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Sony 6-K 2014

Documents found in this filing:

  1. 6-K
  2. 6-K

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934

For the month of November 2014
Commission File Number: 001-06439

SONY CORPORATION
(Translation of registrant's name into English)

1-7-1 KONAN, MINATO-KU, TOKYO, 108-0075, JAPAN
(Address of principal executive offices)

The registrant files annual reports under cover of Form 20-F.

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F,
 
Form 20-F  X
Form 40-F __
 
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934, Yes No X
 
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):82-______
 

 
 
 
   
   
 
 
 
 
 
 

 
 

 

Quarterly Securities Report

For the three months ended September 30, 2014

 

(TRANSLATION)

 

 

 

 

Sony Corporation

 

 
 

 

CONTENTS

 

 

      Page
     

Note for readers of this English translation

Cautionary Statement

 

1

1

       
I Corporate Information   2
  (1)     Selected Consolidated Financial Data   2
  (2)     Business Overview   3
       
II State of Business   4
  (1)     Risk Factors   4
  (2)     Material Contracts   5
  (3)     Management’s Discussion and Analysis of Financial Condition, Results of Operations and
         Status of Cash Flows
  5
       
III Company Information   12
  (1)     Information on the Company’s Shares   12
  (2)     Directors and Corporate Executive Officers   15
       
IV Financial Statements   16
  (1)   Consolidated Financial Statements   17
  (2)   Other Information   47

 

 

 
 

 

Note for readers of this English translation

On November 10, 2014, Sony Corporation (the “Company” or “Sony Corporation”) filed its Japanese-language Quarterly Securities Report (Shihanki Houkokusho) for the three months ended September 30, 2014 with the Director-General of the Kanto Local Finance Bureau in Japan pursuant to the Financial Instruments and Exchange Act of Japan. This document is an English translation of the Quarterly Securities Report in its entirety, except for (i) information that had been previously filed with or submitted to the U.S. Securities and Exchange Commission (the “SEC”) in a Form 20-F, Form 6-K or any other form and (ii) a description of differences between generally accepted accounting principles in the U.S. (“U.S. GAAP”) and generally accepted accounting principles in Japan (“J-GAAP”), which are required to be described in the Quarterly Securities Report under the Financial Instruments and Exchange Act of Japan if the Company prepares its financial statements in conformity with accounting principles other than J-GAAP.

Cautionary Statement

Statements made in this release with respect to Sony’s current plans, estimates, strategies and beliefs and other statements of the Company and its consolidated subsidiaries (collectively “Sony”) 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,” “aim,” “intend,” “seek,” “may,” “might,” “could” or “should,” 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, judgments and beliefs in light of the information currently available to it. Sony cautions investors 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 investors should not place undue reliance on them. Investors 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 and the economic conditions in Sony’s markets, particularly levels of consumer spending; (ii) foreign exchange rates, particularly between the yen and the U.S. dollar, the euro and other currencies in which Sony makes significant sales and incurs production costs, or in which Sony’s assets and liabilities are denominated; (iii) Sony’s ability to continue to design and develop and win acceptance of, as well as achieve sufficient cost reductions for, its products and services, including televisions, game platforms, and smartphones, which are offered in highly competitive markets characterized by severe price competition and continual new product and service introductions, rapid development in technology and subjective and changing consumer preferences; (iv) Sony’s ability and timing to recoup large-scale investments required for technology development and production capacity; (v) Sony’s ability to implement successful business restructuring and transformation efforts under changing market conditions; (vi) Sony’s ability to implement successful hardware, software, and content integration strategies for all segments excluding the Financial Services segment, and to develop and implement successful sales and distribution strategies in light of the Internet and other technological developments; (vii) Sony’s continued ability to devote sufficient resources to research and development and, with respect to capital expenditures, to prioritize investments correctly (particularly in the electronics businesses); (viii) Sony’s ability to maintain product quality; (ix) the effectiveness of Sony’s strategies and their execution, including but not limited to the success of Sony’s acquisitions, joint ventures and other strategic investments; (x) significant volatility and disruption in the global financial markets or a ratings downgrade; (xi) Sony’s ability to forecast demands, manage timely procurement and control inventories; (xii) the outcome of pending and/or future legal and/or regulatory proceedings; (xiii) shifts in customer demand for financial services such as life insurance and Sony’s ability to conduct successful asset liability management in the Financial Services segment; (xiv) the impact of unfavorable conditions or developments (including market fluctuations or volatility) in the Japanese equity markets on the revenue and operating income of the Financial Services segment; and (xv) risks related to catastrophic disasters or similar events. Risks and uncertainties also include the impact of any future events with material adverse impact.

