Consolidated Financial Results for the Second Quarter
Although Sales and Profit in the Game Segment Declined, Electronics Began to Recover
PRNewswire-FirstCall
TOKYO
10/23/2003
Sony Corporation announced today its consolidated results for the second quarter ended September 30, 2003 (July 1, 2003 to September 30, 2003).
(Billions of Yen, millions of U.S. dollars,
except per share amounts)
Second quarter ended September 30
2002 2003 Change 2003*
Sales and operating revenue Y 1,789.7 Y 1,797.0 +0.4% $16,189
Operating income 50.5 33.2 -34.3 299
Income before income taxes 48.8 44.1 -9.8 397
Net income 44.1 32.9 -25.3 297
Net income per share
of common stock
- Basic Y 47.89 Y 35.69 -25.5% $0.32
- Diluted 44.70 33.48 -25.1 0.30
* U.S. dollar amounts have been translated from Yen, for convenience
only, at the rate of Yen 111=U.S.$1, the approximate Tokyo foreign
exchange market rate as of September 30, 2003.
Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Consolidated Results for the Second Quarter ended September 30, 2003
Sales increased slightly year on year for the first time in three quarters. Sales were almost flat on a local currency basis. (For all references herein to results on a local currency basis, see Note I.) Although sales in the Game segment decreased significantly due to decreased sales of hardware and software, revenues in the Financial Services segment increased due to an improvement in valuation gains and losses from investments and an increase in insurance revenue. In the Electronics segment, sales to outside customers (excludes sales between consolidated subsidiaries) increased, led by increases in the sales of cellular phones (sold mainly to Sony Ericsson Mobile Communications ("SEMC")), digital still cameras, VAIO PCs, DVD drives and flat panel televisions, while sales of other products such as CRT televisions and portable audio products decreased.
Operating income decreased 34.3% compared with the same quarter of the previous year (a 71% decrease on a local currency basis). Operating income decreased significantly in the Game segment due to an increase in research and development expenses, primarily for semiconductors designed for use in future businesses, and due to a decrease in sales. In the Pictures segment, an operating loss was recorded due to the disappointing performance of certain theatrical releases. However, operating income increased in the Electronics and Financial Services segments due to the higher revenues noted above, and the Music segment recorded operating income compared to an operating loss in the same quarter of the previous year due to the benefits of restructuring.
The cost of sales ratio deteriorated slightly. The ratio of selling, general and administrative expenses to sales was flat year on year because, although severance-related expenses increased, certain patent related reserves previously provided were reversed as a consequence of the completion of patent agreement negotiations, and after-sales service expenses decreased.
Restructuring charges for the current quarter amounted to Yen 9.7 billion ($87 million) compared to Yen 27.0 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 5.4 billion ($49 million) compared to Yen 19.2 billion in the same quarter of the previous year, and in the Music segment, Yen 4.1 billion ($37 million) compared to Yen 4.1 billion in the same quarter of the previous year.
Income before income taxes decreased 9.8% compared with the same quarter of the previous year, despite the greater decrease in operating income. This was due to a year on year improvement in the net effect of other income and other expenses resulting from a net foreign exchange gain, compared to a net foreign exchange loss in the same quarter of the previous year, and a decrease in loss on devaluation of securities investments.
A Yen 5.6 billion ($50 million) loss was recorded on leases of certain fixed assets and outstanding loans to Crosswave Communications Inc. ("CWC"), which commenced reorganization proceedings under the Corporate Reorganization Law of Japan during the quarter. Of this loss Yen 4.9 billion was recorded in operating income while Yen 0.7 billion was recorded in other income and expenses.
Net income decreased 25.3% compared with the same quarter of the previous year. Income tax increased compared with the same quarter of the previous year in which valuation allowances recorded on deferred tax assets were reversed due to the decision to merge with Aiwa Co., Ltd. Equity in net income of affiliated companies improved primarily due to the recording of profit at SEMC (the profit Sony recorded from its equity holding was Yen 4.0 billion ($36 million)) as compared with equity losses recorded in the same quarter of the previous year.
Regarding the forecast for the fiscal year, operating income and income before income taxes were revised downward.
Remarks by Nobuyuki Idei, Chairman and Group CEO of Sony Corporation
During the second quarter ended September 30, 2003, sales and operating income in the Game segment decreased, but we saw the beginnings of a recovery in the Electronics segment, where we are improving the competitiveness of our products. Looking forward to the second half of the fiscal year, we will increase our range of product offerings in advance of the year-end holiday selling season, and we will continue to aggressively expand our business. We will also begin to implement, in earnest, fixed cost reductions (including headcount reductions) and will work to achieve further growth through a renewed concentration of management resources on important areas of our business and an improvement in the competitiveness of our products.
Operating Performance Highlights by Business Segment
Electronics
(Billions of Yen, millions of U.S. dollars)
Second quarter ended September 30
2002 2003 Change 2003
Sales and operating revenue Y 1,228.0 Y 1,210.6 -1.4% $10,907
Operating income 26.3 35.8 +36.2 322
Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Sales decreased 1.4% (3% decrease on a local currency basis) mainly due to a sharp decline in intersegment sales to the Game segment owing to outsourcing of PlayStation 2 ("PS 2") game console production to third parties in China. On the other hand, sales to outside customers increased 7.2% compared with the same quarter of the previous year. Although market conditions had a negative effect on CRT television and portable audio product sales, this was more than offset by an increase in sales of cellular phones (sold mainly to SEMC), which benefited from strong demand for camera-equipped cellular phones in Japan; digital still cameras, which saw continued market growth; VAIO PCs, where sales of newly introduced high value-added models were robust; and both DVD recordable drives and flat panel televisions, as rapidly growing demand contributed to growth in sales volume.
Operating income increased 36.2% compared to the same quarter of the previous year (9% decrease on a local currency basis). Although the cost of sales ratio worsened primarily due to price declines, factors contributing to the increase in operating income included growth in sales to outside customers resulting in increased gross profit, the positive impact of the depreciation of the Yen against the euro and a decrease in selling, general and administrative expenses. Selling, general and administrative expenses decreased because, although severance-related expenses increased, certain patent related reserves previously provided were reversed as a consequence of the completion of patent agreement negotiations, and after-sales service expenses decreased.
Products that contributed to the increase in operating income included semiconductors, where sales of CCDs, intended mainly for digital still cameras, increased; VAIO PCs, where sales of high value-added models contributed to improved operating performance; DVD recordable drives, which increased sales significantly; and batteries, in which the performance of lithium-ion batteries were strong. Products which experienced decreases in operating income included CRT televisions, which were adversely affected by shifts in demand to flat panel televisions, and CLIE personal digital assistants, which suffered from market contraction in the U.S. and strong competition.
