform, EMCS.
-- An improvement in profitability from the rationalization and
downsizing of loss-making businesses (such as in the audio
business and in the component business, including CRTs) and a
reduction in fixed costs.
-- A lower yen compared with the same quarter of the previous year.
* On a product category basis, "Video," in which digital still cameras
and video cameras were particularly well received, "Components," which
enjoyed a strong contribution from recording media and optical pick-
ups, and "Audio," in which personal audio devices sold well, increased
in profitability. "Televisions," in which consumer televisions sold
well, exhibited an improvement in profitability and turned to black.
Regarding the performance of Aiwa Co., Ltd., sales continued to decrease and losses increased. Sony has decided to take Aiwa private effective October 1, 2002.
Inventory as of June 30, 2002 was Y576.2 billion ($4,842 million), a Y304.2 billion, or 34.7%, decrease compared with the level as of June 30, 2001, and a Y64.2 billion, or 12.5%, increase compared with the level as of March 31, 2002.
Game
(Billions of yen, millions of U.S. dollars)
First quarter ended June 30
2001 2002 Change 2002
Sales and operating
revenue Y154.9 Y153.2 - 1.1% $1,287
Operating income (loss) (3.1) 2.6 -- 21
Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Sales were Y153.2 billion ($1,287 million), a decrease of 1.1% compared with the first quarter of the previous year (5% decrease on a local currency basis).
* Software sales were strong, especially in Europe and the U.S.
Hardware sales declined as unit sales in Japan fell short of the same
quarter of the previous year, while unit sales in Europe and the U.S.
increased, and as the price of PlayStation 2 ("PS 2") and PS one in
all regions was reduced below that of the same quarter of the prior
year.
-- On a geographic and local currency basis, sales decreased in
Japan and in the U.S. but increased in Europe.
* Worldwide hardware production shipments:
-- PS 2: 4.59 million units (an increase of 0.25 million units)
-- PS one: 0.67 million units (a decrease of 2.54 million units)
* Worldwide software production shipments:
-- PS 2: 27.00 million units (an increase of 15.50 million units)
-- PlayStation: 13.00 million units (a decrease of 5.00 million
units)
In terms of profitability, operating income of Y2.6 billion ($21 million) was recorded compared with an operating loss of Y3.1 billion in the first quarter of the previous fiscal year, an improvement of Y5.7 billion year on year.
* Despite the impact of the hardware price reductions, an increase in
profitability from PS 2 hardware cost reductions and the expansion of
software sales caused an improvement in profitability of the segment
as a whole.
Inventory as of June 30, 2002 was Y149.7 billion ($1,258 million), a Y39.2 billion, or 20.8%, decrease compared with the level as of June 30, 2001, and a Y30.7 billion, or 25.8%, increase compared with the level as of March 31, 2002.
Music
(Billions of yen, millions of U.S. dollars)
First quarter ended June 30
2001 2002 Change 2002
Sales and operating
revenue Y145.3 Y137.2 - 5.6% $1,153
Operating income (loss) 4.4 (10.3) -- (86)
The amounts presented above are the sum of the yen-translated results of Sony Music Entertainment Inc. ("SMEI"), a U.S. based operation which aggregates the results of its worldwide subsidiaries on a U.S. dollar basis, and the results of Sony Music Entertainment (Japan) Inc. ("SMEJ"), a Japan based operation which aggregates results in yen. Management analyzes the results of SMEI in U.S. dollars, so discussion of certain portions of its results are specified as being on "a U.S. dollar basis."
Sales were Y137.2 billion ($1,153 million), a decrease of 5.6% year on year (8% decrease on a local currency basis). 73% of the Music segment's sales were generated by SMEI. 27% of sales were generated by SMEJ.
* SMEI's sales (on a U.S. dollar basis) increased 4%.
-- Sales increased because an increase in demand for DVD
software caused manufacturing sales to the Pictures and Game
segments to rise.
-- Partially offsetting the increase in sales was a decrease in
album sales due to the continued contraction of the global music
industry brought on by digital piracy and other factors.
-- Best selling titles included Korn's Untouchables, Celine Dion's A
New Day Has Come, Shakira's Laundry Service and the Spider-Man
soundtrack.