 
1 -
 

 

I    Corporate Information

(1)   Selected Consolidated Financial Data

   Yen in millions, Yen per share amounts
   Six months ended
September 30, 2013
  Six months ended
September 30, 2014
  Fiscal year ended
March 31, 2014
Sales and operating revenue    3,485,654      3,711,419    7,767,266  
Operating income (loss)   49,426    (15,774)   26,495 
Income (loss) before income taxes   50,522    (21,578)   25,741 
Net loss attributable to Sony Corporation’s stockholders   (16,504)   (109,161)   (128,369)
Comprehensive income (loss)   76,467    (31,169)   121,978 
Total equity   2,754,980    2,839,181    2,783,141 
Total assets   14,982,872    15,569,004    15,333,720 
Net loss attributable to Sony Corporation’s stockholders per share of common stock, basic (yen)   (16.25)   (102.14)   (124.99)
Net loss attributable to Sony Corporation’s stockholders per share of common stock, diluted (yen)   (16.25)   (102.14)   (124.99)
Ratio of stockholders’ equity to total assets (%)   15.1    14.7    14.7 
Net cash provided by (used in) operating activities   (12,760)   104,075    664,116 
Net cash used in investing activities   (224,111)   (282,859)   (710,502)
Net cash provided by (used in) financing activities   111,187    (273,017)   207,877 
Cash and cash equivalents at end of the period   725,668    610,509    1,046,466 
                

 

   Yen in millions, Yen per share amounts
   Three months ended
September 30, 2013
  Three months ended
September 30, 2014
Sales and operating revenue   1,774,235    1,901,511 
Net loss attributable to Sony Corporation’s stockholders   (19,631)   (135,969)
Net loss attributable to Sony Corporation’s stockholders per share of common stock, basic (yen)   (19.25)   (124.32)

 

Notes:

1.      The Company’s consolidated financial statements are prepared in conformity with U.S. GAAP.

2.      The Company reports equity in net income (loss) of affiliated companies as a component of operating income (loss).

3.      Consumption taxes are not included in sales and operating revenue.

4.      Total equity is presented based on U.S. GAAP.

5.      Ratio of stockholders’ equity to total assets is calculated by using total equity attributable to the stockholders of the Company.

6.      Certain figures presented in the table above have been revised from the versions previously disclosed. For further details, please refer to (4) Revisions of Note 1 of the consolidated financial statements.

7.      The Company prepares consolidated financial statements. Therefore parent-only selected financial data is not presented.

 

2 -
 

 

(2)    Business Overview

There was no significant change in the business of Sony during the six months ended September 30, 2014.

 

Sony realigned its reportable segments effective from the first quarter of the fiscal year ending March 31, 2015. For further information on the realignment, please refer to “IV Financial Statements – Notes to Consolidated Financial Statements – 10. Business segment information”.

 

As of September 30, 2014, the Company had 1,295 subsidiaries and 115 affiliated companies, of which 1,271 companies are consolidated subsidiaries (including variable interest entities) of the Company. The Company has applied the equity accounting method for 102 affiliated companies.

 

 

3 -
 

 

II    State of Business

(1)    Risk Factors

Note for readers of this English translation:

Except for the revised risk factors below, there was no significant change from the information presented in the Risk Factors section of the Annual Report on Form 20-F filed with the Securities and Exchange Commission (the “SEC”) on June 26, 2014. The changes are indicated by underline below. Any forward-looking statements included in the descriptions below are based on management’s current judgment.

 

URL: The Annual Report on Form 20-F filed with the SEC on June 26, 2014

http://www.sec.gov/Archives/edgar/data/313838/000119312514249964/d709915d20f.htm

 

Sony’s business restructuring and transformation efforts are costly and may not attain their objectives.

