Sony Corporation: Consolidated Financial Results for the First Quarter ended June 30, 2003
Significant Improvement Was Made Over the Fourth Quarter Despite Decreased Sales and Profit Year on Year
PRNewswire-FirstCall
TOKYO
07/24/2003
Sony Corporation announced today its consolidated results for the first quarter ended June 30, 2003 (April 1, 2003 to June 30, 2003).
Highlights
* Consolidated sales were Yen 1,603.8 billion ($13.4 billion), a decrease
of 6.9% compared with the same quarter of the previous year. Operating
income decreased Yen 35.2 billion to Yen 16.7 billion ($139 million).
Net income was Yen 1.1 billion ($9 million), a decrease of
Yen 56.1 billion. In the fourth quarter ended March 31, 2003, operating
loss was Yen 116.5 billion, and net loss was Yen 111.1 billion.
* Sales in the Electronics segment decreased 9.8% primarily due to a
decrease in sales of the Televisions category resulting from a
contraction of the market for CRT televisions. Increased competition
put downward pressure on prices in all categories, especially the
Televisions and Video categories, resulting in a Yen 36.3 billion
decrease in operating income to Yen 12.8 billion ($107 million).
* In the Game segment, a decrease in both hardware and software sales
brought about an 18.2% decrease in overall sales. Reflecting a
proactive increase in research and development expenses for
semiconductors in anticipation of future businesses, operating income
decreased Yen 0.8 billion to Yen 1.8 billion ($15 million).
* Due to a decline in sales at the U.S.-based subsidiary resulting from
continued market contraction, sales in the Music segment decreased 8.8%.
However, operating loss decreased Yen 4.0 billion due to an increase in
sales at the Japan-based subsidiary and the benefit of restructuring at
the U.S.-based subsidiary.
* Sales decreased 13.0% in the Pictures segment due to a decrease in
theatrical revenues compared with the same quarter of the previous year
in which the record-breaking film, Spider-Man, was released and
contributed significantly to sales. Operating performance declined
Yen 11.7 billion from the operating income recorded in the same quarter
of the previous year, resulting in an operating loss of Yen 2.4 billion
($20 million).
* Financial Services segment revenue increased 16.3% and operating income
increased Yen 3.2 billion to Yen 14.0 billion ($117 million) due to
improvements in valuation gains and losses from investments and
increased insurance revenue at Sony Life Insurance Co., Ltd.
* A one-time gain of Yen 7.7 billion ($64 million) was recorded on the
sale of rights related to a portion of the Sony Credit Card portfolio in
the U.S. Consequently, operating performance in the Other segment
improved Yen 10.0 billion to a Yen 4.0 billion ($33 million) operating
income, from an operating loss in the same quarter of the previous year.
(Billions of yen, millions of U.S. dollars, except per share amounts)
First quarter ended June 30
2002 2003 Change 2003*
Sales and operating
revenue Y 1,721.8 Y 1,603.8 -6.9% $13,365
Operating income 51.9 16.7 -67.9 139
Income before income
taxes 116.6 35.8 -69.3 298
Net income 57.2 1.1 -98.0 9
Net income per share of common stock
- Basic Y 62.23 Y 1.24 -98.0% $0.01
- Diluted 57.90 1.24 -97.9 0.01
* U.S. dollar amounts have been translated from yen, for convenience only,
at the rate of Yen 120=U.S.$1, the approximate Tokyo foreign exchange
market rate as of June 30, 2003.
Remarks by Nobuyuki Idei, Chairman and Group CEO of Sony Corporation
During the first quarter ended June 30, 2003, Sony began preparations to implement our restructuring plan and growth strategy while, at the same time, improving the competitiveness of our products, primarily in the Electronics segment. Although consolidated financial results during the quarter were weaker than those achieved in the same quarter of the previous year, they improved significantly compared to the fourth quarter ended March 31, 2003, in which a loss was recorded.
In the third quarter of this fiscal year, we will begin implementation, in earnest, of the restructuring plan we outlined at our Corporate Strategy Meeting this May. At the same time, to further enhance management's control of operations, we have constructed a system in the Electronics segment whereby sales are reported on a daily basis and inventory is reported on a weekly basis. In addition, we are planning to introduce, in the second half of the fiscal year, a variety of exciting electronics products built using proprietary technology and components.
Through these measures, Sony is working to improve profitability in advance of 2006, the 60th anniversary of our founding.
Consolidated Results for the First Quarter ended June 30, 2003 Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Sales were Yen 1,603.8 billion ($13.4 billion), a decrease of 6.9% compared with the same quarter of the previous year (5% decrease on a local currency basis -- for all references herein to results on a local currency basis, see Note I.
* Sales to outside customers in the Electronics segment declined
Yen 79.4 billion, or 7.0%, in the Game segment Yen 29.2 billion, or
19.5%, in the Pictures segment Yen 22.5 billion, or 13.0%, and in the
Music segment Yen 9.9 billion, or 8.9%.
* Sales to outside customers in the Financial Services segment increased
Yen 21.1 billion, or 17.3%.
Operating income was Yen 16.7 billion ($139 million), a decrease of Yen 35.2 billion, or 67.9%, compared with the same quarter of the previous year (89% decrease on a local currency basis).
* Principal business segments having a negative effect on the change in
operating income:
-- The Electronics segment, in which operating income decreased
Yen 36.3 billion.
-- The Pictures segment, in which operating performance declined
Yen 11.7 billion. An operating loss was recorded in the current
quarter compared with operating income in the same quarter of the
previous year.
* Business segments having a positive effect on the change in operating
income:
-- The Music segment, in which operating loss decreased Yen 4.0 billion.
-- The Financial Services segment, in which operating income increased
Yen 3.2 billion.
-- The Other segment, in which operating performance increased
Yen 10.0 billion. Operating income was recorded in the current
quarter compared with an operating loss in the same quarter of the
previous year.
* Selling, general and administrative expenses decreased Yen 13.1 billion
mainly due to a decrease in severance-related expenses, caused by the
recording of severance-related expenses at Aiwa Co. Ltd. ("Aiwa") in the
same quarter of the previous year, and a decrease in after-service
expenses in the current quarter (see Note IV regarding Aiwa).
* Restructuring charges for the current quarter amounted to
Yen 6.5 billion ($54 million) compared to Yen 16.6 billion in the same
quarter of the previous year.
-- On a business segment basis, the most significant charges were
recorded in the Electronics segment, Yen 4.6 billion ($38 million)
compared to Yen 12.0 billion in the same quarter of the previous
year, and in the Music segment, Yen 1.3 billion ($10.8 million)
compared to Yen 2.9 billion in the same quarter of the previous year.
Income before income taxes was Yen 35.8 billion ($298 million), a decrease of Yen 80.9 billion, or 69.3%, compared with the same quarter of the previous year.
* In addition to the decrease in operating income, other income decreased
Yen 55.4 billion.
-- The primary factor contributing to the decrease in other income was
the recording of a Yen 66.5 billion gain in the same quarter of the
previous year on the sale of Sony's equity interest in Telemundo
Communications Group, Inc. and its subsidiaries ("Telemundo"), a
U.S.-based Spanish language television network and station group,
which had been an equity affiliate of Sony.
~ Sony deferred Yen 6.0 billion ($50 million) of the gain on this
transaction due to an agreement to reimburse the purchaser against
certain losses and claims as stipulated in the agreement. In the
current quarter, this deferred gain was recorded because the
agreement expired without any claims being made.