* SMEJ's sales decreased 29%.
-- Sales decreased because album sales declined due to the continued
contraction of the music industry and because, compared with the
previous year, album releases by major artists are concentrated in
future quarters.
-- Best selling titles included the 2002 FIFA World Cup Official
Album, Chitose Hajime's Wadatsumi no ki, and Chemistry's Kimi wo
sagashiteta.
In terms of profitability, an operating loss of Y10.3 billion ($86 million) was recorded compared with operating income of Y4.4 billion in the first quarter of the previous year, a deterioration of Y14.6 billion year on year.
* SMEI's operating loss (on a U.S. dollar basis) increased significantly.
-- This was a result of a decline in album sales, costs incurred for
the closure and consolidation of certain international
distribution facilities and worldwide headcount reductions, and
increased talent-related expenses.
-- Partially offsetting the increased loss were the benefit of
aggressive worldwide restructuring and cost reduction initiatives
and increased profit from the rise in manufacturing sales
mentioned above.
* SMEJ recorded an operating loss compared with operating income in
the same quarter of the previous year.
-- Profitability deteriorated due to the significant drop in sales
and the fact that a gain on the sale of a studio facility was
recorded in the same quarter of the previous year.
In June 2002, SMEI sold a majority of its 50% equity interest in The Columbia House Company ("CHC"). Cash of Y17.8 billion ($150 million) and Y8.0 billion ($67 million) of notes were received upon the closing. A gain of Y1.3 billion ($11 million) was recorded on this sale in "gain on sales of securities investments, net" (in other income). SMEI now holds a 7.5% interest in CHC.
In early July, SMEI's joint venture publishing company, Sony/ATV Music Publishing LLC announced its agreement to purchase from Gaylord Entertainment Company the music publishing catalogue and real estate of Acuff-Rose, a music publishing business, for $157 million in cash. The closing of this transaction is expected in the second quarter of the current fiscal year subject to government approvals.
Pictures
(Billions of yen, millions of U.S. dollars)
First quarter ended June 30
2001 2002 Change 2002
Sales and operating
revenue Y136.2 Y173.6 + 27.5% $1,459
Operating income (loss) (2.7) 9.3 -- 78
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 were Y173.6 billion ($1,459 million), an increase of 27.5% year on year (23% increase on a U.S dollar basis).
* The reasons for the increase in sales (on a U.S. dollar basis) were:
-- The success of Spider-Man's theatrical release.
~ With a U.S. box office during the quarter of almost
$400 million, Spider-Man became the fifth highest grossing
film in U.S. history and the third film to reach such a
threshold in its initial release.
~ Worldwide box office for Spider-Man exceeded $675 million by
the end of June 2002, making it the highest grossing film in
SPE's history.
-- The strong theatrical performance of Panic Room.
-- The strength of DVD and VHS software sales including Black Hawk
Down, Ali, The Mothman Prophecies and Not Another Teen Movie.
* The increase in sales was partially offset (on a U.S. dollar
basis) by:
-- License revenue from a Wheel of Fortune contract extension
recognized in the previous year with no comparable amount
recognized in the current year.
-- Lower network television revenues as a result of consolidating the
U.S. television business.
In terms of profitability, operating income of Y9.3 billion ($78 million) was recorded compared with an operating loss of Y2.7 billion in the first quarter of the previous year, an improvement of Y12.0 billion year on year.
* The reason for the improvement in profitability (on a U.S. dollar
basis) was:
-- The strength of the theatrical sales and DVD/VHS software sales
discussed above.
* Partially offsetting the improvement in profitability (on a U.S.
dollar basis) were:
-- Higher marketing expenses for unreleased films including Men in
Black II and Stuart Little 2, which were released in July 2002,
compared to the same quarter of the previous year.
-- A provision with respect to income recorded from a financially
impaired licensee of feature film and television product.
-- The absence of the Wheel of Fortune license revenue recognized in
the previous year.
In April 2002, SPE sold its entire equity interest in Telemundo. Cash proceeds of Y88.4 billion* were received upon the closing and a gain of Y66.5 billion* was recorded on this sale in "gain on sales of securities investments, net" (in other income).