Sony continues to implement restructuring initiatives that focus on a review of the Sony group’s business strategy investment plan, the realignment of its manufacturing sites, the reallocation of its workforce and headcount reductions. As a result of these restructuring initiatives, a total of 80.6 billion yen in restructuring charges was recorded in the fiscal year ended March 31, 2014. While Sony anticipates recording approximately 85 billion yen of restructuring charges in the fiscal year ending March 31, 2015, significant additional or future restructuring charges may be recorded due to reasons such as the impact of economic downturns or exiting from unprofitable businesses. Restructuring charges are recorded primarily in cost of sales, selling, general and administrative (“SGA”) expenses and other operating (income) expense, net and thus adversely affect Sony’s operating income (loss) and net income (loss) attributable to Sony’s stockholders (Refer to Note 19 of the consolidated financial statements). Sony continues to rationalize its manufacturing operations, shift and consolidate manufacturing to lower-cost countries, and utilize outsourced manufacturing. In addition, Sony is focused on reducing SGA expenses across the group, including outsourcing its support functions and information processing operations to external partners and implementing business process optimization across functions including sales and marketing, manufacturing, logistics, procurement, quality and R&D.

Due to internal or external factors, efficiencies and cost savings from the above-mentioned and other restructuring and transformation initiatives may not be realized as scheduled and, even if those benefits are realized, Sony may not be able to achieve the level of profitability expected due to market conditions worsening beyond expectations. Such possible internal factors may include, for example, changes in restructuring and transformation plans, an inability to implement the initiatives effectively with available resources, an inability to coordinate effectively across different business groups, delays in implementing the new business processes or strategies, or an inability to effectively manage and monitor the post-transformation performance of the operation. Possible external factors may include, for example, increased burdens from regional labor regulations, labor union agreements and Japanese customary labor practices that may prevent Sony from executing its restructuring initiatives as planned. The inability to fully and successfully implement restructuring and transformation programs may adversely affect Sony’s operating results and financial condition. Additionally, operating cash flows may be reduced as a result of payments for restructuring charges.

 

Sony could incur asset impairment charges for goodwill, intangible assets or other long-lived assets.

 

Sony has a significant amount of goodwill, intangible assets and other long-lived assets. A decline in financial performance, market capitalization or changes in estimates and assumptions used in the impairment analysis, which in many cases requires significant judgment, could result in impairment charges. Sony tests goodwill and intangible assets that are determined to have an indefinite life for impairment during the fourth quarter of each fiscal year and assesses whether factors or indicators, such as unfavorable variances from established business plans, significant changes in forecasted results or volatility inherent to external markets and industries, have become apparent that would require an interim test. In addition, the recoverability of the carrying value of long-lived assets held and used and long-lived assets to be disposed of is reviewed whenever events or changes in circumstances indicate that the carrying value of the assets or asset groups may not be recoverable. Long-lived assets to be held and used are reviewed for impairment by comparing the carrying value of the asset or asset group with their estimated undiscounted future cash flows. If the carrying value of the asset or asset group is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the asset or asset group exceeds its fair value.

 

 

4 -
 

 

When determining whether an impairment has occurred or calculating such impairment for goodwill, an intangible asset or other long-lived asset, fair value is determined using the present value of estimated cash flows or comparable market values. This approach uses significant estimates and assumptions including projected future cash flows, the timing of such cash flows, discount rates reflecting the risk inherent in future cash flows, perpetual growth rates, determination of appropriate comparable entities and the determination of whether a premium or discount should be applied to comparables. Changes in estimates and/or revised assumptions impacting the present value of estimated future cash flows may result in a decrease in the fair value of a reporting unit, where goodwill is tested for impairment, or a decrease in fair value of intangible assets, long-lived assets or asset groups. The decrease in fair value could result in a non-cash impairment charge. During the fiscal year ended March 31, 2014, Sony recorded impairment charges including a 32.1 billion yen impairment charge related to long-lived assets in the battery business in the Devices segment, a 25.6 billion yen impairment charge related to long-lived assets in the disc manufacturing business outside of Japan and the U.S. and goodwill across the entire disc manufacturing business in All Other, and a 12.8 billion yen impairment charge related to long-lived assets in the PC business in the Mobile Products & Communications segment. During the second quarter of the fiscal year ending March 31, 2015, Sony recorded an impairment charge of 176.0 billion yen, the entire amount of goodwill in the Mobile Communications (“MC”) segment (formerly included in the Mobile Products & Communications segment—see Notes to Consolidated Financial Statements– 10. Business segment information). In the future, any such charge may adversely affect Sony’s operating results and financial condition.

 

(2)    Material Contracts

There were no material contracts executed or determined to be executed during the three months ended September 30, 2014.

 

Note for readers of this English translation:

There was no significant change from the information presented in the Annual Report on Form 20-F (“Patents and Licenses” in Item 4) filed with the SEC on June 26, 2014.

