Sony 2005 Annual Report Download

Download and view the complete annual report

Please find the complete 2005 Sony annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 137

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137

Table of contents

  • Page 1

  • Page 2
    ... Operations Electronics Game Entertainment Financial Services Other R&D Strategies and Selection of Key Technological Fields The Sony Challenge: Seeing is Believing Corporate Governance/New Directors and Corporate Executive Officers Corporate Social Responsibility Financial Section Stock Information...

  • Page 3
    ... millions* except per share amounts 2003 2004 2005 2005/2004 2005 FOR THE YEAR Sales and operating revenue ...Operating income ...Income before income taxes ...Income taxes ...Equity in net income (loss) of affiliated companies ...Income before cumulative effect of an accounting change ...Net...

  • Page 4
    ... Highlights Sales (Financial Services Revenues) and Operating Income (Loss) Financial Highlights by Business Segment (Years ended March 31) 2005/2004 (Percent change) Electronics 66.5% (Yen in billions) 5,096.0 5,042.3 5,021.6 (Yen in billions, %) 2003 2004 2005 65.9 Sales Operating (loss...

  • Page 5
    ... by Sony Computer Entertainment Inc. (SCE). • Sales in this segment fell 6.5%. • Unit sales of PlayStation 2 (PS2) software reached a record high, but this was more than offset by a decline in unit sales of PS2 hardware and strategic sales price reductions. • Operating income decreased 36...

  • Page 6
    ...profitability in our mainstay Electronics segment remains management's top priority. Sales and operating revenue in the period under review edged down from the previous year, owing to the transfer of our non-Japanese recorded music business to our new joint venture SONY BMG MUSIC ENTERTAINMENT (SONY...

  • Page 7
    Nobuyuki Idei Chairman and Group Chief Executive Officer (Appointed Chief Corporate Advisor on June 22, 2005) Sir Howard Stringer Vice Chairman In Charge of Entertainment Business Group (Appointed Chairman and CEO on June 22, 2005) Sony Sony Corporation Corporation 5 5

  • Page 8
    ... in a shrinking market, the Music segment generated an increase in operating income, thanks partly to a string of hits by new artists at Sony Music Entertainment (Japan) Inc. (SMEJ), which greatly bolstered SMEJ's recorded music sales. In the Pictures segment, expanded box office revenue as well as...

  • Page 9
    ... to deliver the best in electronics and entertainment to customers by fostering the further convergence of Sony's technological hardware and content development. The new management team will not hold back from implementing reforms in all businesses in its drive to ensure Sony's position as the world...

  • Page 10
    ...Sony's market share during the 2004 year-end holiday sales season. Of particular importance to this achievement were dramatic improvements in three fundamental areas: picture quality, audio fidelity and ease of operation. The new WEGA Engine HD, an integrated digital high-definition system developed...

  • Page 11
    QUALIA 006 70-inch Micro-Display SXRD TV Sony Corporation 9

  • Page 12
    ... HD picture quality out of the broadcast arena and into the home. Customers responded to this easy-to-use model very favorably. We will promote the shift to HD video cameras by enhancing our lineup, offering consumers a whole new experience. Key devices are what really set Sony's video and digital...

  • Page 13
    Network Walkman Sony Corporation 11

  • Page 14
    ... high-valueadded products and build new PC markets. VAIO T-Series Sony Ericsson Mobile Communications AB, established in October 2001 as a 50-50 joint venture between Sony Corporation and LM Ericsson, maintained a high average selling price and achieved significant increases in shipments and sales...

  • Page 15
    ... Portable (PSP) in Japan in December 2004 and in North America in March 2005. PSP is a new handheld entertainment system that brings together a wide variety of entertainment content, including games, music and movies, and employs full-scale 3-D computer graphics and the newly developed high-capacity...

  • Page 16
    ... enormous assets. With PS, PS2, PSP and PS3, expected to be released in spring 2006, SCE will create and develop a new world of computer entertainment through the fusion of games, music, movies and broadcasting. (Design and specifications are subject to change without notice) 14 Sony Corporation

  • Page 17
    PlayStation Portable (PSP) Sony Corporation 15

  • Page 18
    ... operating income, due in part to the worldwide success of Spider-Man 2, strong home entertainment sales and international television syndication. In April 2005, a consortium comprised of SCA, Providence Equity Partners Inc., Texas Pacific Group, Comcast Corporation and DLJ Merchant Banking Partners...