-- The net foreign exchange loss in the current quarter was
Yen 0.9 billion ($7 million), compared to a net gain of
Yen 5.7 billion in the same quarter of the previous year.
* On the other hand, a Yen 9.7 billion decrease in other expenses,
principally caused by a Yen 11.0 billion decrease in loss on the
devaluation of securities investments, partially offset the decrease in
income before income taxes.
Net income was Yen 1.1 billion ($9 million), a decrease of Yen 56.1 billion, or 98.0%, compared with the same quarter of the previous year.
* In addition to the decrease in income before income taxes, the following
factors negatively affected net income:
-- Minority interest in the loss of consolidated subsidiaries decreased
Yen 2.1 billion.
~ In the same quarter of the previous year, a Yen 2.4 billion
minority interest in the loss of Aiwa was recorded.
-- Equity in net losses of affiliated companies increased Yen
1.3 billion.
~ Losses increased at Sony Ericsson Mobile Communications ("SEMC"), a
mobile handset joint venture in which Sony has a 50% equity holding
(see below).
* Income tax decreased by Yen 28.2 billion due to the decrease in income
before income taxes. However, the effective tax rate increased to
71% from 46% in the same quarter of the previous year.
-- Reason for the increase in the effective tax rate:
~ Sony recorded additional valuation allowances related to certain
foreign tax credits and other deferred tax assets.
SEMC performance for the quarter ended June 30, 2003
Sales of mobile handsets: 6.7 million units (an increase of 1.7 million
units)
Net sales: 1,125 million euro (an increase of 18.4%)
Loss before tax: 102 million euro (a deterioration of
4 million euro)
Net loss: 88 million euro (a deterioration of 5 million
euro)
-- In the current quarter, SEMC recorded
58 million euro of restructuring charges
resulting from the withdrawal from the
U.S. CDMA market and the closure of a
GSM research facility in Munich,
Germany.
Sony's equity in net loss: Yen 5.8 billion ($48 million)
Operating Performance Highlights by Business Segment
Electronics
(Billions of yen, millions of U.S. dollars)
First quarter ended June 30
2002 2003 Change 2003
Sales and operating
revenue Y 1,218.9 Y 1,099.8 -9.8% $9,165
Operating income 49.1 12.8 -73.9 107
Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Sales were Yen 1,099.8 billion ($9,165 million), a decrease of 9.8% compared with the same quarter of the previous year (9% decrease on a local currency basis).
* In particular, sales of the "Televisions" and "Information and
Communications" categories declined(1). Sales of "Televisions" declined
because sales of CRT televisions decreased due to both the absence of
the positive effect on demand of the 2002 soccer World Cup and the shift
in demand towards flat panel TVs. In "Information and Communications,"
sales of VAIO PCs decreased because unit sales declined due to a
strategic reduction in the product lineup.
* Sales trends by product category (sales to outside customers):
-- Product categories with decreased sales: "Televisions"
(Yen 34.1 billion or -15.5%), "Information and Communications"
(Yen 33.4 billion or -15.1%), "Audio" (Yen 19.3 billion or -11.9%),
and "Other" (Yen 12.6 billion or -9.7%).
-- Product categories with increased sales: "Components"
(Yen 9.3 billion or +7.3%), "Video" (Yen 6.0 billion or +2.7%), and
"Semiconductors" (Yen 4.7 billion or +9.7%).
(1) Commencing with the first quarter ended June 30, 2003, Sony has partly
realigned its product category configuration in the Electronics
segment. In accordance with this change, results for the same quarter
of the previous year have been reclassified to conform to the
presentations for the current quarter.
* Sales trends by product:
-- Products with the largest decreases in sales: CRT televisions, VAIO
PCs, portable audio and home audio.
-- Products with the largest increases in sales: digital still cameras
("Cybershot"), cellular phones (sold to SEMC and others) and CCDs.
* Sales trends by geographic area:
-- Sales decreased in the U.S., other areas and Japan. Sales increased
in Europe. On a local currency basis, sales fell in all four
geographic areas.
Operating income was Yen 12.8 billion ($107 million), a decrease of Yen 36.3 billion, or 73.9%, compared with the same quarter of the previous year (87% decrease on a local currency basis).
* The following factors contributed to the decrease in profitability:
-- In addition to the overall sales decrease, price declines contributed
to a deterioration in the cost to sales ratio primarily in CRT
televisions, digital still cameras and optical pickups.
* The following factors partially offset the decline in profitability:
-- Selling, general and administrative expenses decreased due to the
absence of charges incurred to restructure Aiwa in the same quarter
of the previous year.
-- The positive impact of the depreciation of the yen against the euro
exceeded the negative impact of the appreciation of the yen against
the U.S. dollar.
* Product categories information:
-- Categories recording declines in operating income:
~ "Televisions," in which mainly sales of CRT televisions declined,
recorded an operating loss compared to the operating income
recorded in the same quarter of the previous year.
~ The profitability of "Video" declined mainly due to the decrease in
profitability of digital still cameras and home-use video cameras,
which resulted from price declines and increased patent-related
expenses.
~ The profitability of "Audio" declined due to market shrinkage and
price deterioration.
~ In the current quarter "Semiconductors" recorded an operating loss
compared to operating income recorded in the same quarter of the
previous year because production capacity was increased resulting
in increased depreciation expenses.
~ "Information and Communications" recorded an operating loss in the
current quarter compared to an operating income in the same quarter
of the previous year because the profitability of personal digital
assistants ("CLIE") deteriorated due to unit price declines in the
U.S., its major market.
~ Although the operating performance of DVD drives and batteries was
robust, profitability of "Components" declined due to price
deterioration as a result of intensified competition resulting in
decreased profitability of optical pickups.
-- Categories recording improvements in operating income:
~ Losses decreased in "Other", in which Aiwa recorded restructuring
charges in the same quarter of the previous year.
Inventory on June 30, 2003 was Yen 526.1 billion ($4,384 million), a Yen 50.1 billion, or 8.7%, decrease compared with the level on June 30, 2002, and a Yen 93.7 billion, or 21.7%, increase compared with the level on March 31, 2003.
Game
(Billions of yen, millions of U.S. dollars)
First quarter ended June 30
2002 2003 Change 2003
Sales and operating
revenue Y 153.2 Y 125.2 -18.2% $1,044
Operating income 2.6 1.8 -31.6 15
Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Sales were Yen 125.2 billion ($1,044 million), a decrease of 18.2% compared with the same quarter of the previous year (19% decrease on a local currency basis).
* Both hardware and software sales decreased compared with the same
quarter of the previous year.
-- With respect to hardware, sales revenue in the U.S. declined as a
result of a decrease in unit sales of PlayStation 2 hardware, which
occurred because unit sales increased during the same quarter of the
previous year following a reduction in unit price. In Europe, price
reductions of PlayStation 2 hardware led to a decrease in hardware
sales revenue. On the other hand, sales revenue in Japan increased
due to an increase in hardware unit sales resulting from the release
of a new model of PlayStation 2.
-- With respect to software, sales revenue in Japan and the U.S.
decreased due to a decrease in unit sales of software, although sales
revenue in Europe increased due to the positive impact of the
depreciation of the yen against the euro and an increase in unit
sales of software developed by third parties.
~ Unit sales of software for PlayStation decreased while those for
PlayStation 2 increased.
* Worldwide hardware production shipments(2):
-- PS 2: 2.65 million units (a decrease of 1.94 million units)
-- PS one: 0.83 million units (an increase of 0.16 million units)
* Worldwide software production shipments(2):
-- PS 2: 31.00 million units (an increase of 4.00 million units)
-- PlayStation: 8.00 million units (a decrease of 5.00 million units)
(2) 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.