Inventory on September 30, 2003 was Yen 556.3 billion ($5,012 million), a Yen 39.3 billion, or 6.6%, decrease compared with the level on September 30, 2002 and a Yen 30.2 billion, or 5.7%, increase compared with the level on June 30, 2003.
Game
(Billions of Yen, millions of U.S. dollars)
Second quarter ended September 30
2002 2003 Change 2003
Sales and operating revenue Y 250.4 Y 161.3 -35.6% $1,453
Operating income 24.8 2.2 -91.2 20
Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Sales decreased 35.6% compared with the same quarter of the previous year (38% decrease on a local currency basis) as sales of both hardware and software declined.
Hardware: Sales revenue in the U.S. declined because PS 2 unit sales decreased compared with the same quarter of the previous year. The decrease was due to strong sales in the same quarter of the previous year brought about by a reduction in the price of PS 2 in May 2002 and early buying-in by retailers ahead of the 2002 dock workers strike on the west coast of the U.S. Sales revenue in Japan also decreased because PS 2 unit sales decreased compared with the same quarter of the previous year. In Europe, sales revenue decreased, although PS 2 unit sales increased, due, in part, to a strategic price reduction.
Software: Although unit sales of PS 2 software increased, unit sales of PlayStation software decreased, causing an overall decline in unit sales. Sales revenue decreased in Japan, the U.S., and Europe due primarily to a decline in unit sales of software published by Sony Computer Entertainment ("SCE").
Operating income decreased 91.2% because research and development expenses, primarily for semiconductors designed for use in future businesses, increased compared with the same quarter of the previous year, and because sales of software, primarily software published by SCE, decreased, although hardware manufacturing costs continued to decline and the appreciation of the euro had a positive effect.
Worldwide hardware production shipments*:
-- PS 2: 8.78 million units (an increase of 0.49 million units)
-- PS one: 0.96 million units (a decrease of 0.94 million units)
Worldwide software production shipments*:
-- PS 2: 44 million units (an increase of 2 million units)
-- PlayStation: 10 million units (a decrease of 6 million units)
*Production shipment units of hardware and software are counted upon
shipment of the products from manufacturing bases. Sales of such
products are recognized when the products are delivered to customers.
Inventory on September 30, 2003 was Yen 193.6 billion ($1,744 million), a Yen 26.4 billion, or 15.8%, increase compared with the level on September 30, 2002 and a Yen 48.7 billion, or 33.6%, increase compared with the level on June 30, 2003.
Music
(Billions of Yen, millions of U.S. dollars)
Second quarter ended September 30
2002 2003 Change 2003
Sales and operating revenue Y 139.1 Y 126.7 -8.9% $1,141
Operating income (loss) (5.6) 0.3 - 2
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 decreased 8.9% compared with the same quarter of the previous year (8% decrease on a local currency basis) as sales of both SMEI and SMEJ decreased. Of the Music segment's sales, 74% were generated by SMEI and 26% were generated by SMEJ.
SMEI: Sales decreased 9% on a U.S. dollar basis. Album sales decreased primarily due to the continued contraction of the global music industry brought on by increased piracy (i.e., unauthorized file sharing and CD burning) and the lack of hit releases. Albums that contributed to sales during the quarter were Beyonce's Dangerously in Love, Evanescence's Fallen, and John Mayer's Heavier Things.
SMEJ: Sales decreased 5% due to a decrease in albums sales resulting from a lack of million seller releases as was the case in the same quarter of the previous year. Albums which contributed to sales during the quarter were SOUL'd OUT's SOUL'd OUT and Hajime Chitose's Nomad Soul.
Operating income was recorded, an improvement of Yen 5.9 billion compared with the operating loss recorded in the same quarter of the prior year, as operating performance at both SMEI and SMEJ improved.
SMEI: Operating loss, on a U.S. dollar basis, decreased significantly from the operating loss recorded in the same quarter of the prior year due to the benefits realized from previously implemented restructuring activities. These activities included the rationalization of manufacturing, distribution, and support functions. Also contributing to the decrease in the amount of loss were reductions in advertising, promotion and overhead expenses during the quarter.
SMEJ: Operating income increased compared with the same quarter of the prior year due to an improvement in the cost of sales ratio.
Pictures
(Billions of Yen, millions of U.S. dollars)
Second quarter ended September 30
2002 2003 Change 2003
Sales and operating revenue Y 185.6 Y 187.4 +1.0% $1,688
Operating income (loss) 9.9 (4.6) - (41)
The results presented above are a Yen-translation of the results of Sony Pictures Entertainment ("SPE"), a U.S.-based operation which aggregates the results of its worldwide subsidiaries on a U.S. dollar basis. Management analyzes the results of SPE in U.S. dollars, so discussion of certain portions of its results are specified as being on "a U.S. dollar basis."
Sales increased 1.0% compared with the same quarter of the prior year (3% increase on a U.S. dollar basis) due to increased home entertainment revenues attributable, in part, to the DVD and VHS releases of Anger Management and Daddy Day Care. Also contributing to the sales increase was the initial television syndication sale of The King of Queens. In contrast, theatrical revenues decreased compared with the same quarter of the previous year in which films such as Men in Black II and Spider-Man performed well. Notable theatrical releases during the quarter included Bad Boys 2 and S.W.A.T., each of which exceeded $100 million in U.S. box office receipts.
Operating loss was recorded, a deterioration of Yen 14.5 billion year on year. This deterioration was attributable to lower theatrical revenue from films released during the quarter, including the disappointing performance of Gigli, compared to the same quarter of the previous year which included the impact of the titles mentioned above, coupled with a lower profit margin on the sale of The King of Queens compared with the cable television sale of Seinfeld in the prior year's second quarter.
Financial Services
(Billions of Yen, millions of U.S. dollars)
Second quarter ended September 30
2002 2003 Change 2003
Financial Services revenue Y 128.0 Y 154.4 +20.6% $1,391
Operating income 5.7 11.3 +97.2 101
Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Financial Services revenue increased 20.6% compared with the same quarter of the previous year due to improvements in valuation gains and losses from investments and an increase in insurance revenue at Sony Life Insurance Co., Ltd. ("Sony Life"). Revenue at Sony Life increased Yen 23.4 billion, or 21.2%, to Yen 133.8 billion ($1,206 million)*.
Operating income increased 97.2% compared with the same quarter of the previous year due to an improvement in valuation gains and losses from investments in the general account and the increase in insurance revenue at Sony Life, despite Sony Finance International Inc.'s recording of a Yen 4.9 billion loss from the lease of certain fixed assets to CWC, which commenced reorganization proceedings under the Corporate Reorganization Law of Japan. Operating income at Sony Life increased Yen 8.4 billion, or 110.6%, to Yen 15.9 billion ($144 million)*.