 

URL: The Annual Report on Form 20-F filed with the SEC on June 26, 2014

http://www.sec.gov/Archives/edgar/data/313838/000119312514249964/d709915d20f.htm

 

(3)    Management’s Discussion and Analysis of Financial Condition, Results of Operations and Status of Cash Flows

i) Results of Operations

Note for readers of this English translation:

Except for information specifically included in this English translation, this document omits certain information set out in the Japanese-language Quarterly Securities Report for the three-month and six-month periods ended September 30, 2014, since it is the same as described in a press release previously submitted to the SEC. Please refer to “Consolidated Financial Results for the Second Quarter Ended September 30, 2014” submitted to the SEC on Form 6-K on October 31, 2014.

 

URL: The press release titled “Consolidated Financial Results for the Second Quarter Ended September 30, 2014”

http://www.sec.gov/Archives/edgar/data/313838/000115752314004255/a50972151.htm

 

5 -
 

 

Foreign Exchange Fluctuations and Risk Hedging

Note for readers of this English translation:

Except for the information set forth below, there was no significant change from the information presented in the Foreign Exchange Fluctuations and Risk Hedging section of the Annual Report on Form 20-F filed with the SEC on June 26, 2014. Although foreign exchange rates have fluctuated during the three-month period ended September 30, 2014, there has been no significant change in Sony’s risk hedging policy as described in the Annual Report on Form 20-F.

 

URL: The Annual Report on Form 20-F filed with the SEC on June 26, 2014

http://www.sec.gov/Archives/edgar/data/313838/000119312514249964/d709915d20f.htm

 

During the three months ended September 30, 2014, the average rates of the yen were 103.9 yen against the U.S. dollar and 137.8 yen against the euro, which were 4.8 percent and 4.9 percent lower, respectively, than the same quarter of the previous fiscal year (“year-on-year”).

 

For the three months ended September 30, 2014, sales were 1,901.5 billion yen, an increase of 7.2 percent year-on-year, while on a constant currency basis, sales increased approximately 3 percent year-on-year. For references to information on a constant currency basis, see Note at the bottom of this section.

 

Consolidated operating loss of 85.6 billion yen (785 million U.S. dollars) was recorded for the three months ended September 30, 2014, a decrease of 99.5 billion yen year-on-year compared to operating income of 13.9 billion yen in the same quarter of the previous fiscal year (a deterioration of approximately 109.0 billion yen year-on-year on a constant currency basis). Most of the foreign exchange rate impact was attributable to the MC, Game & Network Services (“G&NS”), Imaging Products & Solutions (“IP&S”), Home Entertainment & Sound (“HE&S”) and Devices segments.

 

The table below indicates the impact of changes in foreign exchange rates on sales and operating results of each of the above-mentioned five segments. For a detailed analysis of segment performance, please refer to the “Results of Operations” section above, which discusses the impact of foreign exchange rates within each segment.

 

 

       (Billions of yen) 
       Second quarter ended
September 30
    Change in
yen
    Change on
constant
currency
basis
    Impact of
changes in
foreign
exchange rates
 
       2013    2014           
MC  Sales   304.6    308.4    +1.2%   -4%   +14.6 
   Operating income (loss)   8.8    (172.0)   -180.8    -181.9    +1.1 
G&NS  Sales   169.0    309.5    +83.2%   +74%   +14.7 
   Operating income (loss)   (4.2)   21.8    +26.0    +21.2    +4.8 
IP&S  Sales   175.5    178.6    +1.8%   -2%   +6.6 
   Operating income (loss)   (2.3)   20.1    +22.4    +18.8    +3.6 
HE&S  Sales   263.8    282.4    +7.0%   +2%    +13.4 
   Operating income (loss)   (12.1)   8.0    +20.1    +19.1    +1.0 
Devices  Sales   201.3    247.7    +23.1%   +18%   +10.1 
   Operating income   11.9    29.6    +17.7    +10.3    +7.4 

 

In addition, sales for the Pictures segment increased 2.4 percent year-on-year to 182.2 billion yen, an approximately 3 percent decrease on a constant currency (U.S. dollar) basis. In the Music segment, sales increased 1.5 percent year-on-year to 116.8 billion yen, an approximately 2 percent decrease on a constant currency basis. As most of the operations in Sony’s Financial Services segment are based in Japan, Sony’s management analyzes the performance of the Financial Services segment on a yen basis only.