Operating income was Yen 1.8 billion ($15 million), a decrease of Yen 0.8 billion, or 31.6%, compared with the same quarter of the previous year.
* Operating income decreased due to an increase in research and
development expenses for semiconductors in anticipation of future
businesses. Partially offsetting these increased expenses were
continued reductions in hardware manufacturing costs and the
contribution to profit of an increase in unit sales of PlayStation 2
software, in addition to the positive impact of the deterioration of the
yen against the euro.
Inventory on June 30, 2003 was Yen 145.0 billion ($1,208 million), a Yen 4.7 billion, or 3.1%, decrease compared with the level on June 30, 2002 and a Yen 1.6 billion, or 1.1%, increase compared with the level on March 31, 2003.
Music
(Billions of yen, millions of U.S. dollars)
First Quarter ended June 30
2002 2003 Change 2003
Sales and operating
revenue Y 128.3 Y 117.0 -8.8% $975
Operating loss (10.0) (6.0) -- (50)
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 Yen 117.0 billion ($975 million), a decrease of 8.8% compared with the same quarter of the previous year (4% decrease on a local currency basis). Of the Music segment's sales, 73% were generated by SMEI and 27% were generated by SMEJ.
* SMEI's sales (on a U.S. dollar basis) decreased 8%.
-- Album sales decreased in many regions worldwide due to the continued
contraction of the global music industry brought on by piracy,
unauthorized file sharing and CD burning as well as increased
competition from other entertainment sectors.
-- Disc manufacturing revenues decreased primarily due to a decline in
the unit price of DVDs.
-- Best selling albums included Beyonce's "Dangerously in Love,"
Evanescence's "Fallen" and Ricky Martin's "Almas del Silencio."
* SMEJ's sales increased 11%.
-- Despite further contraction of the music industry in Japan, the
contribution of several hit releases led to an increase in music
sales at SMEJ.
-- The title that contributed the most to sales was Chemistry's "Between
the Lines."
In terms of profitability, an operating loss of Yen 6.0 billion ($50 million) was recorded compared with an operating loss of Yen 10.0 billion in the same quarter of the previous year, an improvement of Yen 4.0 billion year on year.
* SMEI recorded an operating loss, primarily due to the album sales
decline, but the amount of operating loss decreased on a U.S. dollar
basis.
-- Benefits were realized from aggressive restructuring implemented
during the previous year.
~ Restructuring during the previous year included consolidation of
various support functions as well as rationalization of
manufacturing and distribution functions and facilities.
-- Advertising and promotion expenses were reduced compared with the
same quarter of the previous year.
-- Restructuring expenses decreased compared with the same quarter of
the previous year.
-- Partially offsetting the reduction in operating loss was a decrease
in income from SMEI's disc manufacturing operations due to the price
decrease discussed above.
* SMEJ recorded operating income compared to an operating loss in the same
quarter of the previous year.
-- Sales increased and selling, general and administrative expenses,
particularly personnel-related expenses and advertising and promotion
expenses, were reduced.
Pictures
(Billions of yen, millions of U.S. dollars)
First Quarter ended June 30
2002 2003 Change 2003
Sales and operating
revenue Y 173.6 Y 151.1 -13.0% $1,259
Operating income (loss) 9.3 (2.4) -- (20)
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 Yen 151.1 billion ($1,259 million), a decrease of 13.0% compared with the same quarter of the previous year (7% decrease on a U.S. dollar basis).
* The reasons for the decrease in sales (on a U.S. dollar basis) were:
-- A decrease in theatrical revenues as compared with the same quarter
of the previous year in which the record-breaking film, Spider-Man,
was released and contributed significantly to sales.
~ Notable theatrical releases during the current quarter included
"Anger Management" and "Daddy Day Care."
-- A decrease in home entertainment revenues.
~ Lower sales of SPE titles were recorded compared to the same
quarter of the previous year.
~ Rights to distribute certain third party DVD titles outside of the
U.S. gradually expired.
* Partially offsetting the decrease in sales was:
-- An increase in television revenues primarily due to the extension of
an agreement to provide Seinfeld, an SPE-distributed television
program, to a U.S. cable network.
In terms of profitability, an operating loss of Yen 2.4 billion ($20 million) was recorded compared with operating income of Yen 9.3 billion in the same quarter of the previous year, a decrease of Yen 11.7 billion year on year.
* Reasons for the decline in profit performance (on a U.S. dollar basis)
were:
-- The decrease in sales discussed above.
-- The disappointing theatrical performance of Hollywood Homicide
released in the current quarter.
-- An increase in advertising and promotion expenses, which included
expenses for the June 27, 2003 U.S. theatrical release of "Charlie's
Angels: Full Throttle."
* Partially offsetting the decline in profit performance were:
-- The increase in television revenues discussed above.
-- A provision in the same quarter of the previous year with respect to
previously recorded income from KirchMedia. No similar provision was
recorded this year.
~ KirchMedia is an insolvent licensee in Germany of SPE's film and
television product.
Financial Services
(Billions of yen, millions of U.S. dollars)
First quarter ended June 30
2002 2003 Change 2003
Financial Services
revenue Y 128.7 Y 149.6 +16.3% $1,247
Operating income 10.8 14.0 +29.7 117
Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Financial Services revenue was Yen 149.6 billion ($1,247 million), an increase of 16.3% compared with the same quarter of the previous year.
* Revenue increased primarily due to an increase in revenue at Sony Life
Insurance Co., Ltd. ("Sony Life"). At Sony Life, revenue increased by
Yen 18.3 billion, or 16.3%, to Yen 130.4 billion ($1,087 million)(3).
-- Valuation gains and losses from investment in the separate account
and the general account improved.
~ Valuation gains and losses from investments in the separate account
accrue directly to the account of policyholders and, therefore, do
not affect operating income.
-- Insurance revenue increased due to an increase in insurance-in-force.
Operating income increased by Yen 3.2 billion, or 29.7%, to Yen 14.0 billion ($117 million) compared with the same quarter of the previous year.
* Operating income increased primarily due to a Yen 2.5 billion, or 21.0%,
increase in the operating income of Sony Life to Yen 14.3 billion
($119 million)(3). Operating income at Sony Life increased due to the
improvement in valuation gains and losses from investments in the
general account and the increase in insurance revenue.
(3) The Financial Services revenue and operating income at Sony Life are
calculated on a U.S. GAAP basis. Therefore, they differ from the
results that Sony Life discloses on a Japanese statutory basis.
Other
(Billions of yen, millions of U.S. dollars)
First Quarter ended June 30
2002 2003 Change 2003
Sales and operating
revenue Y 67.5 Y 75.7 +12.1% $631
Operating income (loss) (6.0) 4.0 -- 33
Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Sales were Yen 75.7 billion ($631 million), a 12.1% increase compared with the same quarter of the previous year. Of sales in the Other segment, 54% were sales to outside customers.
* A business which provides information system services to other
businesses within Sony Group recorded increased sales.
In terms of profitability, operating income of Yen 4.0 billion ($33 million) was recorded compared with an operating loss of Yen 6.0 billion in the same quarter of the previous year, an improvement of Yen 10.0 billion.
* A Network Application and Contents Service Sector ("NACS") -related
business operated by a U.S. subsidiary recorded a one-time gain of
Yen 7.7 billion ($64 million) on the sale of rights related to a portion
of the Sony Credit Card portfolio.