(*The dollar amount of the cash proceeds and gain recorded on the sale of Telemundo were $679 million and $511 million, respectively.)
Financial Services
(Billions of yen, millions of U.S. dollars)
First quarter ended June 30
2001 2002 Change 2002
Financial service
revenue Y126.6 Y129.2 + 2.1% $1,085
Operating income 9.6 10.9 + 12.9 91
Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Financial service revenue was Y129.2 billion ($1,085 million), an increase of 2.1% year on year.
* Revenue at Sony Life Insurance Co., Ltd. ("Sony Life") remained
unchanged as an increase in insurance revenue caused by an increase in
insurance-in-force was offset by valuation losses from investment
under separate account for variable life insurance and variable
annuity products (reflecting the weak Japanese stock market).
Valuation gains and losses from investment under separate account
accrue directly to the account of policyholders and, therefore, do not
affect operating income.
* Revenue at Sony Assurance Inc. increased significantly due to an
increase in insurance revenue brought about by an expansion of newly
acquired insurance-in-force.
* Revenue at Sony Finance International, Inc. ("Sony Finance") remained
unchanged.
Operating income was Y10.9 billion ($91 million), an increase of Y1.2 billion, or 12.9%, year on year.
* Operating income at Sony Life increased due to the increase in
insurance revenue.
* Losses at Sony Assurance Inc. decreased due to the increase in
insurance revenue.
* Income decreased slightly at Sony Finance as a result of an increase
in operating expenses and a decrease in leasing and other revenue.
* Sony Bank, which began operations in June 2001, recorded a loss.
Other
(Billions of yen, millions of U.S. dollars)
First quarter ended June 30
2001 2002 Change 2002
Sales and operating
revenue Y46.2 Y55.0 + 19.1% $462
Operating income (loss) (4.3) (6.8) -- (57)
Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Sales were Y55.0 billion ($462 million), an increase of 19.1% year on year.
* As a result of the advertising agency business subsidiary in Japan
undertaking the media buying for all Sony Group companies in Japan,
sales at the subsidiary increased significantly.
* Sales of NACS related businesses, including Sony Communication
Network Corporation ("SCN"), increased (see Note II).
In terms of profitability, an operating loss of Y6.8 billion ($57 million) was recorded compared with an operating loss of Y4.3 billion in the first quarter of the previous year, a deterioration of Y2.5 billion year on year.
* Loss increased at a location-based entertainment business in the
U.S. due to an impairment loss for certain long-lived assets.
* Loss increased at the advertising agency business subsidiary in Japan
primarily because of early retirement expenses.
* Loss continued to be recorded at NACS related businesses in the
aggregate, but SCN recorded operating income.
Cash Flow
(Billions of yen, millions of U.S. dollars)
Three months ended June 30
2001 2002 Difference 2002
Cash flow
- From operating
activities (Y189.2) Y22.1 Y + 211.3 $186
- From investing
activities (146.6) (83.3) + 63.3 (700)
- From financing
activities 270.3 (39.1) - 309.3 (328)
Cash and cash
equivalents
as of June 30 542.5 561.0 + 18.4 4,714
Cash provided by operating activities increased Y211.3 billion to Y22.1 billion ($186 million).
* While uses of cash including an increase in inventories, primarily
in the Electronics business, occurred during the quarter, the
recording of positive net income, depreciation and amortization and an
increase in notes and accounts payable caused cash generated to exceed
expenditures.
* An improvement in the profitability of the Electronics and Pictures
businesses, a decrease in the size of the increase in inventories and
the increase in notes and accounts payable contributed to the
significant increase in cash provided by operating activities compared
with the same quarter of the previous year.
Cash used in investing activities decreased Y63.3 billion to Y83.3 billion ($700 million).
* In the businesses other than Financial Services, Sony prioritized
investments, primarily in the Electronics business, and realized cash
proceeds of Y110.5 billion ($928 million) from the sales of securities
investments and collections of advances, including Y88.4 billion* from
the sale of equity in Telemundo and Y17.8 billion ($150 million) from
the sale of equity in CHC. (*The dollar amount of the cash proceeds
recorded on the sale of Telemundo was $679 million.)