  • Page 19
    ... Produced by Columbia Pictures Film Production Asia, Kung Fu Hustle has become one of Asia's most successful local films of all time, grossing close to $70 million. It broke a number of records throughout Asia, including all-time biggest opening weekends in China, Hong Kong, Taiwan and Malaysia...

  • Page 20
    ... services, Chaku-Uta® mobile phone master ringtone download service and other offerings, Sony Music Network aims to bring entertainment even closer to its customers. The company will also focus on developing new businesses in such areas as e-commerce and networkbased music and video promotions...

  • Page 21
    ... home entertainment market, with Spider-Man 2 being this year's top performer. In addition, the studio capitalized on content from Sony Pictures Television for DVD distribution, most notably Seinfeld, which has become one of the fastest selling television titles on DVD in history. Having digitized...

  • Page 22
    ... and group credit life insurance. In June 2004, Sony Bank launched sales of Sony Life's pension insurance policies through its web site MONEYKit. In October 2004, Sony Assurance began to offer a fire insurance policy limited to customers taking out Sony Bank loans, while in December 2004 Sony Life...

  • Page 23
    .... Additionally, the number of accounts at Sony Bank as of March 31, 2005, increased by 98,968, or 37%, to 367,748. Sony Finance International Sony Finance International, Inc., is involved in credit card, e-commerce payment processing and leasing operations. In 2002, the company began issuing its...

  • Page 24
    ... offering of SCN's common stock and delisting our subsidiary tracking stock. We believe this would allow SCN to achieve its full potential within the Sony Group. * Privacy Mark: Personal information management accreditation administered by the Japan Information Processing Development Corporation...

  • Page 25
    ..., Sony manages its R&D activities strategically to differentiate and increase the value-added components of its products and services. While Sony naturally directs efforts toward technologies that sustain and develop its current businesses, it also examines technologies that will create new markets...

  • Page 26
    ... and Blu-ray Disc recorders for recording and playing back HD content, and of high-resolution digital still cameras and video cameras, Sony is developing the architecture that will allow people to enjoy and be entertained by the growing diversity of high-resolution content. To this end, we...

  • Page 27
    ... 62% of R&D expenses in the Electronics segment were allocated to prototype development and 38% to new, mid- to long-term technologies focusing primarily on semiconductors, communications, displays and next-generation optical disc technologies. Long-Term Research Fields In step with Moore's Law...

  • Page 28
    ... new visual experiences doesn't stop at consumer electronics. In this special feature, we take a look at three applications of Sony technologies that underscore this statement: the Laser Dream Theater, which uses innovative technologies to offer images of unsurpassed beauty; Sony Pictures Imageworks...

  • Page 29

  • Page 30
    ... and delight to people worldwide. Naoya Eguchi General Manager, Laser & Optics Development Department, Photonics Development Division, Core Technology Development Group, Micro Systems Network Company, Sony Corporation It was the summer of 2002 when I first heard about Sony's plans to participate in...

  • Page 31
    ... in Visual Effects backstage at the Awards. Sony Pictures Entertainment Inc. (SPE) established Imageworks in 1992, initially to assist filmmakers in planning complex stunt sequences using computer-generated (CG) imagery. SPE management recognized the importance of digital production as filmmaking...

  • Page 32
    ..., hair and fabric. In the original Spider-Man, both the title character and the villain were masked. In Spider-Man 2, we see their individual faces close up, which required the development of a new CG skin technology pipeline. Sony Corporation 29

  • Page 33
    ... pioneered the Imagemotion process in its groundbreaking work Jill Culton Director, Sony Pictures Animation I'm very proud to be directing Sony Pictures Animation's first feature film, Open Season. Directing an animated film presents many challenges, but ultimately I feel it's my job to tell a great...

  • Page 34
    ... high-quality From left: Noritaka Miyaji and Kiyoshi optics and cutting-edge digital processing and Yamauchi (Professional Solutions Network recording technologies in a single package. Company, Sony Corporation) and Yasuhiko Sony's 4K SXRD projector heralds new advances in digital cinema. At Sony...

  • Page 35
    ...and the Corporate Executive Officers. In addition to those statutory bodies, Sony has Corporate Executives who carry out business operations within specific areas. The primary roles of each body are set out below. Board of Directors 1. Determines the fundamental management policies of the Sony Group...

  • Page 36
    ..., Home Electronics Network Company Corporate Executive Officers: Nobuyuki Oneda Executive Vice President and Chief Financial Officer Keiji Kimura Executive Vice President and Officer in Charge of Technology Strategies NC President, Information Technology & Communications Network Company Nicole...