* In the same quarter of the previous year, an impairment loss for certain
long-lived assets was recorded at a location-based entertainment
business (consisting of retail operations and attraction-based
entertainment) in the U.S., and severance-related expenses were recorded
at an advertising agency business subsidiary in Japan.
Cash Flow
The following charts show Sony's unaudited condensed statements of cash
flow on a consolidated basis, on a consolidated basis for all segments
excluding the Financial Services segment, and for the Financial Services
segment alone. These separate condensed presentations are not required
under U.S. GAAP, which is used in Sony's consolidated financial
statements. However, because the Financial Services segment is different
in nature from Sony's other segments, Sony believes that these
presentations may be useful in understanding and analyzing Sony's
consolidated financial statements. Transactions between the Financial
Services segment and all other segments excluding the Financial Services
segment are eliminated in the consolidated figures shown below.
Cash Flow - Consolidated
(Billions of yen, millions of U.S. dollars)
First Quarter ended June 30
Cash flow 2002 2003 Change 2003
- From operating
activities Y 22.1 (Y 72.2) Y -94.3 ($601)
- From investing
activities (83.3) (129.5) -46.2 (1,079)
- From financing
activities (39.1) 152.5 +191.5 1,271
Cash and cash
equivalents as of
June 30 561.0 663.7 +102.7 5,531
Refer to Cash Flow - Consolidated (excluding Financial Services segment)
and Cash Flow - Financial Services below for an analysis of cash flows.
Cash Flow - Consolidated (excluding Financial Services segment)
(Billions of yen, millions of U.S. dollars)
First Quarter ended June 30
Cash flow 2002 2003 Change 2003
- From operating
activities (Y 39.0) (Y 138.4) Y -99.3 ($1,153)
- From investing
activities 51.3 (55.7) -107.0 (464)
- From financing
activities (70.5) 113.7 +184.2 947
Cash and cash
equivalents as
of June 30 275.7 357.9 +82.2 2,982
During the quarter ended June 30, 2003, consolidated operating activities (excluding Financial Services segment) used Yen 138.4 billion ($1,153 million), net, an increase of Yen 99.3 billion year on year.
* In the current quarter, although notes and accounts payable, trade
increased in the Electronics segment, operating activities used more
cash than they generated because of an increase in inventory in the
Electronics segment. Both notes and accounts payable, trade and
inventory are influenced by seasonal factors.
* The net use of cash increased year on year because operating income in
the Electronics and Pictures segments decreased, and there was an
increase in notes and accounts receivable, trade, compared to a decrease
in the same quarter of the previous year. While inventory also
increased, it rose by a smaller amount than in the prior year thereby
resulting in a smaller use of cash year on year.
Consolidated investing activities (excluding Financial Services segment) used Yen 55.7 billion ($464 million), net. In the same quarter of the previous year investing activities generated Yen 51.3 billion, net.
* In the current quarter, Yen 67.8 billion ($565 million) was used to
purchase fixed assets, primarily for semiconductors in the Electronics
segment.
* Investing activities in the same quarter of the previous year generated
cash due to the Yen 88.4 billion of cash proceeds received on the sale
of Telemundo.
Consolidated financing activities (excluding Financial Services segment) generated Yen 113.7 billion ($947 million), net. In the previous year financing activities used Yen 70.5 billion, net.
* In the current quarter, short-term borrowings increased mainly due to
the issuance of commercial paper for the purpose of raising working
capital.
Cash Flow - Financial Services segment
(Billions of yen, millions of U.S. dollars)
First Quarter ended June 30
Cash flow 2002 2003 Change 2003
- From operating activities Y 61.3 Y 66.1 Y +4.8 $551
- From investing activities (125.2) (76.1) +49.1 (634)
- From financing activities 22.0 41.3 +19.3 344
Cash and cash equivalents
as of June 30 285.3 305.8 +20.5 2,549
During the quarter ended June 30, 2003, operating activities in the Financial Services segment generated Yen 66.1 billion ($551 million), net, an increase of Yen 4.8 billion year on year.
* A Yen 66.0 billion ($550 million) increase in future insurance policy
benefits and other was recorded due to an increase in
insurance-in-force.
Investing activities in the Financial Services segment used Yen 76.1 billion ($634 million), net, a decrease of Yen 49.1 billion year on year.
* Payments for investments and advances, Yen 254.9 billion
($2,124 million), exceeded proceeds from sales of securities
investments, maturities of marketable securities and collections of
advances, Yen 194.8 billion ($1,623 million), reflecting the expansion
of the financial services businesses.
Financing activities in the Financial Services segment generated Yen 41.3 billion ($344 million), net, an increase of Yen 19.3 billion year on year.
* Deposits from customers in the banking business increased by
Yen 35.6 billion ($296 million).
Notes
Note I: During the first quarter ended June 30, 2003, the average value
of the yen was Yen 117.5 against the U.S. dollar and Yen
133.1 against the euro, which was 7.3% higher against the U.S.
dollar and 13.6% lower against the euro, compared with the
average rate for the same quarter of the previous fiscal year.
Operating results on a local currency basis described herein
reflect sales and operating revenue ("sales") and operating
income obtained by applying the yen's average exchange rate in
the same quarter of the previous fiscal year to local
currency-denominated monthly sales, cost of sales, and selling,
general and administrative expenses in the current quarter.
Local currency basis results are not reflected in Sony's
financial statements and are not measures conforming with
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
analytical information to investors regarding operating
performance.
Note II: "Sales and operating revenue" in each business segment
represents sales and operating revenue recorded before
intersegment transactions are eliminated. "Operating income" in
each business segment represents operating income recorded
before intersegment transactions and unallocated corporate
expenses are eliminated.
Note III: Commencing with the first quarter ended June 30, 2003, Sony has
partly realigned its business segment configuration. Also, in
NACS, expenses incurred in connection with the creation of a
network platform business have been transferred out of the Other
segment and reclassified as unallocated corporate expenses,
because the expected future benefits of this business will be
spread across the Sony Group. In accordance with this
realignment, results for the first quarter of the previous
fiscal year have been reclassified to conform to the
presentation of the first quarter of the current fiscal year.
Note IV: On October 1, 2002, Sony implemented a share exchange as a
result of which Aiwa became a wholly-owned subsidiary. On
December 1, 2002, Sony absorbed Aiwa by merger.
Outlook for the Fiscal Year ending March 31, 2004
There is no change in our forecast for the fiscal year, stated below.
Change from previous year
Sales and operating revenue Y 7,400 billion - 1%
Operating income 130 billion - 30
Income before income taxes 130 billion - 48
Net income 50 billion - 57
Restructuring expenses of Yen 140 billion are included in the above forecast.
Assumed exchange rates: approximately Yen 115 to the U.S. dollar, approximately Yen 125 to the euro.
We have increased our capital expenditure forecast by Yen 40 billion to Yen 350 billion primarily due to higher spending on replacement equipment and increases in semiconductor manufacturing capacity. Consequently, although depreciation and amortization is not expected to change, depreciation expenses for tangible assets are expected to increase by ¥10 billion to Yen 280 billion.