* In the Financial Services business, reflecting an increase in assets
under management in the life insurance and banking businesses,
investments and advances were Y219.2 billion ($1,842 million),
exceeding the Y103.5 billion ($870 million) in sales and maturities of
securities investments and collections of advances also recorded.
Cash used in financing activities was Y39.1 billion ($328 million). Y270.3 billion of cash was provided by financing activities in the same quarter of the previous year.
* Although cash was provided by an increase in deposits from customers
in the banking business, cash was used during the quarter to pay down
short-term borrowings.
Outlook for the Fiscal Year ending March 31, 2003
Regarding the forecast for the fiscal year ending March 31, 2003, we believe that the increasingly difficult operating environment (evidenced by the appreciation of the yen and lack of consumer confidence) will continue. Due to this belief, we have revised our April forecast for sales from Y8,000 billion to Y7,700 billion.
However, in regard to profit, there are several positive and negative factors that essentially offset each other, thereby resulting in no change in our forecast for operating income, income before income taxes and net income. On an overall basis, there will be a negative impact from the appreciation of the yen in all segments excluding Financial Services and Other. This will be offset to some extent by the fact that the first quarter performance was stronger than our April projections. The following other factors, when combined, are expected to account for the remaining offset:
* In the Electronics business:
-- Further improvement in profitability due to an increase in added
value from an enhancement in the attractiveness of products and
greater material cost reductions, and due to the continued
promotion of business unit restructuring.
* In the Music business:
-- Greater pressure on profitability caused by the continued
contraction of the global market for music.
* In the Pictures business:
-- An increase in profitability as a result of recent successful
theatrical releases and projected subsequent sales of DVD software
in the second half of the fiscal year.
Change from previous year
Sales and operating revenue Y7,700 billion + 2%
Operating income 280 billion + 108
Income before income taxes 310 billion + 234
Net income 150 billion + 880
Assumed exchange rates from the second quarter: approximately Y115 to the dollar and Y115 to the euro.
(Exchange rates assumed in April: approximately Y130 to the dollar and Y115 to the euro.)
No change was made in capital expenditures and depreciation and amortization.
Capital expenditures (additions to fixed assets) Y280 billion - 14%
Depreciation and amortization* 350 billion - 1
(Depreciation expenses for tangible assets) (260 billion) (- 13)
* Including amortization of intangible assets and amortization of
deferred insurance acquisition costs
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 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 or financial performance. 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, 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 (particularly in the Electronics business), and subjective and changing consumer preferences (particularly in the Game, Music, and Pictures businesses); (iv) Sony's ability to implement successfully the restructuring initiatives in its Electronics, Music and Pictures businesses and its network strategy for its Electronics, Music and Pictures businesses; (v) Sony's ability to compete and develop and implement successful sales and distribution strategies in light of Internet and other technological developments in its Music and Pictures businesses; (vi) Sony's continued ability to devote sufficient resources to research and development and, with respect to capital expenditures, to prioritize investments (particularly in the Electronics business); (vii) the success of Sony's joint ventures and alliances; and (viii) the outcome of contingencies. Risks and uncertainties also include the impact of any future events with material unforeseen impacts.
Business Segment Information
(Millions of yen, millions of U.S. dollars)
Three months ended June 30
Sales and operating 2001 2002 Change 2002
revenue
Electronics
Customers Y1,068,287 Y1,126,720 +5.5% $9,468
Intersegment 151,745 92,158 775
Total 1,220,032 1,218,878 -0.1 10,243
Game
Customers 150,890 149,535 -0.9 1,257
Intersegment 4,051 3,644 30
Total 154,941 153,179 -1.1 1,287
Music
Customers 133,590 121,830 -8.8 1,024
Intersegment 11,718 15,338 129
Total 145,308 137,168 -5.6 1,153
Pictures
Customers 136,168 173,629 +27.5 1,459
Intersegment 0 0 0
Total 136,168 173,629 +27.5 1,459
Financial Services
Customers 119,600 122,350 +2.3 1,028
Intersegment 6,974 6,819 57
Total 126,574 129,169 +2.1 1,085
Other
Customers 24,961 27,742 +11.1 233
Intersegment 21,201 27,255 229
Total 46,162 54,997 +19.1 462
Elimination (195,689) (145,214) -- (1,220)
Consolidated total Y1,633,496 Y1,721,806 +5.4% $14,469
Electronics intersegment amounts primarily consist of transactions with the Game business.