*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)
Second quarter ended September 30
2002 2003 Change 2003
Sales and operating revenue Y 75.1 Y 80.9 +7.6% $729
Operating loss (5.8) (5.1) - (46)
Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Sales increased 7.6% compared with the same quarter of the previous year due to an increase in sales of a business which provides information system services to other businesses within Sony Group. Of the sales in the Other segment, 69% were sales to outside customers.
Operating loss decreased because, although Sony Communication Network Corporation recorded an operating loss compared to the operating income recorded in the same quarter of the previous year, impairments on professional-use video software were recorded in the same quarter of the previous year.
Cash Flow
The following charts show Sony's unaudited condensed statements of cash flow on a consolidated basis for all segments excluding the Financial Services segment and for the Financial Services segment alone. These separate condensed presentations are not required under U.S. GAAP, which is used in Sony's consolidated financial statements. However, because the Financial Services segment is different in nature from Sony's other segments, Sony believes that these presentations may be useful in understanding and analyzing Sony's consolidated financial statements.
Cash Flow - Consolidated (excluding Financial Services segment)
(Billions of Yen, millions of U.S. dollars)
Six months ended September 30
Cash flow 2002 2003 Change 2003
- From operating activities Y 99.5 Y 0.3 Y -99.2 $3
- From investing activities (4.7) (162.7) -157.9 (1,466)
- From financing activities (72.2) 94.2 +166.4 849
Cash and cash equivalents
as of September 30 359.2 352.0 -7.2 3,171
Operating Activities: Operating activities generated slightly more cash than they used in the first six months of the fiscal year primarily due to an increase in notes and accounts payable, trade, although, partially due to seasonal factors, cash decreased because of an increase in inventory in the Electronics and Game segments. Compared with the same period of the previous year, the net cash position deteriorated primarily because, although the increase in notes and accounts payable, trade was greater than in the same period of the previous fiscal year, the increase in notes and accounts receivable, trade was greater than in the same period of the previous fiscal year, due to the increased sales to outside customers in the Electronics segment, and the increase in inventory was greater than in the same period of the previous fiscal year in the Game segment.
Investing Activities: Cash used exceeded cash generated during the first six months of the fiscal year primarily due to the purchase of fixed assets, primarily in the Electronics segment, for semiconductor equipment and other items. Compared with the same period of the previous year, the net cash position deteriorated because proceeds from the sales of securities investments, maturities of marketable securities and collections of advances, which included Yen 88.4 billion from the sale of Sony's equity in Telemundo, were realized in the same period of the previous year, and because the aforementioned purchases of fixed assets increased during the first six months of the current fiscal year.
Financing Activities: Net cash was generated due to the issuance of commercial paper, primarily for the purpose of raising working capital.
Cash Flow - Financial Services segment
(Billions of Yen, millions of U.S. dollars)
Six months ended September 30
Cash flow 2002 2003 Change 2003
- From operating activities Y 157.7 Y 150.0 Y -7.8 $1,351
- From investing activities (229.5) (213.1) +16.4 (1,920)
- From financing activities 28.4 74.7 +46.3 673
Cash and cash equivalents
as of September 30 283.8 286.1 +2.2 2,577
Operating Activities: Future insurance policy benefits and other increased in the first six months of the year due to an increase in insurance-in-force.
Investing Activities: During the six months, payments for investments and advances exceeded proceeds from sales of securities investments, maturities of marketable securities and collections of advances, reflecting the expansion of the financial services businesses.
Financing Activities: Deposits from customers in the banking business increased in the first six months of the fiscal year.
Notes
Note I: During the second quarter ended September 30, 2003, the average
value of the Yen was Yen 116.6 against the U.S. dollar and Yen 130.8
against the euro, which was 1.4% higher against the U.S. dollar and 11.4%
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 second quarter of the previous
fiscal year have been reclassified to conform to the presentation of the
second quarter of the current fiscal year.
Outlook for the Fiscal Year ending March 31, 2004
We have revised downward our operating income and income before income taxes forecast for the fiscal year ending March 31, 2004 from the figures announced on July 24, 2003. There is no change in our forecast for sales and net income, or for capital expenditures and depreciation and amortization.
Current Forecast Change from previous year July Forecast Sales and operating revenue Y 7,400 billion -1% Y 7,400 billion Operating income 100 billion -46 130 billion Income before income taxes 120 billion -52 130 billion Net income 50 billion -57 50 billion
Assumed exchange rates for the second half of the fiscal year: approximately Yen 110 to the U.S. dollar (July forecast was approximately Yen 115 to the U.S. dollar) and approximately Yen 125 to the euro (no change).
In the Electronics segment, sales and operating income in the second quarter exceeded our July expectations. Although this caused us to revise upward our sales forecast for the year, we made no change to our forecast for operating income because the gains from increased sales have been offset by a change in our exchange rate assumptions for the second half of the fiscal year.
Sales and operating income were revised downward in the Game segment primarily because of a lower than expected reduction in the manufacturing cost of PS 2, an increase in research and development expenses, primarily for semiconductors designed for use in future businesses, and a 10 million unit downward revision in our production shipment forecast for software to 240 million units. Most of the shortfall in software is expected to come from software published by SCE.
Sales in the Music and Pictures segments were revised downward slightly primarily due to the appreciation of the Yen.
Operating income in the Financial Services segment is expected to improve due to an improvement in operating performance as a result of a favorable change in the asset management environment.
Equity in net income of affiliated companies has been revised upward due to the improvement in results of SEMC and other companies.
Restructuring expenses of Yen 140 billion are included in the above forecast (no change from the previous forecast).
Capital expenditures
(additions to fixed assets) Y 350 billion +34% (year on year)
Depreciation and amortization* 390 billion +11
(Depreciation expenses
for tangible assets) (280 billion) (Flat)
*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 September 30
Sales and operating revenue 2002 2003 Change 2003
Electronics
Customers Y 1,077,699 Y 1,154,936 +7.2% $10,405
Intersegment 150,330 55,694 502
Total 1,228,029 1,210,630 -1.4 10,907
Game
Customers 245,997 155,752 -36.7 1,403
Intersegment 4,394 5,534 50
Total 250,391 161,286 -35.6 1,453
Music
Customers 116,909 109,117 -6.7 983
Intersegment 22,179 17,537 158
Total 139,088 126,654 -8.9 1,141
Pictures
Customers 185,569 187,410 +1.0 1,688
Intersegment 0 0 0
Total 185,569 187,410 +1.0 1,688
Financial Services
Customers 120,999 147,785 +22.1 1,331
Intersegment 7,046 6,629 60
Total 128,045 154,414 +20.6 1,391
Other
Customers 42,557 42,019 -1.3 379
Intersegment 32,579 38,849 350
Total 75,136 80,868 +7.6 729
Elimination (216,528) (124,243) - (1,120)
Consolidated total Y 1,789,730 Y 1,797,019 +0.4% $16,189
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) 2002 2003 Change 2003 Electronics Y 26,252 Y 35,761 +36.2% $ 322 Game 24,785 2,184 -91.2 20 Music (5,641) 256 - 2 Pictures 9,901 (4,620) - (41) Financial Services 5,709 11,256 +97.2 101 Other (5,841) (5,096) - (46) Total 55,165 39,741 -28.0 358 Corporate and elimination (4,644) (6,527) - (59) Consolidated total Y 50,521 Y 33,214 -34.3% $ 299
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.