Capital expenditures
(additions to fixed assets) Y 350 billion +34%
Depreciation and
amortization(4) 390 billion +11
(Depreciation expenses for
tangible assets) (280 billion) (Flat)
(4) 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 statements using words such as "believe," "expect," "plans," "strategy," "prospects," "forecast," "estimate," "project," "anticipate," "may" or "might" and words of similar meaning in connection with a discussion of future operations, financial performance, events or conditions. From time to time, oral or written forward-looking statements may also be included in other materials released to the public. These statements are based on management's assumptions and beliefs in light of the information currently available to it. Sony cautions you that a number of important risks and uncertainties could cause actual results to differ materially from those discussed in the forward- looking statements, and therefore you should not place undue reliance on them. You also should not rely on any obligation of Sony to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Sony disclaims any such obligation. Risks and uncertainties that might affect Sony include, but are not limited to (i) the global economic environment in which Sony operates, as well as the economic conditions in Sony's markets, particularly levels of consumer spending; (ii) exchange rates, particularly between the yen and the U.S. dollar, euro, and other currencies in which Sony makes significant sales or in which Sony's assets and liabilities are denominated; (iii) Sony's ability to continue to design and develop and win acceptance of its products and services, which are offered in highly competitive markets characterized by continual new product introductions, rapid development in technology, and subjective and changing consumer preferences (particularly in the Electronics, Game, Music and Pictures segments); (iv) Sony's ability to implement successfully personnel reduction and other business reorganization activities in its Electronics and Music segments, (v) Sony's ability to implement successfully its network strategy for its Electronics, Music, Pictures and Other segments and to develop and implement successful sales and distribution strategies in its Music and Pictures segments in light of the Internet and other technological developments; (vi) Sony's continued ability to devote sufficient resources to research and development and, with respect to capital expenditures, to correctly prioritize investments (particularly in the Electronics segment); and (vii) the success of Sony's joint ventures and alliances. Risks and uncertainties also include the impact of any future events with material unforeseen impacts.
Business Segment Information (Unaudited)
(Millions of yen, millions of U.S. dollars)
Three months ended June 30
Sales and operating revenue
2002 2003 Change 2003
Electronics
Customers Y 1,126,720 Y 1,047,332 -7.0% $8,728
Intersegment 92,158 52,502 437
Total 1,218,878 1,099,834 -9.8 9,165
Game
Customers 149,535 120,332 -19.5 1,003
Intersegment 3,644 4,914 41
Total 153,179 125,246 -18.2 1,044
Music
Customers 111,171 101,289 -8.9 844
Intersegment 17,144 15,711 131
Total 128,315 117,000 -8.8 975
Pictures
Customers 173,629 151,131 -13.0 1,259
Intersegment 0 0 0
Total 173,629 151,131 -13.0 1,259
Financial Services
Customers 121,891 142,969 +17.3 1,191
Intersegment 6,819 6,678 56
Total 128,710 149,647 +16.3 1,247
Other
Customers 38,860 40,727 +4.8 340
Intersegment 28,668 34,950 291
Total 67,528 75,677 +12.1 631
Elimination (148,433) (114,755) -- (956)
Consolidated total Y 1,721,806 Y 1,603,780 -6.9% $13,365
Electronics intersegment amounts primarily consist of transactions with the Game business.
Music intersegment amounts primarily consist of transactions with the Game and Pictures business.
Other intersegment amounts primarily consist of transactions with the Electronics business.
Operating income (loss)
2002 2003 Change 2003
Electronics Y 49,126 Y 12,805 -73.9% $107
Game 2,573 1,761 -31.6 15
Music (9,950) (5,990) -- (50)
Pictures 9,266 (2,397) -- (20)
Financial Services 10,828 14,047 +29.7 117
Other (5,974) 3,992 -- 33
Total 55,869 24,218 -56.7 202
Corporate and elimination(3,999) (7,546) -- (63)
Consolidated operating
income Y 51,870 Y 16,672 -67.9% $139
Commencing with the first quarter ended June 30, 2003, Sony has partly realigned its business segment configuration. In the Network Application and Contents Service Sector ("NACS"), expenses incurred in connection with the creation of a network platform business have been transferred out of the Other segment and reclassified as unallocated corporate expenses, because the expected future benefits of this business will be spread across the Sony Group. In accordance with these realignments, results for the previous year have been reclassified to conform to the presentation for the current year.
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 revenue
2002 2003 Change 2003
Audio Y 161,480 Y 142,227 -11.9% $1,185
Video 219,013 224,986 +2.7 1,875
Televisions 219,637 185,516 -15.5 1,546
Information and
Communications 221,508 188,141 -15.1 1,568
Semiconductors 48,354 53,055 +9.7 442
Components 126,550 135,842 +7.3 1,132
Other 130,178 117,565 -9.7 980
Total Y 1,126,720 Y 1,047,332 -7.0% $8,728
The above table is a breakdown of Electronics sales and operating revenue to customers in the Business Segment Information. The Electronics segment is managed as a single operating segment by Sony's management. However, Sony believes that the information in this table is useful to investors in understanding the sales contributions of the products in this business segment. In addition, commencing with the first quarter ended June 30, 2003, Sony has partly realigned its product category configuration in the Electronics segment. Accordingly, results of the previous year have been reclassified as follows:
Main Product Previous Product Category New Product Category
Set-top box "Televisions" "Video"
Computer display "Information and Communications" "Televisions"
LCD television "Information and Communications" "Televisions"
CRT "Components" "Televisions"
Geographic Segment Information (Unaudited)
(Millions of yen, millions of U.S. dollars)
Three months ended June 30
Sales and operating revenue
2002 2003 Change 2003
Japan Y 503,134 Y 511,269 +1.6% $4,261
United States 558,214 459,729 -17.6 3,831
Europe 345,727 346,798 +0.3 2,890
Other Areas 314,731 285,984 -9.1 2,383
Total Y 1,721,806 Y 1,603,780 -6.9% $13,365
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
2002 2003 Change 2003
Sales and operating revenue: %
Net sales Y 1,589,158 Y 1,449,222 $ 12,077
Financial service
revenue 121,891 142,969 1,191
Other operating
revenue 10,757 11,589 97
1,721,806 1,603,780 -6.9 13,365
Costs and expenses:
Cost of sales 1,136,249 1,059,152 8,827
Selling, general and
administrative 417,398 404,305 3,369
Financial service
expenses 110,906 129,026 1,075
(Gain) loss on sale,
disposal or
impairment of
assets, net 5,383 (5,375) (45)
1,669,936 1,587,108 13,226
Operating income 51,870 16,672 -67.9 139
Other income:
Interest and dividends 3,938 6,128 51
Royalty income 5,289 7,382 62
Foreign exchange
gain, net 5,678 -- --
Gain on sale of
securities
investments, net 68,366 8,526 71
Other 6,987 12,851 107
90,258 34,887 291
Other expenses:
Interest 6,830 6,155 52
Loss on devaluation of
securities
investments 11,524 500 4
Foreign exchange
loss, net - 872 7
Other 7,131 8,261 69
25,485 15,788 132
Income before income
taxes 116,643 35,771 -69.3 298
Income taxes 53,633 25,384 211
Income before minority
interest and equity