Music intersegment amounts primarily consist of transactions with Game and Pictures businesses.
Other intersegment amounts primarily consist of transactions with the Electronics business.
Operating income (loss) 2001 2002 Change 2002 Electronics Y1,479 Y49,126 +3,221.6% $413 Game (3,127) 2,573 -- 21 Music 4,391 (10,252) -- (86) Pictures (2,710) 9,266 -- 78 Financial Services 9,622 10,866 +12.9 91 Other (4,347) (6,822) -- (57) Total 5,308 54,757 +931.6 460 Corporate and elimination (2,305) (2,887) -- (24) Consolidated total Y3,003 Y51,870 +1,627.3% $436
Commencing with the first quarter ended June 30, 2002, Sony has partly realigned its business segment configuration.
Results in the first quarter of the previous year have been reclassified to conform to the presentation for the current quarter. For detailed information on these changes, refer to Note II of "Consolidated Results for the First Quarter."
Electronics Sales and Operating Revenue to Customers by Product Category
(Millions of yen, millions of U.S. dollars)
Three months ended June 30
Sales and operating 2001 2002 Change 2002
revenue
Audio Y169,842 Y161,480 -4.9% $1,357
Video 199,956 211,364 +5.7 1,776
Televisions 152,469 194,698 +27.7 1,636
Information and
Communications 263,993 251,589 -4.7 2,114
Semiconductors 52,254 48,354 -7.5 406
Components 121,782 128,999 +5.9 1,084
Other 107,991 130,236 +20.6 1,095
Total Y1,068,287 Y1,126,720 +5.5% $9,468
The above table is a breakdown of Electronics sales and operating revenue to customers in the Business Segment Information. The Electronics business is managed as a single operating segment by Sony's management. However, Sony believes that the information in this table is useful to investors in understanding the sales contributions of the products in this business segment. In addition, commencing with the first quarter ended June 30, 2002, Sony has partly realigned its product category configuration in the Electronics business. In accordance with this change, results in the first quarter of the previous year have been reclassified to conform to the presentations for the current quarter. For detailed information on these changes, refer to Note II of "Consolidated Results for the First Quarter." Sales of mobile phones are no longer recorded in the "Information and Communications" category as of the third quarter ended December 31, 2001. From the third quarter of the previous year, sales of mobile phones manufactured for Sony Ericsson Mobile Communications, AB are recorded in the "Other" product category.
Geographic Segment Information
(Millions of yen, millions of U.S. dollars)
Three months ended June 30
Sales and operating 2001 2002 Change 2002
revenue
Japan Y532,757 Y503,134 -5.6% $4,228
United States 502,674 558,214 +11.0 4,691
Europe 310,577 345,727 +11.3 2,905
Other Areas 287,488 314,731 +9.5 2,645
Total Y1,633,496 Y1,721,806 +5.4% $14,469
Classification of Geographic Segment Information shows sales and operating revenue recognized by location of customers.