 

 

6 -
 

 

Note: In this section, the descriptions of sales on a constant currency basis reflect sales obtained by applying the yen’s monthly average exchange rates from the same quarter of the previous fiscal year to local currency-denominated monthly sales in the three months ended September 30, 2014. The impact of foreign exchange rate fluctuations on operating income (loss) described herein is estimated by deducting cost of sales and selling, general and administrative (“SGA”) expenses on a constant currency basis from sales on a constant currency basis. Cost of sales and SGA expenses on a constant currency basis are obtained by applying the yen’s monthly average exchange rates from the same quarter of the previous fiscal year to the corresponding local currency-denominated monthly cost of sales and SGA expenses for the three months ended September 30, 2014. In certain cases, most significantly in the Pictures segment, and Sony Music Entertainment and Sony/ATV Music Publishing LLC in the Music segment, the constant currency amounts are after aggregation on a U.S. dollar basis. Sales and operating income (loss) on a constant currency basis are not reflected in Sony’s consolidated financial statements and are not measures in accordance with U.S. GAAP. Sony does not believe that these measures are a substitute for U.S. GAAP measures. However, Sony believes that disclosing sales and operating income information on a constant currency basis provides additional useful analytical information to investors regarding the operating performance of Sony.

 

Status of Cash Flows

Note for readers of this English translation:

Except for information specifically included in this English translation, this document omits certain information set out in the Japanese-language Quarterly Securities Report for the six-month period ended September 30, 2014, since it is the same as described in a press release previously submitted to the SEC. Please refer to “Consolidated Financial Results for the Second Quarter Ended September 30, 2014” submitted to the SEC on Form 6-K on October 31, 2014.

 

URL: The press release titled “Consolidated Financial Results for the Second Quarter Ended September 30, 2014”

http://www.sec.gov/Archives/edgar/data/313838/000115752314004255/a50972151.htm

 

ii) Issues Facing Sony and Management’s Response to those Issues

Note for readers of this English translation:

Except as set forth below, there was no significant change from the information presented as the Issues Facing Sony and Management’s Response to those Issues in the Trend Information section of the Annual Report on Form 20-F filed with the SEC on June 26, 2014. The changes are indicated by underline below. Any forward-looking statements included in the descriptions below are based on management’s current judgment.

 

URL: The Annual Report on Form 20-F filed with the SEC on June 26, 2014

http://www.sec.gov/Archives/edgar/data/313838/000119312514249964/d709915d20f.htm

 

Issues Facing Sony and Management’s Response to those Issues

 

The Japanese economy is gradually expanding due to monetary easing and an increase in demand prior to a recent increase in the consumption tax rate, the euro zone is experiencing a gradual economic recovery, and the U.S. economy continues to be stable in spite of a reduction in scale of monetary easing policies and a political impasse over increasing public debt. However, the overall global economic outlook is uncertain due to the slowdown of emerging market economies and concerns about a slowdown in the Japanese economy resulting from an increase in the consumption tax rate.

 

The uncertain economic environment surrounding Sony is compounded by continued, intense pricing pressure from competitors, shrinking markets for certain key products and shorter product cycles, primarily in Sony’s electronics businesses. In this challenging environment, Sony’s Electronics segments, in aggregate, recorded consecutive operating losses in the fiscal years ended March 31, 2012, 2013 and 2014.

 

To address these circumstances, on May 22, 2014, Sony announced its corporate strategy to Complete Reform of Electronics Business Structure and Establish Foundations for Sustainable Growth from FY2015 and is implementing key initiatives in the fiscal year ending March 31, 2015 for its three core electronics businesses - the game and network services, mobile and imaging businesses - and the entertainment and financial services businesses, as well as implementing new technology development and measures for new business creation to deliver further growth from the fiscal year ending March 31, 2016.

 

7 -
 

 

1.Completion of Electronics Business Structural Reform

 

As announced on February 6, 2014, Sony is proceeding with the withdrawal from its PC business, the split out of its TV business and the structural reform of its sales companies and headquarters functions. Sony expects to complete these initiatives within the fiscal year ending March 31, 2015.

 

On July 1, 2014, Sony transferred its PC business operated in Japan under the VAIO brand and certain related assets to VAIO Corporation, which was established as a special purpose company funded by a subsidiary of Japan Industrial Partners, Inc. Going forward, Sony will provide customer support for PC products that have already been sold and support the smooth launch of VAIO Corporation.