  • Page 37
    ..., corporate governance, legal and regulatory compliance and ethical business practices. In addition, we have set up the Sony Group Compliance Hotline, an internal tool designed to provide each employee with a means of reporting any perceived violation of law, regulation or internal company rule or...

  • Page 38
    ... and Stock Information ...71 Segment Information ...72 Consolidated Balance Sheets ...74 Consolidated Statements of Income ...76 Consolidated Statements of Cash Flows ...78 Consolidated Statements of Changes in Stockholders' Equity ...80 Notes to Consolidated Financial Statements ...83 Report of...

  • Page 39
    ... Electronics and Music segments. Of the total 90.0 billion yen, Sony recorded 53.6 billion yen in personnel related costs. This expense was incurred because 12,000 people, mainly in Japan, the U.S. and Western Europe, 36 Sony Corporation left the company primarily through early retirement programs...

  • Page 40
    ... of sales ratio in the Music segment improved due to the establishment of SONY BMG which is accounted for under the equity method resulting in a higher percentage of sales being derived from SMEJ which benefited from the contribution of greatest hits Sony Corporation 37 Sales and operating revenue...

  • Page 41
    ... due to the fact that advertising and publicity expenses that were recorded in the Music segment decreased due to the establishment of SONY BMG and a reduction in advertising and publicity expenses in the Pictures segment. Loss on sale, disposal or impairment of assets, net was 28.0 billion yen...

  • Page 42
    ... from the sale of stock and a change in interest in a subsidiary resulting from the initial public offering of So-net M3 Inc., a consolidated subsidiary of Sony Communication Network Corporation ("SCN"). In addition, the net gain recorded on sales of securities investments decreased 6.3 billion yen...

  • Page 43
    ... businesses is a part of Sony's semiconductor strategy of utilizing semiconductor technologies and manufacturing equipment originally developed or designed for the Game business within Sony as a whole. Sales and operating revenue Electronics ...Game ...Music ...Pictures ...Financial Services...

  • Page 44
    ... sales mainly of CRT televisions and portable audio. In Other Areas, sales mainly of digital still cameras, CD-R/RW and DVD+/-R/RW drives and PCs increased while sales of primarily portable audio, optical pickups and home audio decreased. Sales and operating income (loss) in the Electronics segment...

  • Page 45
    ... to the recording, within the Electronics segment, of research and development costs related to system large scale integration ("LSI") manufacturing, in particular the next generation processor chip, as a result of the integration of Sony's semiconductor manufacturing business operations within the...

  • Page 46
    ... destined for Japan, the U.S. and Europe. The Americas and Europe together accounted for the remaining slightly less than 30 percent of total annual production, most of which was destined for local distribution and sale. â- Total worldwide production shipments of hardware and software were as...

  • Page 47
    ... the Pictures segment increased approximately 1 percent and operating income increased by approximately 76 percent. Sales increased primarily due to higher worldwide home entertainment, international television syndication and worldwide theatrical revenues on films. Worldwide home entertainment and...

  • Page 48
    ... the previous fiscal year. At Sony Finance International, Inc. ("Sony Finance"), a leasing and credit financing business subsidiary in Japan, revenue decreased due to a fall in leasing revenue. In terms of profitability, the operating loss decreased due to the recording of a loss, in the previous...

  • Page 49
    ...were comprised mainly of sales from an advertising agency business in Japan; SCN, an Internet-related service business subsidiary operating mainly in Japan; an imported general merchandise retail business; an in-house oriented facility management business; and from an IC-card business. Sales for the...

  • Page 50
    ... Electronics segment, Sony seeks, when appropriate, to localize material and parts procurement, design, and manufacturing operations in areas outside of Japan. Changes in the fair value of derivatives designated as cash flow hedges, including foreign exchange forward contracts and Sony Corporation...

  • Page 51
    ... of long-term debt relating to a variable interest entity responsible for the operation and development of a real estate complex in Berlin, Germany. Notes and accounts receivable, trade (net allowance for doubtful accounts and sales returns) on March 31, 2005, in all segments excluding Financial...

  • Page 52
    ... assets in the Financial Services segment on March 31, 2005 increased by 17.8 billion yen, or 3.9 percent, to 477.8 billion yen compared with the previous fiscal year-end. This was mainly due to an increase in deferred insurance acquisition costs at Sony Life. LIABILITIES Total current and long-term...