Consolidated Statements of Income (Unaudited)
(Millions of yen, millions of U.S. dollars, except per share amounts)
Three months ended June 30
2001 2002 Change 2002
Sales and operating revenue: %
Net sales Y1,506,392 Y1,589,158 $13,354
Financial service
revenue 119,600 122,350 1,028
Other operating revenue 7,504 10,298 87
1,633,496 1,721,806 +5.4 14,469
Costs and expenses:
Cost of sales 1,112,656 1,136,249 9,548
Selling, general
and administrative 407,859 422,203 3,548
Financial service
expenses 109,978 111,484 937
1,630,493 1,669,936 14,033
Operating income 3,003 51,870 +1,627.3 436
Other income:
Interest and dividends 4,101 3,938 33
Royalty income 5,176 5,289 44
Foreign exchange
gain, net -- 5,678 48
Gain on sales of
securities investments,
net -- 68,366 575
Other 12,993 6,987 58
22,270 90,258 758
Other expenses:
Interest 12,082 6,830 57
Loss on devaluation of
securities investments 8,803 11,524 97
Foreign exchange loss,
net 4,623 -- --
Other 14,092 7,131 60
39,600 25,485 214
Income (loss) before
income taxes (14,327) 116,643 -- 980
Income taxes 20,267 53,633 451
Income (loss) before
minority interest,
equity in net losses
of affiliated companies
and cumulative effect
of accounting
changes (34,594) 63,010 529
Minority interest
in income (loss) of
consolidated
subsidiaries (3,214) (2,607) (23)
Equity in net
losses of affiliated
companies 4,676 8,436 71
Income (loss) before
cumulative effect of
accounting changes (36,056) 57,181 -- 481
Cumulative effect
of accounting changes
(2001:Net of income
taxes of
Y2,975 million) 5,978 -- --
Net income (loss) Y(30,078) Y57,181 -- $481
Per share data
Common stock
Income (loss) before
cumulative effect of
accounting changes
- Basic Y(39.26) Y62.23 -- $0.52
- Diluted (39.26) 57.90 -- 0.49
Net income (loss)
- Basic Y(32.75) Y62.23 -- $0.52
- Diluted (32.75) 57.90 -- 0.49
Subsidiary tracking stock
Net income (loss)
- Basic Y(0.26) Y7.30 -- $0.06
Consolidated Balance Sheets (Unaudited)
(Millions of yen, millions of U.S. dollars)
June 30 March 31 June 30 June 30
ASSETS 2001 2002 2002 2002
Current assets:
Cash and cash
equivalents Y542,528 Y683,800 Y560,977 $4,714
Time deposits 4,290 5,176 6,997 59
Marketable securities 125,045 162,147 169,060 1,421
Notes and accounts
receivable, trade 1,275,148 1,363,652 1,269,328 10,667
Allowance for
doubtful accounts
and sales returns (107,640) (120,826) (106,419) (894)
Inventories 1,115,398 673,437 769,100 6,463
Deferred income taxes 145,305 134,299 135,657 1,140
Prepaid expenses
and other current
assets 428,095 435,527 472,253 3,967
Total current
assets 3,528,169 3,337,212 3,276,953 27,537
Film costs 318,094 313,054 292,944 2,462
Investments and advances
Affiliated companies 108,517 131,068 92,682 779
Securities investments
and other 1,345,752 1,566,739 1,646,357 13,835
1,454,269 1,697,807 1,739,039 14,614
Property, plant and
equipment
Land 185,449 195,292 192,294 1,616
Buildings 841,549 891,436 866,642 7,283
Machinery and
equipment 2,141,340 2,216,347 2,129,989 17,899
Construction in
progress 136,105 66,825 55,034 462
Less - Accumulated
depreciation (1,869,398) (1,958,234) (1,895,679) (15,930)
1,435,045 1,411,666 1,348,280 11,330
Other assets:
Intangibles, net 218,961 245,639 241,145 2,026
Goodwill, net 305,886 317,240 296,446 2,491
Deferred insurance
acquisition costs 279,276 308,204 314,775 2,645
Other 437,949 554,973 548,373 4,609
1,242,072 1,426,056 1,400,739 11,771
Y7,977,649 Y8,185,795 Y8,057,955 $67,714
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term
borrowings Y475,796 Y113,277 Y49,318 $414
Current portion
of long-term debt 143,966 240,786 217,068 1,824
Notes and accounts
payable, trade 920,070 767,625 813,935 6,840
Accounts payable,
other and accrued
expenses 708,766 869,533 770,370 6,474
Accrued income and
other taxes 75,278 105,470 74,106 623
Deposits from customers
in the banking
business 3,673 106,472 144,861 1,217
Other 426,748 355,333 367,242 3,086
Total current
liabilities 2,754,297 2,558,496 2,436,900 20,478
Long-term liabilities:
Long-term debt 822,009 838,617 830,097 6,976
Accrued pension and