On July 1, 2014, “Sony Visual Products Inc.” was established to start operation of a new TV business company. Sony is also executing fixed cost reduction measures across the sales companies, headquarters and indirect functions that support the TV business in order to help establish a business structure capable of minimizing the impact of external market fluctuations. Sony expects to return the TV business to profitability in the fiscal year ending March 31, 2015 by executing the above measures, accelerating the implementation of its strategic shift towards high value-added models, including 4K, and establishing more flexible operations capable of responding rapidly to fluctuations in demand or the business environment. Sony aims to reduce total costs in its electronics sales companies by approximately 20 percent and costs across headquarters and support functions by approximately 30 percent, by the fiscal year ending March 31, 2016, compared to the fiscal year ended March 31, 2014.

2.Key Initiatives to be Executed in Core Businesses in the Fiscal Year ending March 31, 2015

 

Game and Network Services

 

In the game and network services business, Sony aims to expand the installed base of PlayStation 4 (“PS4™”) and reinforce its network services in order to drive increased profit growth. Sony aims to further consolidate its No.1 position in the home console market in the fiscal year ending March 31, 2015. Sony started an open beta version of the PlayStation™Now game streaming service this summer in the U.S. and plans to introduce a new, cloud-based television service within the calendar year 2014. Sales from the network business, including game, music and video services, are expected to grow going forward.

 

Mobile

 

In the mobile business, Sony revised its strategy to address the significant change in the market and competitive environment of the mobile business. The new strategy for the mobile business was revised from a strategy which relied on sales growth for profitability to a strategy that reduces risk and volatility in order to deliver more stable profits.

 

Sony’s product strategy will focus on its premium lineup which utilizes technologies from across the Sony Group. Geographically, Sony will focus on countries and areas which can be expected to deliver a high level of profitability, and will withdraw from certain countries/areas, reflecting management’s judgment that from a competitive standpoint there is a poor prospect for profitability in these countries/areas.

 

Imaging Businesses

 

In the image sensor business, Sony will continue to integrate its highly competitive, cutting-edge image sensors with its wealth of camera expertise to drive the growth of its finished product and device businesses. Sony intends to bolster its manufacturing capacity for stacked CMOS image sensors and to thereby reinforce its leading market position. Additionally, the Company aims to continue to deliver compelling, high value-added, professional and consumer imaging products in order to sustain business profitability.

 

In the component device space, Sony plans to focus on batteries in addition to image sensors. These two key components are expected to be a driving force for Sony to deliver attractive products and new services. In the medical space, the development of surgical endoscopes incorporating 3D and 4K technologies being carried out by Sony Olympus Medical Solutions, Sony’s medical business joint venture with Olympus Corporation, is proceeding as scheduled, targeting market launch in the fiscal year ending March 31, 2016.

 

8 -
 

 

Entertainment

 

With diversifying forms of content distribution, and the growth of network distribution channels, Sony believes its rich content assets position it for continued growth. In this environment, Sony will explore new ways to innovate in its Entertainment businesses, including collaboration with its network service businesses. In the Pictures segment, Sony is executing a cost reduction plan that aims to achieve total cost reduction of 300 million U.S. dollars by the end of March 2016. Sony expects to continue to produce quality programming in the television production business and achieve steady growth in its media networks business, both of which are focus areas for Sony. In the Music segment, Sony is targeting increased market share by cultivating new talent and expanding its presence in emerging markets.

 

Financial Services

 

Sony’s life insurance, non-life insurance and banking businesses have steadily expanded their range of services and earned high customer satisfaction ratings by providing outstanding services to customers. Sony aims to continue this stable profit growth in its Financial Services segment by continuing the pursuit of high-quality service. At the same time, Sony will be working to grow its nursing care business, launched in the fiscal year ended March 31, 2014, into the fourth pillar of its Financial Services business.

3.New Technology Development and Measures for New Business Creation to Deliver Further Growth from the Fiscal Year ending March 31, 2016

 

Direction of New Technology Development

 

By further reinforcing Sony’s strengths in the areas of device and information processing technologies, Sony intends to differentiate its core electronics businesses and deliver new products and services that “create new lifestyles” and “enrich people’s lives” in both the home and mobile spaces. Specifically, in device technologies, Sony plans to concentrate on image sensors, batteries and low energy consumption technologies. In information processing technologies, Sony will focus on recognition, natural user interface and signal processing innovation. Sony will leverage these technologies to pursue its “Life Space UX” initiative, which will allow users to enjoy videos or music or access information they need anywhere within the home, and “wearable” products in the mobile space.