  • Page 53
    Long-term liabilities on March 31, 2005 in the Financial Services segment increased by 305.7 billion yen, or 12.5 percent, to 2,756.7 billion yen. This was due to an increase in insurance-in-force in the life insurance business which resulted in an increase in future insurance policy benefits and ...

  • Page 54
    ... and stockholders' equity Current liabilities ...Short-term borrowings ...Notes and accounts payable, trade ...Deposits from customers in the banking business ...Other ...Long-term liabilities ...Long-term debt ...Accrued pension and severance costs ...Future insurance policy benefits and other...

  • Page 55
    ...the future based on Sony's evaluation of additional information such as continued poor operating results, future broad declines in value of worldwide equity markets and the effect of world wide interest rate fluctuations. As a result, unrealized losses recorded for investments may be recognized into...

  • Page 56
    ...medium- and long-term returns by investing assets in an efficient manner and responding flexibly to changes in financial conditions and the investment environment. Moreover, Sony Life analyzes the character of future insurance policy benefits by utilizing Asset Liability Management ("ALM"), a method...

  • Page 57
    ... multiseller commercial paper conduits owned and operated by a bank. These securitization transactions are accounted for as a sale in accordance with FAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities", because Sony has relinquished control of...

  • Page 58
    ... addition to profit contributions from the Pictures, Financial Services, Game and Music segments and depreciation expenses, operating cash flow benefited from an increase in notes and accounts payable, trade, primarily associated with an increase in sales and procurement related primarily to the PSP...

  • Page 59
    ... Financial Services segment, as a result of a 294.4 billion yen increase in customer deposits due to factors such as an increase in insurance-in-force at Sony Life and an increase in deposits from customers in the banking business, 256.4 billion yen was procured by financing activities. Accounting...

  • Page 60
    ...with banks, and other means. MARKET ACCESS Sony Corporation and SGTS, a finance subsidiary in the U.K., procure funds from the financial and capital markets. In order to meet long-term funding requirements, Sony Corporation utilizes its access to global equity and bond markets and did not issue any...

  • Page 61
    ... Services ("S&P"). In addition, Sony maintains a rating from Rating and Investment Information, Inc. ("R&I"), a rating agency in Japan, for access to the Japanese capital market. Sony's current debt ratings from each agency are noted below: Moody's Long-term debt Short-term debt 58 Sony Corporation...

  • Page 62
    ... the development of new product prototypes while the remaining 38 percent were for the development of mid- to long-term new technologies in such areas as semi- semiconductor manufacturing operations from the Game segment to the Electronics segment. However, the stringent selection of research and...

  • Page 63
    ... integrated its semiconductor manufacturing business by transferring Sony Computer Entertainment's semiconductor manufacturing operation from the Game segment to the semiconductor category within the Electronics segment. In the area of other key devices, Sony invested in 7th generation amorphous TFT...

  • Page 64
    ...Game segment, Sony is investing, as described above, in the research and development of cutting-edge microprocessors and other LSIs that will be used in the next generation computer entertainment system, PS3. Furthermore, Sony is working to develop a new market through its introduction of PSP, a new...

  • Page 65
    ...the part of management in its application. Sony believes that the following represent the critical accounting policies of the company. Due to the establishment of SONY BMG, sales are expected to decrease. A small increase in operating income is anticipated. â- PICTURES Although sales are expected...

  • Page 66
    ... poor operating results, future broad declines in value of worldwide equity markets or circumstances in market interest rate fluctuations. As a result, unrealized losses recorded for investments may be recognized into income in future periods. OF LONG-LIVED ASSETS Sony reviews the carrying value of...

  • Page 67
    ..., Sony performs internal valuation analyses or utilizes third-party valuations when management believes it to be appropriate, and considers other 64 Sony Corporation market information that is publicly available. Estimates of fair value are primarily determined using discounted cash flow analysis...

  • Page 68
    ...current market interest rate conditions. For Japanese pension plans, a 10 basis point decrease in the discount rate would increase pension costs by approximately 1.2 billion yen for the fiscal year ending March 31, 2006. To determine the expected long-term rate of return on pension plan assets, Sony...

  • Page 69
    ... to record additional reserves for long-duration life insurance contracts with minimum guarantee or annuity receivable options. Additionally, SOP 03-1 provides guidance for the presentation of separate accounts. This statement is effective for fiscal years beginning after December 15, 2003. Sony...

  • Page 70
    ...-date fair value of share-based payments to employees be expensed over the period the service is received. Sony has accounted for its employee stock-based compensation in accordance with the provisions prescribed by APB No. 25 and its related interpretations and has disclosed the net effect on net...