severance costs 223,643 299,089 303,986 2,555
Deferred income taxes 176,686 159,573 171,109 1,438
Future insurance
policy benefits
and other 1,438,189 1,680,418 1,738,362 14,608
Other 251,588 255,824 242,692 2,038
2,912,115 3,233,521 3,286,246 27,615
Minority interest
in consolidated
subsidiaries 24,594 23,368 22,437 189
Stockholders' equity:
Capital stock 475,974 476,106 476,131 4,001
Additional paid-in
capital 968,091 968,223 968,261 8,137
Retained earnings 1,186,968 1,209,262 1,266,441 10,642
Accumulated other
comprehensive
income (336,960) (275,593) (390,835) (3,284)
Treasury stock,
at cost (7,430) (7,588) (7,626) (64)
2,286,643 2,370,410 2,312,372 19,432
Y7,977,649 Y8,185,795 Y8,057,955 $67,714
Consolidated Statements of Cash Flows (Unaudited)
(Millions of yen, millions of U.S. dollars)
Three months ended June 30
2001 2002 2002
Cash flows from
operating activities:
Net income (loss) Y(30,078) Y57,181 $481
Adjustments to reconcile
net income (loss) to
net cash provided by (used in)
operating activities
Depreciation and amortization,
including amortization of
deferred insurance acquisition
costs 80,045 83,318 700
Amortization of film costs 54,655 62,740 527
Accrual for pension and
severance costs, less payments 2,963 7,408 62
Gain or loss on sale, disposal
or impairment of long-lived
assets, net (859) 5,383 45
Gain on sales of securities
investments, net -- (68,366) (575)
Deferred income taxes (4,108) 20,881 175
Equity in net losses of
affiliated companies, net
of dividends 4,676 8,537 72
Cumulative effect of
accounting changes (5,978) -- --
Changes in assets and liabilities:
Decrease in notes and
accounts receivable - trade 125,880 5,410 45
Increase in inventories (172,787) (120,380) (1,012)
Increase in film costs (73,014) (75,602) (635)
Increase (decrease) in notes
and accounts payable - trade (6,234) 60,400 508
Decrease in accrued income
and other taxes (71,372) (33,592) (282)
Increase in future insurance
policy benefits and other 72,176 57,944 487
Increase in deferred insurance
acquisition costs (17,708) (16,353) (137)
Changes in other current
assets and liabilities, net (115,692) (68,003) (571)
Other (31,753) 35,195 296
Net cash provided by (used in)
operating activities (189,188) 22,101 186
Cash flows from investing activities:
Payments for purchases
of fixed assets (80,319) (67,776) (570)
Proceeds from sales of
fixed assets 14,989 2,201 18
Payments for investments and
advances by financial
service business (113,400) (219,192) (1,842)
Payments for investments and
advances (other than
financial service
business) (22,396) (10,390) (87)
Proceeds from sales and
maturities of securities
investments and collections
of advances by financial
service business 40,719 103,520 870
Proceeds from sales of
securities investments
and collections of advances
(other than financial
service business) 8,059 110,481 928
Payments for purchases of
marketable securities (416) (17) (0)
Proceeds from sales of
marketable securities 4,425 202 2
(Increase) decrease in
time deposits 1,723 (2,316) (19)
Net cash used in investing
activities (146,616) (83,287) (700)
Cash flows from financing activities:
Proceeds from issuance
of long-term debt 1,119 6,751 57
Payments of long-term debt (26,963) (9,574) (80)
Increase (decrease) in
short-term borrowings 286,255 (57,216) (481)
Increase in deposits from
customers in the banking
business 3,673 38,389 323
Proceeds from issuance of
subsidiary tracking stock 9,529 -- --
Dividends paid (11,514) (11,521) (97)
Other 8,152 (5,883) (50)
Net cash provided by (used in)
financing activities 270,251 (39,054) (328)
Effect of exchange rate
changes on cash and
cash equivalents 836 (22,583) (190)
Net decrease in cash
and cash equivalents (64,717) (122,823) (1,032)
Cash and cash equivalents
at beginning of the
first quarter 607,245 683,800 5,746
Cash and cash equivalents
at end of the first quarter Y542,528 Y560,977 $4,714
(Notes)
1. U.S. dollar amounts have been translated from yen, for convenience
only, at the rate of Y119 = U.S.$1, the approximate Tokyo foreign
exchange market rate as of June 28, 2002.