in net losses of
affiliated companies 63,010 10,387 87
Minority interest in
loss of consolidated
subsidiaries 2,607 461 3
Equity in net losses of
affiliated companies 8,436 9,727 81
Net income Y 57,181 Y 1,121 -98.0 $9
Per share data:
Common stock
Net income
- Basic Y 62.23 Y 1.24 -98.0 $0.01
- Diluted 57.90 1.24 -97.9 0.01
Subsidiary tracking stock
Net income (loss)
- Basic 7.30 (7.97) -- (0.07)
Consolidated Balance Sheets (Unaudited)
(Millions of yen, millions of U.S. dollars)
June 30 March 31 June 30 June 30
ASSETS 2002 2003 2003 2003
Current assets:
Cash and cash
equivalents Y 560,977 Y 713,058 Y 663,700 $5,531
Time deposits 6,997 3,689 4,890 41
Marketable securities 169,060 241,520 230,028 1,917
Notes and accounts
receivable, trade 1,269,328 1,117,889 1,145,962 9,550
Allowance for doubtful
accounts and sales
returns (106,419) (110,494) (94,874) (791)
Inventories 769,100 625,727 720,895 6,007
Deferred income taxes 135,657 143,999 131,244 1,094
Prepaid expenses and
other current assets 472,253 418,826 542,814 4,523
3,276,953 3,154,214 3,344,659 27,872
Film costs 292,944 287,778 306,072 2,551
Investments and advances:
Affiliated companies 92,682 111,510 92,100 767
Securities investments
and other 1,646,357 1,882,613 1,976,955 16,475
1,739,039 1,994,123 2,069,055 17,242
Property, plant and equipment:
Land 192,294 188,365 188,856 1,574
Buildings 866,642 872,228 878,242 7,318
Machinery and
equipment 2,129,989 2,054,219 2,084,805 17,373
Construction in
progress 55,034 60,383 67,062 559
Less-Accumulated
depreciation (1,895,679) (1,896,845) (1,914,037) (15,950)
1,348,280 1,278,350 1,304,928 10,874
Other assets:
Intangibles, net 241,145 258,624 256,118 2,134
Goodwill 296,446 290,127 296,124 2,468
Deferred insurance
acquisition costs 314,775 327,869 331,738 2,765
Deferred income taxes 123,230 328,091 233,036 1,942
Other 425,143 451,369 471,245 3,927
1,400,739 1,656,080 1,588,261 13,236
Y 8,057,955 Y 8,370,545 Y 8,612,975 $71,775
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term
borrowings Y 49,318 Y 124,360 Y 260,451 $2,171
Current portion of
long-term debt 217,068 34,385 35,028 292
Notes and accounts
payable, trade 813,935 697,385 771,521 6,429
Accounts payable,
other and accrued
expenses 770,370 864,188 803,178 6,693
Accrued income and
other taxes 74,106 109,199 77,057 642
Deposits from
customers in the
banking business 144,861 248,721 284,669 2,372
Other 367,242 356,810 396,406 3,304
2,436,900 2,435,048 2,628,310 21,903
Long-term liabilities:
Long-term debt 830,097 807,439 806,606 6,722
Accrued pension and
severance costs 303,986 496,174 507,114 4,226
Deferred income taxes 171,109 159,079 72,375 603
Future insurance
policy benefits
and other 1,738,362 1,914,410 1,980,437 16,504
Other 242,692 255,478 269,913 2,249
3,286,246 3,632,580 3,636,445 30,304
Minority interest in
consolidated
subsidiaries 22,437 22,022 19,082 159
Stockholders' equity:
Capital stock 476,131 476,278 476,591 3,972
Additional paid-in
capital 968,261 984,196 989,919 8,249
Retained earnings 1,266,441 1,301,740 1,302,848 10,857
Accumulated other
comprehensive
income (390,835) (471,978) (430,851) (3,591)
Treasury stock,
at cost (7,626) (9,341) (9,369) (78)
2,312,372 2,280,895 2,329,138 19,409
Y 8,057,955 Y 8,370,545 Y 8,612,975 $71,775
Consolidated Statements of Cash Flows (Unaudited)
(Millions of yen, millions of U.S. dollars)
Three months ended June 30
2002 2003 2003
Cash flows from operating activities:
Net income Y 57,181 Y 1,121 $9
Adjustments to reconcile
net income to net cash provided
by (used in) operating activities
Depreciation and amortization,
including amortization of deferred
insurance acquisition costs 83,318 84,277 702
Amortization of film costs 62,740 52,867 441
Accrual for pension and severance
costs, less payments 7,408 10,115 84
(Gain) loss on sale, disposal or
impairment of assets, net 5,383 (5,375) (45)
Gain on sales of securities
investments, net (68,366) (8,526) (71)
Deferred income taxes 20,881 15,303 128
Equity in net losses of affiliated
companies, net of dividends 8,537 9,971 83
Changes in assets and liabilities:
(Increase) decrease in notes
and accounts receivable, trade 5,410 (32,757) (273)
Increase in inventories (120,380) (84,739) (706)
Increase in film costs (75,602) (71,399) (595)
Increase in notes and accounts
payable, trade 60,400 70,057 584
Decrease in accrued income and
other taxes (33,592) (39,789) (332)
Increase in future insurance
policy benefits and other 57,944 66,027 550
Increase in deferred insurance
acquisition costs (16,353) (16,229) (135)
Increase in other current assets (43,747) (84,415) (703)
Decrease in other current
liabilities (24,256) (30,744) (256)
Other 35,195 (7,917) (66)
Net cash provided by
(used in) operating
activities 22,101 (72,152) (601)
Cash flows from investing activities:
Payments for purchases of
fixed assets (67,776) (84,197) (702)
Proceeds from sales of
fixed assets 2,201 13,870 116
Payments for investments and
advances by financial service
business (216,857) (254,879) (2,124)
Payments for investments and
advances (other than financial
service business) (12,742) (8,545) (71)
Proceeds from sales of securities
investments, maturities of
marketable securities and
collections of advances by
financial service business 101,213 194,804 1,623
Proceeds from sales of securities
investments, maturities of
marketable securities and
collections of advances
(other than financial service
business) 112,990 6,941 58
Increase in time deposits (2,316) (1,122) (9)
Cash assumed upon acquisition
by stock exchange offering -- 3,634 30
Net cash used in
investing activities (83,287) (129,494) (1,079)
Cash flows from financing activities:
Proceeds from issuance of
long-term debt 6,751 1,234 10
Payments of long-term debt (9,574) (3,428) (28)
Increase (decrease) in
short-term borrowings (57,216) 129,641 1,080
Increase in deposits from
customers in the banking business 38,389 35,553 296
Dividends paid (11,521) (11,566) (96)
Other (5,883) 1,048 9
Net cash provided by
(used in) financing
activities (39,054) 152,482 1,271
Effect of exchange rate changes
on cash and cash equivalents (22,583) (194) (2)
Net decrease in cash and cash
equivalents (122,823) (49,358) (411)
Cash and cash equivalents at
beginning of the year 683,800 713,058 5,942
Cash and cash equivalents at
end of the first quarter Y560,977 Y663,700 $5,531
(Notes)
1. U.S. dollar amounts have been translated from yen, for convenience
only, at the rate of Y120 = U.S.$1, the approximate Tokyo foreign
exchange market rate as of June 30, 2003.
2. As of June 30, 2003, Sony had 1,043 consolidated subsidiaries. It has
applied the equity accounting method in respect to 82 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 or change in accumulated losses that are not including those
of the targeted subsidiary's subsidiaries. The earnings allocated to
Common stock are calculated by subtracting the earnings allocated to
the subsidiary tracking stock from Sony's net income for the period.
Weighted-average shares used for computation of earnings per share of
Common stock are shown in the chart below. The dilutive effect in the
weighted-average shares for the three months ended June 30, 2002 and
2003 mainly resulted from convertible bonds.
Weighted-average shares (Thousands of shares)
Three months ended June 30
2002 2003
Net income
- Basic 918,517 921,748
- Diluted 997,579 925,537
Weighted-average shares used for computation of earnings per share of
the subsidiary tracking stock for the three months ended June 30, 2002
and 2003 are 3,072 thousand shares. There were no potentially dilutive
securities or options granted for EPS of the subsidiary tracking
stock.