  • Page 71
    ... Sony's results of operations and financial position. â- EXCHANGES OF NONMONETARY ASSETS In December 2004, the FASB issued FAS No. 153, "Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29." This statement requires that exchanges of productive assets be accounted for at fair value...

  • Page 72
    ... Sales and operating revenue ...Operating income ...Income before income taxes ...Income taxes ...Equity in net income (loss) of affiliated companies . . Income before cumulative effect of accounting changes ...Net income ...Per share data: Common stock Income before cumulative effect of accounting...

  • Page 73
    ... to record additional reserves for long-duration life insurance contracts with minimum guarantee or annuity receivable options. Additionally, SOP 03-1 provides guidance for the presentation of separate accounts. This statement is effective for fiscal years beginning after December 15, 2003. Sony...

  • Page 74
    ... expenses for intangible assets and for deferred insurance acquisition costs. ** Stock price data are based on daily closing prices. Notes: 1. In July 2003, AcSEC issued SOP 03-1. SOP 03-1 requires insurance enterprises to record additional reserves for long-duration life insurance contracts with...

  • Page 75
    ... the approximate Tokyo foreign exchange market rate as of March 31, 2005. Note: The above table is a breakdown of Electronics sales and operating revenue in Sony's business segment information. The Electronics segment is managed as a single operating segment by Sony's management. Effective for the...

  • Page 76
    ... been translated from yen, for convenience only, at the rate of ¥107=U.S.$1, the approximate Tokyo foreign exchange market rate as of March 31, 2005. Note: Classification of geographic segment information shows sales and operating revenue recognized by location of customers. Sony Corporation 73

  • Page 77
    ...Time deposits ...Marketable securities (Notes 8 and 12) ...Notes and accounts receivable, trade (Notes 6 and 7) ...Allowance for doubtful accounts and sales returns ...Inventories (Note 4) ...Deferred income taxes (Note 21) ...Prepaid expenses and other current assets ...Total current assets ...Film...

  • Page 78
    ...Notes and accounts payable, trade (Note 6) ...Accounts payable, other and accrued expenses (Notes 5 and 15) ...Accrued income and other taxes ...Deposits from customers in the banking business (Note 13) ...Other (Notes 21 and 24) ...Total current liabilities ...Long-term liabilities: Long-term debt...

  • Page 79
    ... Statements of Income Sony Corporation and Consolidated Subsidiaries-Years ended March 31 Yen in millions 2003 2004 2005 Dollars in millions (Note 3) 2005 Sales and operating revenue: Net sales (Note 6) ...Financial service revenue ...Other operating revenue ...Costs and expenses: Cost of sales...

  • Page 80
    ... (Note 3) 2005 Per share data (Note 22): Common stock Income before cumulative effect of an accounting change -Basic ...-Diluted ...Cumulative effect of an accounting change -Basic ...-Diluted ...Net income -Basic ...-Diluted ...Cash dividends ...Subsidiary tracking stock (Note 16) Net income...

  • Page 81
    ...decrease) in notes and accounts payable, trade ...Increase (decrease) in accrued income and other taxes ...Increase in future insurance policy benefits and other ...Increase in deferred insurance acquisition costs ...(Increase) decrease in marketable securities held in the financial service business...

  • Page 82
    ...Proceeds from issuance of long-term debt ...Payments of long-term debt ...Increase (decrease) in short-term borrowings ...Increase in deposits from customers in the financial service business (Note 13) ...Increase (decrease) in call money and bills sold in the banking business (Note 12) ...Dividends...

  • Page 83
    ... Statements of Changes in Stockholders' Equity Sony Corporation and Consolidated Subsidiaries-Years ended March 31 Yen in millions Subsidiary tracking stock Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income Treasury stock, at cost Total...

  • Page 84
    ... millions Subsidiary tracking stock Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income Treasury stock, at cost Total Balance at March 31, 2004 ...Exercise of stock acquisition rights ...Conversion of convertible bonds ...Stock based compensation...

  • Page 85
    ... 3) Subsidiary tracking stock Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income Treasury stock, at cost Total Balance at March 31, 2004 ...Exercise of stock acquisition rights ...Conversion of convertible bonds ...Stock based compensation (Note...

  • Page 86
    ... and securities investments and other ...94 9. Leased assets ...95 10. Goodwill and intangible assets ...96 11. Insurance-related accounts ...97 12. Short-term borrowings and long-term debt ...98 13. Deposits from customers in the banking business ...100 14. Financial instruments ...100 15. Pension...