2. As of June 30, 2002, Sony had 1,063 consolidated subsidiaries. It
has applied the equity accounting method in respect to its 83
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 stock
holders' economic interest in the targeted subsidiary's earnings
available for dividends. 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 mainly resulted
from convertible bonds. In accordance with FAS No.128, the
computation of diluted net income per share for the three months
ended June 30, 2001 uses the same weighted-average shares used for
the computation of diluted income before cumulative effect of
accounting changes per share, and reflects the effect of the assumed
conversion of convertible bonds in diluted net income.
Weighted-average shares (Thousands of shares)
Three months ended June 30
2001 2002
Income (loss) before cumulative effect
of accounting changes and net income (loss)
- Basic 918,415 918,517
- Diluted 918,415 997,579
Weighted-average shares used for computation of earnings per share of
the subsidiary tracking stock for the three months ended June 30,
2001 and 2002 are 3,072 thousand shares. There were no potentially
dilutive securities for the subsidiary tracking stock outstanding at
June 30, 2001 and 2002.
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 liability adjustment and
foreign currency translation adjustments. Net income, other
comprehensive income and comprehensive income for the three months
ended June 30, 2001 and 2002 were as follows;
(Millions of yen, millions of U.S. dollars)
Three months ended June 30
2001 2002 2002
Net income (loss) Y(30,078) Y57,181 $481
Other comprehensive
income (loss) (8,393) (115,242) (969)
Unrealized gains (losses) on
securities (8,066) 5,994 50
Unrealized gains on
derivative instruments 1,450 289 2
Foreign currency translation
adjustments (1,777) (121,525) (1,021)
Comprehensive income (loss) Y(38,471) Y(58,061) $(488)
5. On April 1, 2001, Sony adopted FAS No.133, "Accounting for Derivative
Instruments and Hedging Activities" as amended by FAS No.138
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities -- an Amendment of FASB statement No.133". As a result of
the adoption of the new standard, Sony recorded a one-time non-cash
after-tax unrealized gain of Y1,089 million in accumulated other
comprehensive income in the consolidated balance sheet, as well as an
after-tax gain of Y5,978 million in the cumulative effect of
accounting changes in the consolidated statement of income.
6. Adoption of New Accounting Standards
Impairment or Disposal of Long-Lived Assets
On April 1, 2002, Sony adopted FAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". This statement establishes a single accounting model for long-lived assets to be disposed of by sale and modifies the accounting and disclosure rules for discontinued operations. The adoption of this statement did not have an impact on Sony's results of operations and financial position.
FAS No.145, "Rescission of FASB Statements No.4, 44 and 64, Amendment of FASB Statement No.13, and Technical Corrections"
In April 2002, the Financial Accounting Standards Board issued FAS No. 145. This statement rescinds certain authoritative pronouncements and amends, clarifies or describes the applicability of others, effective for fiscal years beginning or transactions occurring after May 15, 2002, with early adoption encouraged. Sony elected early adoption of this statement retroactive to the beginning of the fiscal year. The adoption of this statement did not have an 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 June 30
2001 2002 Change 2002
Capital expenditures
(additions to fixed
assets) Y86,094 Y60,672 -29.5% $510
Depreciation and
amortization
expenses* 80,045 83,318 +4.1 700
(Depreciation expenses
for tangible assets) (65,540) (67,051) (+2.3) (563)
R&D expenses 103,150 97,895 -5.1 823
* Including amortization expenses for intangible assets and for
deferred insurance acquisition costs
SOURCE: Sony Corporation
CONTACT: Investor Relations: Tokyo - Takeshi Sudo, +81-3-5448-2180, or
New York - Yas Hasegawa, +1-212-833-6820, or Chris Hohman, +1-212-833-5011, or
London - Hanako Muto, +44-20-7426-8760, or Vanessa Jubenot, +44-20-7426-8606,
all of Sony Corporation
Web site: http://www.sony.com/