Sony 2005 Annual Report Download - page 42

Sony Corporation 39
For the fiscal year ended March 31, 2005, a loss on devalua-
tion of securities investments of 3.7 billion yen was recorded, an
improvement of 12.8 billion yen, or 77.5 percent, compared with
the previous year. This improvement was primarily due to the
recording of valuation losses of 10.3 billion yen in the previous
fiscal year related to securities issued by a privately held Japa-
nese company engaged in cable broadcasting and other
businesses which Sony accounted for under the cost method.
The gain on change in interest in subsidiaries and equity
investees increased by 11.5 billion yen, or 235.2 percent
compared to the previous fiscal year to 16.3 billion yen. This
was mainly the result of gains of 9.0 billion yen from a change in
interest from Monex Inc., an equity affiliate of Sony, following its
business integration by way of share transfer with Nikko Beans,
Inc and total gains of 4.7 billion yen 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, or 53.8 percent, to 5.4
billion yen. This was primarily a result of the recording of a
deferred gain of 6.0 billion yen in the fiscal year ended March 31,
2004, from Sony’s sale, during the fiscal year ended March 31,
2003, of its equity interest in Telemundo Communications
Group, Inc. and its subsidiaries (“Telemundo”), a U.S.-based
Spanish language television network and station group that was
accounted for under the equity method.
INCOME BEFORE INCOME TAXES
Income before income taxes for the fiscal year ended March 31,
2005 increased 13.1 billion yen, or 9.1 percent, to 157.2 billion
yen compared with the previous fiscal year, as a result of the
increase in operating income and the decrease in net amount of
other income and other expenses mentioned above.
INCOME TAXES
Income taxes for the fiscal year ended March 31, 2005 de-
creased by 36.7 billion yen, or 69.6 percent, to 16.0 billion yen.
Compared to an effective tax rate of 36.6 percent in the previous
fiscal year, the effective tax rate was 10.2 percent in the current
fiscal year. As a result of the recording of operating losses in the
past, the U.S. subsidiaries of Sony have had valuation allow-
ances against deferred tax assets for U.S. federal taxes and
certain state taxes. However, in the fiscal year ended March 31,
2005, based on both improved operating results in recent years
and a sound outlook for the future operating performance at
Sony’s U.S. subsidiaries, Sony reversed 67.9 billion yen of such
valuation allowances, resulting in a reduction to income tax
expense. On the other hand, certain of Sony’s subsidiaries
recorded new valuation allowances against deferred tax assets
during the fiscal year ended March 31, 2005.
RESULTS OF AFFILIATED COMPANIES ACCOUNTED FOR
UNDER THE EQUITY METHOD
Equity in net income of affiliated companies during the fiscal year
ended March 31, 2005 was 29.0 billion yen, an increase of 27.3
billion yen, or 1,594.2 percent, compared to 1.7 billion yen
recorded in the previous fiscal year. Equity in net income of Sony
Ericsson Mobile Communications AB (“Sony Ericsson”), a joint
venture focused on mobile phone handsets, was 17.4 billion
yen, an increase of 11.0 billion yen, or 171.9 percent, compared
to the 6.4 billion yen recorded in the previous fiscal year. Equity
in net income of affiliated companies for the current fiscal year
includes the recording of 12.6 billion yen as equity in net income
from InterTrust Technologies Corporation (“InterTrust”). This
amount reflects InterTrust’s proceeds from a license agreement
with Microsoft Corporation arising from the settlement of a
patent-related lawsuit. In addition, due to significant restructur-
ing costs, an equity loss of 3.4 billion yen was recorded at
SONY BMG. Furthermore, equity in net loss was recorded at
affiliates such as STAR CHANNEL INC., a Japan-based sub-
scription television company specializing in the broadcast of
movies, and S-LCD Corporation (“S-LCD”), a joint-venture with
Samsung Electronics Co., Ltd. (“Samsung”), for the manufacture
of amorphous TFT LCD panels.
MINORITY INTEREST IN INCOME OF CONSOLIDATED
SUBSIDIARIES
In the fiscal year ended March 31, 2005, minority interest in
income of consolidated subsidiaries decreased by 0.7 billion
yen, or 30.6 percent, to 1.7 billion yen. This decrease was
primarily due to the recording of minority interest at certain
television and home entertainment subsidiaries in the Pictures
segment in the previous fiscal year.
NET INCOME
Net income for the fiscal year ended March 31, 2005 increased
by 75.3 billion yen, or 85.1 percent, to 163.8 billion yen com-
pared with the previous fiscal year. This increase was the result
primarily of the abovementioned increase in income before
income taxes, a decrease in the effective tax rate, as well as an
increase in equity in net income of affiliated companies. As a
percentage of sales, net income increased from 1.2 percent to
2.3 percent. Return on stockholders’ equity increased from 3.8
percent to 6.2 percent. (This ratio is calculated by dividing net
income by the simple average of stockholders’ equity at the end
of the previous fiscal year and at the end of the fiscal year ended
March 31, 2005.)
Basic net income per share was 175.90 yen compared with
95.97 yen in the previous fiscal year, and diluted net income per
share was 158.07 yen compared with 87.00 yen in the previous
fiscal year. Refer to Notes 2 and 22 of Notes to Consolidated
Financial Statements.
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