4. Sony's comprehensive income is comprised of net income and other
comprehensive income. Other comprehensive income includes changes in
unrealized gains or losses on securities, unrealized gains or losses
on derivative instruments, minimum pension liabilities adjustments and
foreign currency translation adjustments. Net income, other
comprehensive income (loss) and comprehensive income (loss) for the
three months ended June 30, 2002 and 2003 were as follows;
(Millions of yen, millions of U.S. dollars)
Three months ended June 30
2002 2003 2003
Net income Y 57,181 Y 1,121 $9
Other comprehensive income (loss) (115,242) 41,127 343
Unrealized gains (losses) on
securities 5,994 17,018 142
Unrealized gains (losses) on
derivative instruments 289 646 5
Minimum pension liabilities
adjustments -- (4,218) (35)
Foreign currency translation
adjustments (121,525) 27,681 231
Comprehensive income (loss) Y (58,061) Y 42,248 $352
5. On April 1, 2002, Sony adopted FAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." FAS No. 144 addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets. FAS No. 144 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 the provision of FAS No. 144 did not have a material
impact on Sony's results of operations and financial position for the
year ended March 31, 2003.
6. In April 2002, the Financial Accounting Standards Board ("FASB")
issued FAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical Corrections." 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 April 1, 2002. The adoption of this
statement did not have an impact on Sony's results of operations and
financial position.
7. In June 2002, the FASB issued FAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." FAS No. 146 is
effective for exit or disposal activities that are initiated after
December 31, 2002. FAS No. 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities. Sony
adopted FAS No. 146 on January 1, 2003. The adoption of this
statement did not have a material effect on Sony's results of
operations and financial position.
8. In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others, an
interpretation of FASB Statements No. 5, 57, and 107 and rescission of
FASB Interpretation No. 34." The interpretation elaborates on
the existing disclosure requirements for most guarantees. It also
clarifies that at the time a company issues a guarantee, the company
must recognize an initial liability for the fair value of the
obligations it assumes under the guarantee. The initial recognition
and initial measurement provisions of FIN No. 45 are applicable on a
prospective basis to guarantees issued or modified after December 31,
2002. The initial recognition and initial measurement provisions of
FIN No. 45 did not have a material effect on Sony's results of
operations and financial position as at and for the year ended
March 31, 2003.
9. In December 2002, the FASB issued FAS No. 148, "Accounting for
Stock-Based Compensation -- Transition and Disclosure -- an Amendment
of FASB Statement No. 123." FAS No. 148 amends FAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative
methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. FAS
No. 148 also requires that disclosures of the pro forma effect of
using the fair value method of accounting for stock-based employee
compensation be displayed more prominently and in a tabular format.
Sony adopted the disclosure-only requirements in accordance with FAS
No. 148 for the year ended March 31, 2003. Sony has accounted for its
employee stock-based compensation in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and, therefore, the adoption of the provisions of FAS
No. 148 did not have an impact on Sony's results of operations and
financial position.
10. In January 2003, the FASB issued FIN No. 46, "Consolidation of
Variable Interest Entities -- an Interpretation of ARB No. 51." This
interpretation addresses consolidation by a primary beneficiary of a
variable interest entity ("VIE"). FIN No. 46 is effective immediately
for all new VIEs created or acquired after January 31, 2003. For VIEs
created or acquired prior to February 1, 2003, the provisions of FIN
No. 46 become effective for Sony during the second quarter of the year
ending March 31, 2004. For VIEs acquired prior to February 1, 2003,
any difference between the net amount added to the balance sheet and
the amount of any previously recognized interest in the VIE will be
recognized as a cumulative effect of an accounting change.
Sony continues to evaluate the impact of FIN No. 46 on Sony's results
of operations and financial position. However, Sony has identified
potential VIEs created prior to February 1, 2003, which may be
consolidated upon the adoption of FIN No. 46. If these potential VIEs
are consolidated, Sony would record a charge of approximately
Yen 1,800 million ($15 million) as a cumulative effect of accounting
change and an increase in assets and liabilities of approximately
Yen 100,626 million ($839 million). Sony did not enter into any new
arrangements with VIEs on or after February 1, 2003.
11. Effective with the first quarter ended June 30, 2003, "(Gain) loss on
sale, disposal or impairment of assets, net" which was previously
included in "Selling, general and administrative" is disclosed
separately in "Costs and expenses." Such amounts for the three months
ended June 30, 2002 have been reclassified to conform to the
presentation for this year.
12. Adoption of New Accounting Standards
Accounting for Asset Retirement Obligations
In June 2001, the FASB issued FAS No. 143, "Accounting for Asset
Retirement Obligations." This statement addresses financial
accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset
retirement costs. Sony adopted FAS No. 143 on April 1, 2003. The
adoption of FAS No. 143 did not have a material impact on Sony's
results of operations and financial position.
Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity
In May 2003, the FASB issued FAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity." FAS No. 150 establishes standards for how certain financial
instruments with characteristics of both liabilities and equity shall
be classified and measured. This statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning
after June 15, 2003. Sony adopted FAS No. 150 during the first
quarter of the year ending March 31, 2004. The adoption of FAS
No. 150 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
2002 2003 Change 2003
Capital expenditures
(additions to property,
plant and equipment) Y 60,672 Y 81,017 33.5% $675
Depreciation and
amortization expenses* 83,318 84,277 1.2 702
(Depreciation expenses
for property, plant and
equipment 67,051 65,636 -2.1 547)
R&D expenses 97,895 114,164 16.6 951
* Including amortization expenses for intangible assets and for
deferred insurance acquisition costs
Condensed Financial Services Financial Statements (Unaudited)
The results of the Financial Services segment are included in Sony's consolidated financial statements. The following schedules shows 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
Financial Services
(Millions of yen, millions of U.S. dollars)
Three months ended June 30
2002 2003 Change 2003
%
Financial service
revenue Y 128,710 Y 149,647 16.3 $1,247
Financial service
expenses 117,882 135,600 15.0 1,130
Operating income 10,828 14,047 29.7 117
Other income
(expenses), net (497) 14 -- 0
Income before income
taxes 10,331 14,061 36.1 117