 

Accelerating Innovation and New Business Creation

 

Sony is continuing to introduce innovative products that deliver new user experiences, such as its smartphone-attachable lens-style cameras and Music Video Recorder. Its 4K ultra short throw projector developed under the “Life Space UX” initiative, and its Smart Tennis Sensor, are examples of innovative new products that go beyond the boundaries of existing businesses. In April 2014, Sony launched a dedicated new organization responsible for promoting and supporting the creation of new businesses. The organization seeks to draw on internal and external insight to provide a catalyst for innovation and to provide opportunities for new ideas to transition into successful new businesses.

 

 

9 -
 

 

Global Environmental Plan “Road to Zero”

 

Sony announced its “Road to Zero” global environmental plan in April 2010. The plan includes a long-term vision of achieving a zero environmental footprint by 2050 through Sony’s business operations and product lifecycles, in pursuit of a sustainable society. Sony aims to achieve this vision through continuous innovation and the utilization of offset mechanisms. The plan also draws a comprehensive roadmap based on the following four goals:

Climate change: Reduction of energy consumption in pursuit of zero greenhouse gas emissions.
Resource conservation: Reduction in the use of virgin materials of priority resources by minimizing waste generation, appropriate water consumption, and continuous increase of waste recycling.
Control of chemical substances: Minimization of the risks that certain chemical substances pose to the environment through preventative measures, reduction in the use of specific chemicals defined by Sony, and promotion of the use of alternative materials.
Biodiversity: Conservation and recovery of biodiversity through Sony’s own business operations and local social contribution programs.

 

Among the above goals, Sony’s specific mid-term targets for climate change include the following:

Target an absolute reduction in greenhouse gas emissions (calculated in terms of CO2) of 30 percent by the end of the fiscal year ending March 31, 2016, compared to the level of the fiscal year ended March 31, 2001.
Target a reduction in power consumption per product of 30 percent by the end of the fiscal year ending March 31, 2016, compared to the level of the fiscal year ended March 31, 2009.

 

Further details of the global environmental plan “Road to Zero” and actual measures undertaken by Sony are reported in Sony’s CSR report available on the following website: http://www.sony.net/SonyInfo/csr_report/.

 

 

10 -
 

 

iii) Research and Development

 

Note for readers of this English translation:

Excluding the below, there was no significant change from the information presented as the Research and Development in the Annual Report on Form 20-F filed with the SEC on June 26, 2014.

 

URL: The Annual Report on Form 20-F filed with the SEC on June 26, 2014

http://www.sec.gov/Archives/edgar/data/313838/000119312514249964/d709915d20f.htm

 

The following significant changes in research and development activities occurred during the period.

 

In April 2014, R&D Platform and Software Design Group were integrated into RDS Platform and realigned as System R&D Group and Device & Material R&D Group, to accelerate the creation of customer value through further strengthening cooperation between system R&D and device R&D.

 

Research and development costs for the six months ended September 30, 2014 totaled 222.0 billion yen.

 

iv) Employees

 

Note for readers of this English translation:

Excluding the below, there was no significant change from the information presented in the Employees section of the Annual Report on Form 20-F filed with the SEC on June 26, 2014.

 

URL: The Annual Report on Form 20-F filed with the SEC on June 26, 2014

http://www.sec.gov/Archives/edgar/data/313838/000119312514249964/d709915d20f.htm

 

As of September 30, 2014, Sony Corporation had 12,860 employees, a decrease of 1,782 employees from 14,642 employees as of March 31, 2014.

 

The total number of employees decreased due to the split out of its TV business, the sale of its PC business and the restructuring initiatives taken at Sony Corporation. There is no significant change in the number of employees of Sony on the consolidated basis.

 

v) Liquidity and Capital Resources

 

Note for readers of this English translation:

Except for the information related to the committed lines of credit below, there was no significant change from the information presented in the Annual Report on Form 20-F filed with the SEC on June 26, 2014. The changes are indicated by underline below. Any forward-looking statements included in the descriptions below are based on management’s current judgment.