  • Page 87
    ..., video and television product. Sony is also engaged in the development, production, manufacture, and distribution of recorded music, in all commercial formats and music genres. Further, Sony is engaged in various financial service businesses including insurance operations through a Japanese life...

  • Page 88
    ... profits. If the value of an investment has declined and is judged to be other than temporary, the investment is written down to its fair value. On occasion, a consolidated subsidiary or an affiliated company accounted for by the equity method may issue its shares to third parties in either a public...

  • Page 89
    ...Otherwise Marketed". In the Electronics segment, costs related to establishing the technological feasibility of a software product are expensed as incurred as a part of research and development in cost of sales. Inventories in electronics, game and music as well as non-film inventories for pictures...

  • Page 90
    ... periodic basis. Liabilities for future insurance policy benefits also include liabilities for guaranteed benefits related to certain non-traditional long-duration life and annuity contracts. â- Accounting for the impairment of long-lived assets Sony periodically reviews the carrying value of its...

  • Page 91
    ... that are designated as hedges are highly effective in offsetting changes in fair value or cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge, Sony discontinues hedge accounting. â- Stock-based Disclosure-an Amendment of FASB Statement No. 123...

  • Page 92
    ...writes, most of which are categorized as long-duration contracts, mainly consist of whole life, term life and accident and health insurance contracts. Premiums from these policies are reported as revenue when due from policyholders. Amounts received as payment for non-traditional contracts of sales...

  • Page 93
    ... information of historical results for each tax filling unit. â- Net for stock-based compensation In December 2004, the FASB issued FAS No. 123 (revised 2004), "Share-Based Payment" ("FAS No. 123(R)"). This statement requires the use of the fair value based method of accounting for employee stock...

  • Page 94
    accounted for its employee stock-based compensation in accordance with the provisions prescribed by APB No. 25 and its related interpretations and has disclosed the net effect on net income and net income per share allocated to the common stock if Sony had applied the fair value recognition ...

  • Page 95
    ... not have a controlling interest and limited partnerships are also accounted for under the equity method. Such investments include but are not limited to Sony's interest in Sony Ericsson Mobile Communications AB (50%), SONY BMG MUSIC ENTERTAINMENT ("SONY BMG") (50%), S-LCD Corporation ("S-LCD") (50...

  • Page 96
    ...Corporate Executive Officer of Sony Corporation who had owned 100 shares of SCE's common stock. This transaction did not have a material impact on Sony's results of operations and financial position for the year ended March 31, 2005. Dividends from affiliated companies accounted for under the equity...

  • Page 97
    ...debt and equity securities including short-term investments in money market funds. In the ordinary course of business, Sony maintains long-term investment securities, included in securities investments and other, issued by a number of non-public companies. The aggre94 Sony Corporation gate carrying...

  • Page 98
    ... gain on trading securities which is mainly derived from the general accounts in the life insurance business reclassified from the separate accounts as explained above. The following table presents the gross unrealized losses on, and fair value of, Sony's investment securities with unrealized...

  • Page 99
    ...Year ending March 31: 2006 ...2007 ...2008 ...2009 ...2010 ...Later years ...Total minimum lease payments ...Less-Amount representing interest ...Present value of net minimum lease payments ...Less-Current obligations ...Long-term capital lease obligations ...40,301 11,713 ¥28,588 377 110 $267 ¥15...

  • Page 100
    ...116 million) of goodwill relating to the non-Japan based disc manufacturing and physical distribution business from the Music segment to the Electronics segment. 11. Insurance-related accounts Sony's life and non-life insurance subsidiaries in Japan maintain their accounting records as described in...

  • Page 101
    ... for Certain Nontraditional Long-Duration Contracts and for Separate Accounts". As a result of the adoption of SOP 03-1 on April 1, 2004, the separate account assets, which are defined by insurance business law in Japan and were previously included in "Securities investments and other" (Note...

  • Page 102
    ... $ 11 At March 31, 2005, machinery and equipment with a book value of ¥4,502 million ($42 million) were pledged as collateral for secured loans, representing obligations to banks. There are no adverse debt covenants or cross-default provisions relating to Sony's borrowings. Sony Corporation 99

  • Page 103
    ... assets and liabilities incurred in the normal course of business. Such financial instruments are exposed to market risk arising from the changes of foreign currency exchange rates and interest rates. In applying a consistent risk management strategy for the purpose of reducing such risk, Sony...