Income taxes and other 4,645 7,058 51.9 59
Net income Y 5,686 Y 7,003 23.2 $58
Sony without Financial Services
(Millions of yen, millions of U.S. dollars)
Three months ended June 30
2002 2003 Change 2003
%
Net sales and
operating revenue Y 1,602,111 Y 1,462,818 -8.7 $12,190
Costs and expenses 1,560,870 1,459,962 -6.5 12,166
Operating income 41,241 2,856 -93.1 24
Other income
(expenses), net 70,071 18,855 -73.1 157
Income before income
taxes 111,312 21,711 -80.5 181
Income taxes and
other 54,999 27,688 -49.7 231
Net income (loss) Y 56,313 Y (5,977) -- $(50)
Consolidated
(Millions of yen, millions of U.S. dollars)
Three months ended June 30
2002 2003 Change 2003
%
Financial service
revenue Y 121,891 Y 142,969 17.3 $1,191
Net sales and operating
revenue 1,599,915 1,460,811 -8.7 12,174
1,721,806 1,603,780 -6.9 13,365
Costs and expenses 1,669,936 1,587,108 -5.0 13,226
Operating income 51,870 16,672 -67.9 139
Other income
(expenses), net 64,773 19,099 -70.5 159
Income before
income taxes 116,643 35,771 -69.3 298
Income taxes and
other 59,462 34,650 -41.7 289
Net income Y57,181 Y1,121 -98.0 $9
Condensed Balance Sheets
Financial Services
(Millions of yen, millions of U.S. dollars)
June 30 March 31 June 30 June 30
ASSETS 2002 2003 2003 2003
Current assets:
Cash and cash
equivalents Y 285,322 Y 274,543 Y 305,833 $2,549
Marketable
securities 164,478 236,621 225,103 1,876
Notes and accounts
receivable, trade 74,683 68,188 77,545 646
Other 84,598 105,593 136,840 1,140
609,081 684,945 745,321 6,211
Investments and
advances 1,485,470 1,731,415 1,816,554 15,138
Property, plant
and equipment 48,054 45,990 44,840 374
Other assets:
Deferred insurance
acquisition costs 314,775 327,869 331,738 2,765
Other 123,727 106,900 108,860 906
438,502 434,769 440,598 3,671
Y 2,581,107 Y 2,897,119 Y 3,047,313 $25,394
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term
borrowings Y 50,307 Y 72,753 Y 68,285 $569
Notes and accounts
payable, trade 5,633 5,417 6,383 54
Deposits from
customers in the
banking business 144,861 248,721 284,669 2,372
Other 78,344 88,986 100,206 835
279,145 415,877 459,543 3,830
Long-term liabilities:
Long-term debt 135,764 140,908 140,262 1,169
Accrued pension and
severance costs 7,905 8,737 9,097 75
Future insurance
policy benefits and
other 1,738,362 1,914,410 1,980,437 16,504
Other 106,453 104,421 116,161 968
1,988,484 2,168,476 2,245,957 18,716
Stockholders' equity 313,478 312,766 341,813 2,848
Y 2,581,107 Y 2,897,119 Y 3,047,313 $25,394
Sony without Financial Services
(Millions of yen, millions of U.S. dollars)
June 30 March 31 June 30 June 30
ASSETS 2002 2003 2003 2003
Current assets:
Cash and cash
equivalents Y 275,655 Y 438,515 Y 357,867 $2,982
Marketable securities 4,582 4,898 4,925 41
Notes and accounts
receivable, trade 1,091,550 943,073 976,757 8,139
Other 1,342,711 1,117,454 1,288,524 10,738
2,714,498 2,503,940 2,628,073 21,900
Film costs 292,944 287,778 306,072 2,551
Investments and
advances 363,764 383,004 372,682 3,106
Investments in
Financial Services,
at cost 166,905 166,905 176,905 1,474
Property, plant and
equipment 1,300,225 1,232,359 1,260,087 10,501
Other assets 997,616 1,251,810 1,261,742 10,514
Y 5,835,952 Y 5,825,796 Y 6,005,561 $50,046
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term
borrowings Y 249,479 Y 126,687 Y 260,389 $2,170
Notes and accounts
payable, trade 809,618 693,589 766,841 6,390
Other 1,145,232 1,245,578 1,182,370 9,853
2,204,329 2,065,854 2,209,600 18,413
Long-term liabilities:
Long-term debt 805,069 802,911 802,706 6,689
Accrued pension and
severance costs 296,081 487,437 498,017 4,150
Other 339,837 310,136 309,526 2,580
1,440,987 1,600,484 1,610,249 13,419
Minority interest in
consolidated
subsidiaries 16,039 16,288 13,390 111
Stockholders'
equity 2,174,597 2,143,170 2,172,322 18,103
Y 5,835,952 Y 5,825,796 Y 6,005,561 $50,046
Consolidated
(Millions of yen, millions of U.S. dollars)
June 30 March 31 June 30 June 30
ASSETS 2002 2003 2003 2003
Current assets:
Cash and cash
equivalents Y 560,977 Y 713,058 Y 663,700 $5,531
Marketable
securities 169,060 241,520 230,028 1,917
Notes and accounts
receivable, trade 1,162,909 1,007,395 1,051,088 8,759
Other 1,384,007 1,192,241 1,399,843 11,665
3,276,953 3,154,214 3,344,659 27,872
Film costs 292,944 287,778 306,072 2,551
Investments and
advances 1,739,039 1,994,123 2,069,055 17,242
Property, plant and
equipment 1,348,280 1,278,350 1,304,928 10,874
Other assets:
Deferred insurance
acquisition costs 314,775 327,869 331,738 2,765
Other 1,085,964 1,328,211 1,256,523 10,471
1,400,739 1,656,080 1,588,261 13,236
Y 8,057,955 Y 8,370,545 Y 8,612,975 $71,775
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term
borrowings Y 266,386 Y 158,745 Y 295,479 $2,463
Notes and accounts
payable, trade 813,935 697,385 771,521 6,429
Deposits from
customers in the
banking business 144,861 248,721 284,669 2,372
Other 1,211,718 1,330,197 1,276,641 10,639
2,436,900 2,435,048 2,628,310 21,903
Long-term liabilities:
Long-term debt 830,097 807,439 806,606 6,722
Accrued pension and
severance costs 303,986 496,174 507,114 4,226
Future insurance
policy benefits and
other 1,738,362 1,914,410 1,980,437 16,504
Other 413,801 414,557 342,288 2,852
3,286,246 3,632,580 3,636,445 30,304
Minority interest
in consolidated
subsidiaries 22,437 22,022 19,082 159
Stockholders'
equity 2,312,372 2,280,895 2,329,138 19,409
Y 8,057,955 Y 8,370,545 Y 8,612,975 $71,775
Condensed Statements of Cash Flows
Financial Services
(Millions of yen, millions of U.S. dollars)
Three months ended June 30
2002 2003 2003
Net cash provided by
operating activities Y 61,281 Y 66,074 $551
Net cash used in investing
activities (125,196) (76,094) (634)
Net cash provided by
financing activities 22,002 41,310 344
Net increase (decrease)
in cash and cash equivalents (41,913) 31,290 261
Cash and cash equivalents
at beginning of the year 327,235 274,543 2,288
Cash and cash equivalents
at end of the first quarter Y 285,322 Y 305,833 $2,549
Sony without Financial Services
(Millions of yen, millions of U.S. dollars)
Three months ended June 30
2002 2003 2003
Net cash used in
operating activities Y (39,040) Y (138,365) $(1,153)
Net cash provided by
(used in) investing
activities 51,260 (55,744) (464)
Net cash provided by
(used in) financing
activities (70,547) 113,655 947
Effect of exchange rate
changes on cash and cash
equivalents (22,583) (194) (2)
Net decrease in cash and
cash equivalents (80,910) (80,648) (672)
Cash and cash equivalents
at beginning of the year 356,565 438,515 3,654
Cash and cash equivalents
at end of the first quarter Y 275,655 Y 357,867 $2,982
Consolidated
(Millions of yen, millions of U.S. dollars)
Three months ended June 30
2002 2003 2003
Net cash provided by
(used in) operating
activities Y 22,101 Y (72,152) $(601)
Net cash used in investing
activities (83,287) (129,494) (1,079)
Net cash provided by
(used in) financing
activities (39,054) 152,482 1,271
Effect of exchange rate
changes on cash and
cash equivalents (22,583) (194) (2)
Net decrease in cash and
cash equivalents (122,823) (49,358) (411)
Cash and cash equivalents
at beginning of the year 683,800 713,058 5,942
Cash and cash equivalents
at end of the first quarter Y 560,977 Y 663,700 $5,531
SOURCE: Sony Corporation
CONTACT: Investor Relations, Tokyo, Yukio Ozawa, +81-3-5448-2180, or
New York, Yas Hasegawa or Kumiko Koyama, +1-212-833-6722, or London, Chris
Hohman or Shinji Tomita, +44-20-7444-9713, all of Sony Corporation