(Millions of yen, millions of U.S. dollars)
Six months ended September 30
Sales and operating revenue 2002 2003 Change 2003
Electronics
Customers Y 2,204,419 Y 2,202,268 -0.1% $ 19,840
Intersegment 242,488 108,196 975
Total 2,446,907 2,310,464 -5.6 20,815
Game
Customers 395,532 276,084 -30.2 2,487
Intersegment 8,038 10,448 94
Total 403,570 286,532 -29.0 2,581
Music
Customers 228,080 210,406 -7.7 1,896
Intersegment 39,323 33,248 299
Total 267,403 243,654 -8.9 2,195
Pictures
Customers 359,198 338,541 -5.8 3,050
Intersegment 0 0 0
Total 359,198 338,541 -5.8 3,050
Financial Services
Customers 242,890 290,754 +19.7 2,620
Intersegment 13,865 13,307 119
Total 256,755 304,061 +18.4 2,739
Other
Customers 81,417 82,746 +1.6 745
Intersegment 61,247 73,799 665
Total 142,664 156,545 +9.7 1,410
Elimination (364,961) (238,998) - (2,152)
Consolidated total Y 3,511,536 Y 3,400,799 -3.2% $ 30,638
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) 2002 2003 Change 2003 Electronics Y 75,378 Y 48,566 -35.6% $ 438 Game 27,358 3,945 -85.6 35 Music (15,591) (5,734) - (52) Pictures 19,167 (7,017) - (63) Financial Services 16,537 25,303 +53.0 228 Other (11,815) (1,104) - (10) Total 111,034 63,959 -42.4 576 Corporate and elimination (8,643) (14,073) - (127) Consolidated total Y 102,391 Y 49,886 -51.3% $ 449
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 September 30
Sales and operating revenue 2002 2003 Change 2003
Audio Y 171,917 Y 159,467 -7.2% $ 1,437
Video 214,408 216,521 +1.0 1,951
Televisions 212,830 214,034 +0.6 1,928
Information and Communications 184,197 206,346 +12.0 1,859
Semiconductors 51,059 64,559 +26.4 582
Components 127,488 158,636 +24.4 1,429
Other 115,800 135,373 +16.9 1,219
Total Y 1,077,699 Y 1,154,936 +7.2% $ 10,405
Six months ended September 30
Sales and operating revenue 2002 2003 Change 2003
Audio Y 333,397 Y 301,694 -9.5% $ 2,718
Video 433,421 441,507 +1.9 3,977
Televisions 432,467 399,550 -7.6 3,599
Information and Communications 405,705 394,487 -2.8 3,554
Semiconductors 99,413 117,614 +18.3 1,060
Components 254,038 294,478 +15.9 2,653
Other 245,978 252,938 +2.8 2,279
Total Y 2,204,419 Y 2,202,268 -0.1% $ 19,840
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 September 30
Sales and operating revenue 2002 2003 Change 2003
Japan Y 495,870 Y 536,588 +8.2% $ 4,834
United States 615,611 517,994 -15.9 4,666
Europe 365,708 377,410 +3.2 3,400
Other Areas 312,541 365,027 +16.8 3,289
Total Y 1,789,730 Y 1,797,019 +0.4% $ 16,189
Six months ended September 30
Sales and operating revenue 2002 2003 Change 2003
Japan Y 999,004 Y 1,047,857 +4.9% $ 9,440
United States 1,173,825 977,723 -16.7 8,808
Europe 711,435 724,208 +1.8 6,525
Other Areas 627,272 651,011 +3.8 5,865
Total Y 3,511,536 Y 3,400,799 -3.2% $ 30,638
Classification of Geographic Segment Information shows sales and operating revenue recognized by location of customers.
Consolidated Statements of Income (Unaudited)
(Millions of yen, millions of U.S. dollars,
except per share amounts)
Three months ended September 30
2002 2003 Change 2003
Sales and operating revenue: %
Net sales Y 1,657,050 Y 1,637,706 $ 14,754
Financial service revenue 120,999 147,785 1,331
Other operating revenue 11,681 11,528 104
1,789,730 1,797,019 +0.4 16,189
Costs and expenses:
Cost of sales 1,194,772 1,209,126 10,893
Selling, general
and administrative 418,321 413,483 3,725
Financial service expenses 115,295 132,474 1,193
Loss on sale, disposal
or impairment of assets, net 10,821 8,722 79
1,739,209 1,763,805 15,890
Operating income 50,521 33,214 -34.3 299
Other income:
Interest and dividends 2,883 3,903 35
Royalty income 11,376 10,802 97
Foreign exchange gain, net - 2,065 19
Gain on sale of securities
investments, net 3,509 2,870 26
Other 9,676 7,443 67
27,444 27,083 244
Other expenses:
Interest 6,560 7,319 66
Loss on devaluation
of securities investments 4,681 1,139 10
Foreign exchange loss, net 6,326 - -
Other 11,578 7,780 70
29,145 16,238 146
Income before income taxes 48,820 44,059 -9.8 397
Income taxes (14,926) 10,301 93
Income before minority interest,
equity in net gain (loss)
of affiliated companies
and cumulative effect
of an accounting change 63,746 33,758 -47.0 304
Minority interest in income
of consolidated subsidiaries 8,350 1,627 15
Equity in net gain (loss)
of affiliated companies (11,345) 2,912 27
Income before cumulative effect
of an accounting change 44,051 35,043 -20.4 316
Cumulative effect of an
accounting change
(2003: Net of income taxes
of Yen 0 million) - (2,117) (19)
Net income Y 44,051 Y 32,926 -25.3 $ 297
Per share data:
Common stock
Income before cumulative
effect of accounting changes
- Basic Y 47.89 Y 37.99 -20.7 $ 0.34
- Diluted 44.70 35.60 -20.4 0.32
Net income
- Basic 47.89 35.69 -25.5 0.32
- Diluted 44.70 33.48 -25.1 0.30
Subsidiary tracking stock
Net income (loss)
- Basic 19.47 (9.99) - (0.09)
Consolidated Statements of Income (Unaudited)
(Millions of yen, millions of U.S.