  • Page 104
    ... FAS No. 133. Certain subsidiaries in the Financial Services segment have interest rate swap agreements as part of portfolio investments, which are marked-to-market with changes in value recognized in financial service revenue. Any other interest rate and currency swap agreements that do not qualify...

  • Page 105
    ..., time deposits, notes and accounts receivable, trade, short-term borrowings, notes and accounts payable, trade and deposits from customers in the banking business that are carried at amounts which approximate fair value. The summary also excludes debt and equity securities which are disclosed in...

  • Page 106
    ...terminating employment, employees of Sony Corporation and its subsidiaries in Japan are entitled, under most circumstances, to lump-sum indemnities or pension payments as described below. For employees voluntarily retiring, payments are determined based on current rates of pay and lengths of service...

  • Page 107
    ... year ...Change in plan assets: Fair value of plan assets at beginning of the fiscal year ...Actual return (loss) on plan assets ...Foreign currency exchange rate changes ...Employer contribution ...Plan participants' contributions ...Curtailments and settlements ...Benefits paid ...Divestiture...

  • Page 108
    ...Unrecognized net transition asset ...Unrecognized prior service cost ...Net amount recognized ...Amounts recognized in the consolidated balance sheet consist of: Prepaid benefit cost ...Accrued pension and severance costs, including current portion ...Intangibles ...Accumulated other comprehensive...

  • Page 109
    ... policy is set so as to compensate the appropriate level for employee's benefit over the long term. For the pension plans of Sony Corporation and most of its subsidiaries in Japan, the target allocation as of March 31, 2005, is, as a result of our Asset Liability management, 34% of public equity...

  • Page 110
    .... Sony Corporation may also retire the shares of a series of subsidiary tracking stock in their entirety pursuant to the procedures prescribed by the Japanese Commercial Code for the reduction of capital upon payment to the subsidiary tracking stock holders an amount equal to the market value...

  • Page 111
    ... the common stock account and the remainder to the additional paid-in capital account. Prior to the amendments to the Japanese Commercial Code enacted on April 1, 2002, purchase and retirement by Sony Corporation of its own shares could be made at any time by resolution of the Board of Directors. No...

  • Page 112
    Retained earnings include Sony's equity in undistributed earnings of affiliated companies accounted for by the equity method in the amount of ¥2,261 million and ¥2,724 million ($25 million) at March 31, 2004 and 2005, respectively. (4) Other comprehensive income: Other comprehensive income ...

  • Page 113
    ... to the directors, corporate executive officers and selected employees of Sony. By exercising a warrant, directors, corporate executive officers and selected employees can purchase the common stock or subsidiary tracking stock of Sony Corporation, the number of which is designated by each plan. The...

  • Page 114
    ... are now employees of SONY BMG which is accounted for under the equity method. As a result, a compensation charge of ¥340 million ($3 million) was recorded based on the fair value method of accounting for stock-based compensation using the Black-Scholes model. The fair value of the options...

  • Page 115
    ...SAR plan: Sony granted stock appreciation rights ("SARs") in Japan, Europe and the United States of America for selected employees. Under the terms of these plans, employees on exercise receive cash equal to the amount that the market price of Sony Corporation's common stock exceeds the strike price...

  • Page 116
    ... of this restructuring program, Sony recorded a non-cash impairment charge of ¥7,479 million ($70 million) for the CRT TV display manufacturing facilities located in Europe. The impairment charge was calculated as the difference between the carrying value of the asset group and the present value of...

  • Page 117
    ... Corporation CD market, the effects of piracy and other illegal duplication, parallel imports, pricing pressures and the diversification of customer preferences, Sony has been actively repositioning the Music segment for the future by looking to create a more effective and profitable business model...

  • Page 118
    ... operations and downsize the network television production business in the Pictures segment. In the year ended March 31, 2003, Sony recorded restructuring charges totaling ¥480 million. These costs were included in cost of sales in the consolidated statements of income. This restructuring program...

  • Page 119
    ... in subsidiaries and equity investees In January 2004, FeliCa Networks, Inc., whose field of business is Mobile FeliCa IC chip development and production/sales licensing and operation of the Mobile FeliCa service platform, issued 115,000 shares at ¥100,000 per share with a total value of ¥11,500...

  • Page 120
    ... sale, Sony records ¥11,979 million ($112 million) gain on the sale of its stock for the year ending March 31, 2006, and Sony's ownership interest has been reduced from 74.8% to 60.8%. In January 2005, DeNA Co., Ltd., whose field of business is operation of on-line auction websites in Japan, issued...