dollars, except per share amounts)
Six months ended September 30
2002 2003 Change 2003
Sales and operating revenue: %
Net sales Y 3,246,208 Y 3,086,928 $ 27,810
Financial service revenue 242,890 290,754 2,620
Other operating revenue 22,438 23,117 208
3,511,536 3,400,799 -3.2 30,638
Costs and expenses:
Cost of sales 2,331,021 2,268,278 20,435
Selling, general
and administrative 835,719 817,788 7,368
Financial service expenses 226,201 261,500 2,356
Loss on sale, disposal
or impairment of assets, net 16,204 3,347 30
3,409,145 3,350,913 30,189
Operating income 102,391 49,886 -51.3 449
Other income:
Interest and dividends 6,821 10,031 90
Royalty income 16,665 18,184 164
Foreign exchange gain, net - 1,193 10
Gain on sale of securities
investments, net 71,875 11,396 103
Other 16,663 20,294 183
112,024 61,098 550
Other expenses:
Interest 13,390 13,474 121
Loss on devaluation
of securities investments 16,205 1,639 15
Foreign exchange loss, net 648 - -
Other 18,709 16,041 144
48,952 31,154 280
Income before income taxes 165,463 79,830 -51.8 719
Income taxes 38,707 35,685 321
Income before minority interest,
equity in net gain (loss)
of affiliated companies
and cumulative effect of
an accounting change 126,756 44,145 -65.2 398
Minority interest in income
of consolidated subsidiaries 5,743 1,166 11
Equity in net gain (loss)
of affiliated companies (19,781) (6,815) (61)
Income before cumulative
effect of an accounting change 101,232 36,164 -64.3 326
Cumulative effect
of an accounting change
(2003: Net of income taxes
of Yen 0 million) - (2,117) (19)
Net income 101,232 34,047 -66.4 $ 307
Per share data:
Common stock
Income before cumulative
effect of accounting changes
- Basic 110.12 39.26 -64.3 $ 0.35
- Diluted 102.60 37.33 -63.6 0.34
Net income
- Basic 110.12 36.97 -66.4 0.33
- Diluted 102.60 35.22 -65.7 0.32
Subsidiary tracking stock
Net income (loss)
- Basic 26.77 (17.96) - (0.16)
Additional Paid-in Capital and Retained Earnings (Unaudited)
The following information shows changes in additional paid-in capital for the six months ended September 30, 2002 and 2003 and change in retained earnings for the six months ended September 30, 2002 and 2003.
Sony discloses this supplemental information in accordance with disclosure requirements of the Japanese Securities and Exchange Law, to which Sony, as a Japanese public company, is subject.
(Millions of yen, millions of U.S. dollars)
Six months ended September 30
2002 2003 2003
Additional Paid-in Capital:
Balance, beginning of year Y 968,223 Y 984,196 $ 8,867
Conversion of convertible bonds 118 3,984 36
Exchange offerings - 5,409 49
Reissuance of treasury stock 12 (409) (4)
Balance as of September 30 968,353 993,180 8,948
(Millions of yen, millions of U.S. dollars)
Six months ended September 30
2002 2003 2003
Retained earnings:
Balance, beginning of year Y 1,209,262 Y 1,301,740 $ 11,727
Net income 101,232 34,047 307
Cash dividends (11,497) (11,578) (105)
Common stock issue costs, net of tax (4) (28) 0
Balance as of September 30 1,298,993 1,324,181 11,929
Consolidated Balance Sheets (Unaudited)
(Millions of yen, millions of U.S. dollars)
September 30 March 31 September 30 September 30
ASSETS 2002 2003 2003 2003
Current assets:
Cash and cash
equivalents Y 643,037 Y 713,058 Y 638,037 $ 5,748
Time deposits 5,713 3,689 7,307 66
Marketable securities 168,318 241,520 264,997 2,387
Notes and accounts
receivable, trade 1,325,130 1,117,889 1,178,387 10,616
Allowance for
doubtful accounts
and sales returns (110,734) (110,494) (94,081) (847)
Inventories 812,724 625,727 798,448 7,193
Deferred income taxes 142,383 143,999 132,105 1,190
Prepaid expenses
and other current
assets 546,928 418,826 559,220 5,038
3,533,499 3,154,214 3,484,420 31,391
Film costs 286,321 287,778 280,535 2,527
Investments
and advances:
Affiliated companies 81,435 111,510 78,511 707
Securities investments
and other 1,659,247 1,882,613 2,129,524 19,185
1,740,682 1,994,123 2,208,035 19,892
Property, plant and equipment:
Land 192,333 188,365 195,996 1,766
Buildings 875,551 872,228 950,570 8,564
Machinery and
equipment 2,131,273 2,054,219 2,070,117 18,650
Construction
in progress 58,000 60,383 70,764 637
Less-Accumulated
depreciation (1,919,220) (1,896,845) (1,929,498) (17,383)
1,337,937 1,278,350 1,357,949 12,234
Other assets:
Intangibles, net 259,105 258,624 251,525 2,266
Goodwill 297,388 290,127 288,805 2,602
Deferred insurance
acquisition costs 320,631 327,869 335,762 3,025
Deferred income taxes 184,795 328,091 237,444 2,139
Other 454,673 451,369 460,386 4,148
1,516,592 1,656,080 1,573,922 14,180
Y 8,415,031 Y 8,370,545 Y 8,904,861 $ 80,224
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term
borrowings Y 43,038 Y 124,360 Y 240,279 $ 2,165
Current portion
of long-term debt 223,269 34,385 41,823 377
Notes and accounts
payable, trade 878,012 697,385 961,122 8,659
Accounts payable,
other and accrued
expenses 867,575 864,188 812,872 7,323
Accrued income
and other taxes 112,027 109,199 92,483 833
Deposits from
customers in
the banking
business 177,551 248,721 319,301 2,876
Other 355,633 356,810 365,779 3,295
2,657,105 2,435,048 2,833,659 25,528
Long-term liabilities:
Long-term debt 823,295 807,439 877,297 7,904
Accrued pension
and severance costs 307,932 496,174 518,940 4,675
Deferred income taxes 164,715 159,079 79,588 717
Future insurance
policy benefits
and other 1,796,587 1,914,410 2,050,004 18,469
Other 266,580 255,478 253,665 2,285
3,359,109 3,632,580 3,779,494 34,050
Minority interest
in consolidated
subsidiaries 37,672 22,022 19,219 173
Stockholders' equity:
Capital stock 476,224 476,278 480,262 4,327
Additional paid-in
capital 968,353 984,196 993,180 8,948
Retained earnings 1,298,993 1,301,740 1,324,181 11,929
Accumulated other
comprehensive income(374,618) (471,978) (517,012) (4,658)
Treasury stock,
at cost (7,807) (9,341) (8,122) (73)
2,361,145 2,280,895 2,272,489 20,473
Y 8,415,031 Y 8,370,545 Y 8,904,861 $ 80,224
Consolidated Statements of Cash Flows (Unaudited)
(Millions of yen, millions of U.S. dollars)
Six months ended September 30
2002 2003 2003
Cash flows from operating
activities:
Net income Y 101,232 Y 34,047 $ 307
Adjustments to reconcile net
income to net cash provided
by operating activities
Depreciation and amortization,
including amortization of
deferred insurance acquisition
costs 166,968 171,701 1,547
Amortization of film costs 138,676 134,955 1,216
Accrual for pension and
severance costs, less payments 10,390 25,462 229
Loss on sale, disposal or
impairment of long-lived
assets, net 16,204 3,347 30
Gain on sales of securities
investments, net (71,875) (11,396) (103)
Deferred income taxes (34,109) 11,079 100
Equity in net losses of
affiliated companies,
net of dividends 20,293 7,661 69
Cumulative effect of
accounting change - 2,117 19
Changes in assets and liabilities:
Increase in notes and accounts
receivable, trade (24,953) (114,906) (1,035)
Increase in inventories (150,766) (192,568) (1,735)
Increase in film costs (137,025) (139,596) (1,258)
Increase in notes
and accounts payable, trade 120,541 271,137 2,443
Increase (decrease) in accrued
income and other taxes 13,687 (13,148) (118)
Increase in future insurance
policy benefits and other 116,169 135,594 1,222
Increase in deferred
insurance acquisition costs (32,118) (32,046) (289)
Increase in other current assets (67,553) (161,025) (1,451)
Increase (decrease) in other
current liabilities 31,720 (4,326) (39)
Other 34,541 12,676 114
Net cash provided by operating
activities 252,022 140,765 1,268
Cash flows from investing activities:
Payments for purchases
of fixed assets (136,351) (199,503) (1,797)
Proceeds from sales of fixed assets 21,646 22,413 202
Payments for investments and
advances by financial service
business (455,384) (586,618) (5,285)
Payments for investments
and advances (other than
financial service business) (44,759) (22,380) (202)
Proceeds from sales of securities
investments, maturities of marketable
securities and collections of
advances by financial
service business 235,155 391,239 3,525
Proceeds from sales of securities
investments, maturities of marketable
securities and collections
of advances (other than
financial service
business) 129,409 18,339 165
Increase in time deposits (857) (3,902) (35)
Cash assumed upon acquisition
by stock exchange offering - 3,634 33
Net cash used in investing
activities (251,141) (376,778) (3,394)
Cash flows from financing activities:
Proceeds from issuance
of long-term debt 8,654 2,326 21
Payments of long-term debt (22,775) (6,426) (58)
Increase (decrease) in short-term
borrowings (55,987) 111,355 1,003
Increase in deposits from customers
in the banking business 70,984 70,369 634
Dividends paid (11,560) (11,552) (104)
Other (10,956) 13,316 120
Net cash provided by (used in)
financing activities (21,640) 179,388 1,616
Effect of exchange rate changes
on cash and cash equivalents (20,004) (18,396) (166)
Net decrease in cash
and cash equivalents (40,763) (75,021) (676)
Cash and cash equivalents
at beginning of the year 683,800 713,058 6,424
Cash and cash equivalents
at end of the second quarter Y 643,037 Y 638,037 $ 5,748
(Notes)
1. U.S. dollar amounts have been translated from yen, for convenience
only, at the rate of Yen 111 = U.S.$1, the approximate Tokyo foreign
exchange market rate as of September 30, 2003.
2. As of September 30, 2003, Sony had 1,038 consolidated subsidiaries.
It has applied the equity accounting method in respect to 73
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 do not
include those of the targeted subsidiary's subsidiaries. The earnings
allocated to common stock are calculated by subtracting the earnings
allocated to the subsidiary tracking stock from Sony's net income for
the period.
Weighted-average shares used for computation of earnings per share of
common stock are as follows. The dilutive effect in the weighted-
average shares for the three months and six months ended September 30,
2002 and 2003 mainly resulted from convertible bonds. In accordance
with FAS No. 128, the computation of diluted net income per share for
the three months and six months ended September 30, 2003 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.
Weighted-average shares (Thousands of shares)
Three months ended September 30
2002 2003
Income before cumulative effect
of accounting changes and net income
- Basic 918,534 923,326
- Diluted 997,504 1,000,749
Weighted-average shares (Thousands of shares)
Six months ended September 30
2002 2003
Income before cumulative effect
of accounting changes and net income
- Basic 918,525 922,537
- Diluted 997,539 1,000,507
Weighted-average shares used for computation of earnings per share of
the subsidiary tracking stock for the three months and six months
ended September 30, 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 and six months ended September 30, 2002 and 2003 were as
follows:
(Millions of yen, millions of U.S. dollars)
Three months ended Six months ended
September 30 September 30
2002 2003 2003 2002 2003 2003
Net income Y 44,051 Y 32,926 $297 Y 101,232 Y 34,047 $307
Other comprehensive
income (loss) :
Unrealized gains
(losses) on
securities (13,423) 12,863 115 (7,429) 29,881 269
Unrealized gains
(losses) on
derivative
instruments (2,637) 5,548 50 (2,348) 6,194 56
Minimum pension
liabilities
adjustments - 1,234 11 - (2,984) (27)
Foreign currency
translation
adjustments 32,277 (105,806) (953) (89,248) (78,125)(704)
16,217 (86,161) (777) (99,025) (45,034)(406)
Comprehensive
income (loss) Y 60,268 Y(53,235)$(480) Y 2,207 Y(10,987)$(99)
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. 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
and six months ended September 30, 2002 have been reclassified to
conform to the presentation for this year.
11. Adoption of New Accounting Standards
Consolidation of Variable Interest Entities
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. Sony has
not entered into any new arrangements with VIEs on or after
February 1, 2003. For VIEs created or acquired prior to February 1,
2003, the provisions of FIN No. 46 must be adopted by the end of the
third quarter of the year ending March 31, 2004, with early adoption
from the second quarter encouraged. 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. For VIEs created or acquired prior to February 1, 2003, Sony
adopted FIN No. 46 on July 1, 2003. As a result of the adoption of
FIN No. 46, Sony recognized Yen 2,117 million ($19 million) of loss as
the cumulative effect of accounting change, Sony's assets and
liabilities increased by Yen 96,776 million ($872 million) and Yen
97,950 million ($882 million), respectively.
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.