  • Page 121
    ...accounts receivable in the Pictures business ...Unrealized gains on securities ...Intangible assets acquired through exchange offerings ...Undistributed earnings of foreign subsidiaries ...Gain on securities contribution to employee retirement benefit trust ...Other ...Gross deferred tax liabilities...

  • Page 122
    ... ¥33,525 million of the decrease in the valuation allowance relates to the realization of tax benefits from operating loss carryforwards that were acquired in connection with Sony's acquisition of companies within the Electronics, Music and Pictures segments. The reversal of the valuation allowance...

  • Page 123
    ..., which 120 Sony Corporation have a potentially dilutive effect by decreasing net income allocated to common stock, were excluded from the computation of diluted EPS since they did not have a dilutive effect. Stock options issued by affiliated companies accounted for under the equity method for the...

  • Page 124
    ... to Sony's results of operations and financial position upon the adoption of FIN No. 46. Under the terms of the stock option plan, upon exercise, Japanese employees receive cash equal to the amount that the market price of Sony Corporation's common stock exceeds the strike price of the plan. In...

  • Page 125
    ...major components of the contingent liabilities are as follows: Sony has issued loan guarantees to related parties comprised of affiliated companies accounted for under the equity method and unconsolidated subsidiaries. The terms of these guarantees are mainly within 1 year. Sony would be required to...

  • Page 126
    ...'s semiconductor strategy of utilizing semiconductor technologies and manufacturing equipment originally developed or designed for the Game segment within the Sony group as a whole. The Electronics segment designs, develops, manufactures and distributes audio-visual, informational and communicative...

  • Page 127
    ... Sales and operating revenue: Electronics- Customers ...¥4,624,181 ¥4,838,268 ¥4,786,236 Intersegment ...Total ...Game- Customers ...Intersegment ...Total ...Music- Customers ...Intersegment ...Total ...Pictures- Customers ...Intersegment ...Total ...Financial Services- Customers ...Intersegment...

  • Page 128
    ...have a material effect on operating income. Yen in millions Years ended March 31 2003 2004 2005 Dollars in millions 2005 Total assets: Electronics ...¥2,973,972 ¥2,995,306 ¥3,434,138 Game ...Music ...Pictures ...Financial Services ...Other ...Total ...Elimination ...Corporate assets ...673,208...

  • Page 129
    ... single operating segment by Sony's management. Effective for the year ended March 31, 2005, Sony has partly changed its product category configuration. The main changes are that AIWA product group has been moved from "Other" to "Audio" or "Video" or "Televisions", and the set-top box product group...

  • Page 130
    ... and long-lived assets included in Europe and Other areas. Transfers between reportable business or geographic segments are made at arms-length prices. There are no sales and operating revenue with a single major external customer for the years ended March 31, 2003, 2004 and 2005. Sony Corporation...

  • Page 131
    ... supplemental information in accordance with disclosure requirements of the Japanese Securities and Exchange Law, to which Sony, as a Japanese public company, is subject. Yen in millions Years ended March 31 2003 2004 2005 Dollars in millions 2005 Sales and operating revenue: Japan- Customers...

  • Page 132
    Report of Independent Auditors Sony Corporation 129

  • Page 133
    ...On June 20, 2001, Sony issued 3,072,000 shares of subsidiary tracking stock. 2001 2002 2003 2004 2005 Years ended March 31 Stock price (Yen) At year-end ...High ...Low ...Annual increase/decrease ...Number of shares outstanding at year-end (thousands of shares) ...Market capitalization at year-end...

  • Page 134
    ... to the directors and other executives of Sony Corporation as an equity-based incentive plan. The fourteenth series of unsecured bonds with warrants for shares of subsidiary tracking stock was issued for distribution to the directors and other executives of Sony Communication Network. Regarding the...

  • Page 135
    Investor Information SONY CORPORATION 7-35, Kitashinagawa 6-chome, Shinagawa-ku Tokyo 141-0001, Japan Phone: 81-(0)3-5448-2111 Facsimile: 81-(0)3-5448-2244 INVESTOR RELATIONS OFFICES If you have any questions or would like a copy of our Form 20-F, filed with the U.S. Securities and Exchange ...

  • Page 136
    Motion pictures and artwork © 2005 Sony Pictures Entertainment Inc. All rights reserved. Printed on 100% recycled paper. Printed using VOC (volatile organic compound)-free vegetable oil-based ink.

  • Page 137