Multiple Element Revenue Arrangements
In November 2002, the FASB issued Emerging Issues Task Force ("EITF")
Issue No. 00-21, "Accounting for Revenue Arrangements with Multiple
Deliverables." EITF Issue No. 00-21 provides guidance on when and how
to account for arrangements that involve the delivery or performance
of multiple products, services and/or rights to use assets. Sony
adopted EITF Issue No. 00-21 on July 1, 2003. The adoption of EITF
Issue No. 00-21 did not have a material impact on Sony's results of
operations and financial position.
Derivative Instruments and Hedging Activities
In April 2003, the FASB issued FAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities." This statement
amends and clarifies financial accounting and reporting for derivative
instruments, including derivative instruments embedded in other
contracts and for hedging activities under FAS No. 133. Sony adopted
FAS No. 149 on July 1, 2003. The adoption of FAS No. 149 did not have
an 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 September 30
2002 2003 Change 2003
Capital expenditures
(additions to property,
plant and equipment) Y 67,022 Y 90,016 34.3% $ 811
Depreciation and
amortization expenses* 83,650 87,424 4.5 788
(Depreciation expenses
for tangible assets) (67,781) (70,120) (3.5) (632)
R&D expenses 108,290 136,191 25.8 1,227
Six months ended September 30
2002 2003 Change 2003
Capital expenditures
(additions to property,
plant and equipment) Y 127,694 Y 171,033 33.9% $ 1,541
Depreciation and
amortization expenses* 166,968 171,701 2.8 1,547
(Depreciation expenses
for tangible assets) (134,832) (135,756) (0.7) (1,223)
R&D expenses 206,185 250,355 21.4 2,255
* 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.
(Millions of yen, millions of U.S. dollars)
Condensed Statements of Income Three months ended September 30
Financial Services 2002 2003 Change 2003
%
Financial service revenue Y 128,045 Y 154,414 20.6 $ 1,391
Financial service expenses 122,336 143,158 17.0 1,290
Operating income 5,709 11,256 97.2 101
Other income (expenses), net (1,862) (102) - (1)
Income before income taxes 3,847 11,154 189.9 100
Income taxes and other 2,365 2,808 18.7 25
Net income Y 1,482 Y 8,346 463.2 $ 75
(Millions of yen, millions of U.S. dollars)
Three months ended September 30
Sony without Financial Services 2002 2003 Change 2003
%
Net sales and operating
revenue Y 1,670,975 Y 1,651,008 -1.2 $ 14,874
Costs and expenses 1,625,945 1,629,016 0.2 14,676
Operating income 45,030 21,992 -51.2 198
Other income (expenses), net (57) 20,304 - 183
Income before income taxes 44,973 42,296 -6.0 381
Income taxes and other 2,667 6,222 133.3 56
Income before cumulative effect
of an accounting change 42,306 36,074 -14.7 325
Cumulative effect
of an accounting change - (2,117) (19)
Net income Y 42,306 Y 33,957 -19.7 $ 306
(Millions of yen, millions of U.S. dollars)
Three months ended September 30
Consolidated 2002 2003 Change 2003
%
Financial service revenue Y 120,999 Y 147,785 22.1 $ 1,331
Net sales and operating revenue 1,668,731 1,649,234 -1.2 14,858
1,789,730 1,797,019 0.4 16,189
Costs and expenses 1,739,209 1,763,805 1.4 15,890
Operating income 50,521 33,214 -34.3 299
Other income (expenses), net (1,701) 10,845 - 98
Income before income taxes 48,820 44,059 -9.8 397
Income taxes and other 4,769 9,016 89.1 81
Income before cumulative
of an accounting change 44,051 35,043 -20.4 316
Cumulative effect
of an accounting change - (2,117) (19)
Net income Y 44,051 Y 32,926 -25.3 $ 297
(Millions of yen, millions of U.S. dollars)
Condensed Statements of Income Six months ended September 30
Financial Services 2002 2003 Change 2003
%
Financial service revenue Y 256,755 Y 304,061 18.4 $ 2,739
Financial service expenses 240,218 278,758 16.0 2,511
Operating income 16,537 25,303 53.0 228
Other income (expenses), net (2,359) (88) - (1)
Income before income taxes 14,178 25,215 77.8 227
Income taxes and other 7,010 9,866 40.7 89
Net income Y 7,168 Y 15,349 114.1 $ 138
(Millions of yen, millions of U.S. dollars)
Six months ended September 30
Sony without Financial Services 2002 2003 Change 2003
%
Net sales and operating
revenue Y 3,273,086 Y 3,113,826 -4.9 $28,052
Costs and expenses 3,186,815 3,088,978 -3.1 27,828
Operating income 86,271 24,848 -71.2 224
Other income (expenses), net 70,014 39,159 -44.1 353
Income before income taxes 156,285 64,007 -59.0 577
Income taxes and other 57,666 33,910 -41.2 306
Income before cumulative
effect of an accounting change 98,619 30,097 -69.5 271
Cumulative effect of an
accounting change - (2,117) (19)
Net income Y 98,619 Y 27,980 -71.6 $ 252
(Millions of yen, millions of U.S. dollars)
Six months ended September 30
Consolidated 2002 2003 Change 2003
%
Financial service revenue Y 242,890 Y 290,754 19.7 $ 2,620
Net sales and operating
revenue 3,268,646 3,110,045 -4.9 28,018
3,511,536 3,400,799 -3.2 30,638
Costs and expenses 3,409,145 3,350,913 -1.7 30,189
Operating income 102,391 49,886 -51.3 449
Other income (expenses), net 63,072 29,944 -52.5 270
Income before income taxes 165,463 79,830 -51.8 719
Income taxes and other 64,231 43,666 -32.0 393
Income before cumulative
effect of an accounting change 101,232 36,164 -64.3 326
Cumulative effect
of an accounting change - (2,117) (19)
Net income Y 101,232 Y 34,047 -66.4 $ 307
Condensed Balance Sheets (Millions of yen, millions of U.S. dollars)
Financial Services September 30 March 31 September 30 September 30
ASSETS 2002 2003 2003 2003
Current assets:
Cash and
cash equivalents Y 283,843 Y 274,543 Y 286,054 $ 2,577
Marketable securities 163,936 236,621 260,098 2,343
Notes and accounts
receivable, trade 66,726 68,188 68,380 616
Other 134,555 105,593 107,698 970
649,060 684,945 722,230 6,506
Investments and advances 1,509,866 1,731,415 1,941,130 17,488
Property, plant
and equipment 41,469 45,990 40,603 366
Other assets:
Deferred insurance
acquisition costs 320,631 327,869 335,762 3,025
Other 115,788 106,900 106,974 964
436,419 434,769 442,736 3,989
Y 2,636,814 Y 2,897,119 Y 3,146,699 $28,349
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings Y 25,484 Y 72,753 Y 77,222 $ 696
Notes and accounts
payable, trade 5,067 5,417 6,752 61
Deposits from customers
in the banking business 177,551 248,721 319,301 2,876
Other 69,852 88,986 90,494 816
277,954 415,877 493,769 4,449
Long-term liabilities:
Long-term debt 140,912 140,908 138,622 1,249
Accrued pension
and severance costs 8,339 8,737 9,671 87
Future insurance policy
benefits and other 1,796,587 1,914,410 2,050,004 18,469
Other 103,886 104,421 112,968 1,017
2,049,724 2,168,476 2,311,265 20,822
Stockholders' equity 309,136 312,766 341,665 3,078
Y 2,636,814 Y 2,897,119 Y 3,146,699 $28,349
(Millions of yen, millions of U.S. dollars)
Sony without Financial
Services September 30 March 31 September 30 September 30
ASSETS 2002 2003 2003 2003
Current assets:
Cash and
cash equivalents Y 359,194 Y 438,515 Y 351,983 $ 3,171
Marketable securities 4,383 4,898 4,899 44
Notes and accounts
receivable, trade 1,151,250 943,073 1,019,412 9,184
Other 1,390,451 1,117,454 1,415,405 12,752
2,905,278 2,503,940 2,791,699 25,151
Film costs 286,321 287,778 280,535 2,527
Investments and advances 351,079 383,004 387,175 3,488
Investments in Financial
Services, at cost 166,905 166,905 176,905 1,594
Property, plant
and equipment 1,296,468 1,232,359 1,317,345 11,868
Other assets 1,115,448 1,251,810 1,241,671 11,186
Y 6,121,499 Y 5,825,796 Y 6,195,330 $55,814
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings Y 256,623 Y 126,687 Y 234,975 $ 2,117
Notes and accounts
payable, trade 874,795 693,589 956,592 8,618
Other 1,268,521 1,245,578 1,190,519 10,725
2,399,939 2,065,854 2,382,086 21,460
Long-term liabilities:
Long-term debt 803,084 802,911 873,750 7,872
Accrued pension
and severance costs 299,594 487,437 509,269 4,588
Other 359,895 310,136 300,875 2,710
1,462,573 1,600,484 1,683,894 15,170
Minority interest
in consolidated
subsidiaries 31,538 16,288 13,590 123
Stockholders' equity 2,227,449 2,143,170 2,115,760 19,061
Y 6,121,499 Y 5,825,796 Y 6,195,330 $55,814
(Millions of yen, millions of U.S. dollars)
Consolidated September 30 March 31 September 30 September 30
ASSETS 2002 2003 2003 2003
Current assets:
Cash and cash
equivalents Y 643,037 Y 713,058 Y 638,037 $ 5,748
Marketable securities 168,318 241,520 264,997 2,387
Notes and accounts
receivable, trade 1,214,396 1,007,395 1,084,306 9,769
Other 1,507,748 1,192,241 1,497,080 13,487
3,533,499 3,154,214 3,484,420 31,391
Film costs 286,321 287,778 280,535 2,527
Investments and
advances 1,740,682 1,994,123 2,208,035 19,892
Property, plant
and equipment 1,337,937 1,278,350 1,357,949 12,234
Other assets:
Deferred insurance
acquisition costs 320,631 327,869 335,762 3,025
Other 1,195,961 1,328,211 1,238,160 11,155
1,516,592 1,656,080 1,573,922 14,180
Y 8,415,031 Y 8,370,545 Y 8,904,861 $80,224
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term
borrowings Y 266,307 Y 158,745 Y 282,102 $ 2,541
Notes and accounts
payable, trade 878,012 697,385 961,122 8,659
Deposits from customers
in the banking business 177,551 248,721 319,301 2,876
Other 1,335,235 1,330,197 1,271,134 11,452
2,657,105 2,435,048 2,833,659 25,528
Long-term liabilities:
Long-term debt 823,295 807,439 877,297 7,904
Accrued pension
and severance costs 307,932 496,174 518,940 4,675
Future insurance policy
benefits and other 1,796,587 1,914,410 2,050,004 18,469
Other 431,295 414,557 333,253 3,002
3,359,109 3,632,580 3,779,494 34,050
Minority interest in
consolidated
subsidiaries 37,672 22,022 19,219 173
Stockholders' equity 2,361,145 2,280,895 2,272,489 20,473
Y 8,415,031 Y 8,370,545 Y 8,904,861 $80,224
(Millions of yen, millions of U.S. dollars)
Condensed Statements of Cash Flows Six months ended September 30
Financial Services 2002 2003 2003
Net cash provided
by operating activities Y 157,739 Y 149,975 $ 1,351
Net cash used in investing activities (229,542) (213,128) (1,920)
Net cash provided by financing
activities 28,411 74,664 673
Net increase (decrease) in cash
and cash equivalents (43,392) 11,511 104
Cash and cash equivalents
at beginning of the year 327,235 274,543 2,473
Cash and cash equivalents
at end of the second quarter Y 283,843 Y 286,054 $ 2,577
(Millions of yen, millions of U.S. dollars)
Six months ended September 30
Sony without Financial Services 2002 2003 2003
Net cash provided
by operating activities Y 99,519 Y 307 $ 3
Net cash used in investing
activities (4,709) (162,656) (1,466)
Net cash provided by (used in)
financing activities (72,177) 94,213 849
Effect of exchange rate changes
on cash and cash equivalents (20,004) (18,396) (166)
Net increase (decrease) in cash
and cash equivalents 2,629 (86,532) (780)
Cash and cash equivalents
at beginning of the year 356,565 438,515 3,951
Cash and cash equivalents
at end of the second quarter Y 359,194 Y 351,983 $ 3,171
(Millions of yen, millions of U.S. dollars)
Six months ended September 30
Consolidated 2002 2003 2003
Net cash provided by operating
activities Y 252,022 Y 140,765 $ 1,268
Net cash used in investing activities (251,141) (376,778) (3,394)
Net cash provided by (used in)
financing activities (21,640) 179,388 1,616
Effect of exchange rate changes
on cash and cash equivalents (20,004) (18,396) (166)
Net decrease in cash and cash equivalents(40,763) (75,021) (676)
Cash and cash equivalents
at beginning of the year 683,800 713,058 6,424
Cash and cash equivalents
at end of the second quarter Y 643,037 Y 638,037 $ 5,748
SOURCE: Sony Corporation
CONTACT: Investor Relations, Tokyo, Yukio Ozawa, +81-0-3-5448-2180, or
New York, Yas Hasegawa, Masaaki Konoo or Kumiko Koyama, +1-212-833-6722, or
London, Chris Hohman or Shinji Tomita, +44-20-7444-9713, all of Sony
Corporation