 

URL: The Annual Report on Form 20-F filed with the SEC on June 26, 2014

http://www.sec.gov/Archives/edgar/data/313838/000119312514249964/d709915d20f.htm

 

Sony typically raises funds through straight bonds, CP programs and bank loans (including syndicated loans). If market disruption and volatility occur and if Sony could not raise sufficient funds from these sources, Sony may also draw down funds from contractually committed lines of credit from various financial institutions. Sony has a total, translated into yen, of 749.7 billion yen in unused committed lines of credit, as of September 30, 2014. Details of those committed lines of credit are: a 475.0 billion yen committed line of credit contracted with a syndicate of Japanese banks, effective until November 2016, a 1.5 billion U.S. dollar multi-currency committed line of credit also with a syndicate of Japanese banks, effective until December 2018, and a 1.01 billion U.S. dollar multi-currency committed line of credit contracted with a syndicate of foreign banks, effective until April 2015, in all of which Sony Corporation and its consolidated subsidiary, Sony Global Treasury Services Plc, are defined as borrowers. These contracts are aimed at securing sufficient liquidity in a quick and stable manner even in the event of turmoil within the financial and capital markets.

 

11 -
 

 

III    Company Information

(1)    Information on the Company’s Shares

i) Total Number of Shares

1) Total Number of Shares

Class Total number of shares authorized to be issued
Common stock 3,600,000,000
Total 3,600,000,000

 

2) Number of Shares Issued

Class Number of shares issued Name of Securities Exchanges
where the shares are listed or
authorized Financial
Instruments Firms Association
where the shares are registered
Description

As of the end of the
second quarterly
period

(September 30, 2014)

As of the filing date of
the Quarterly
Securities Report
(November 10, 2014)

Common stock 1,149,688,229 1,149,695,229

Tokyo Stock Exchange
New York Stock Exchange *3

The number of
shares constituting
one full unit is one
hundred (100).
Total 1,149,688,229 1,149,695,229

Notes:

1.The Company’s shares of common stock are listed on the First Section of the Tokyo Stock Exchange in Japan.
2.The number of shares issued as of the filing date of this Quarterly Securities Report does not include shares issued upon the exercise of stock acquisition rights (“SARs”) (including the exercise of stock acquisition rights of the Zero Coupon Convertible Bonds) during November 2014, the month in which this Quarterly Securities Report (Shihanki Houkokusho) was filed.
*3.The Company cancelled the listing of the Company’s shares of common stock on the London Stock Exchange on August 29, 2014.

 

ii) Stock Acquisition Rights

Not applicable.

 

Note for readers of this English translation:

The above means that there was no issuance of SARs during the three months ended September 30, 2014.

 

iii) Status of the Exercise of Moving Strike Convertible Bonds

Not applicable.

 

iv) Description of Rights Plan

Not applicable.

 

 

12 -
 

 

v) Changes in the Total Number of Shares Issued and the Amount of Common Stock, etc.

Period Change in the
total number of
shares issued
Balance of the
total number of
shares issued

Change in
the amount of
common stock

Balance of
the amount of
common stock

Change in the
legal capital
surplus
Balance of the
legal capital
surplus
(Thousands) (Thousands) (Yen in Millions) (Yen in Millions) (Yen in Millions) (Yen in Millions)
From July 1 to September 30, 2014 104,970 1,149,688 50,245 696,908 50,245 910,601

Notes:

1.The increase is due to the exercise of SARs (including the exercise of stock acquisition rights of the Zero Coupon Convertible Bonds).
2.Upon the exercise of SARs during the period from October 1, 2014 to October 31, 2014, the total number of shares issued increased by 7 thousand shares, the amount of common stock and the legal capital surplus increased by 5 million yen, respectively.

 

 

13 -
 

 

vi) Status of Major Shareholders

(As of September 30, 2014)

Name Address

Number of
shares held
(Thousands)

Percentage
of shares held
to total shares
issued (%)

Moxley and Co. LLC *1

(Local Custodian: The Bank of Tokyo-Mitsubishi UFJ, Ltd.)

New York, U.S.A.

(2-7-1, Marunouchi, Chiyoda-ku,

Tokyo)

123,494 10.74
Japan Trustee Services Bank, Ltd.
(Trust account) *2
1-8-11, Harumi, Chuo-ku, Tokyo 52,248 4.54
The Master Trust Bank of Japan, Ltd.
(Trust account) *2

2-11-3, Hamamatsu-cho, Minato-ku,

Tokyo

50,327 4.38

State Street Bank and Trust Company *3

(Local Custodian: The Hongkong and Shanghai

Banking Corporation Limited)

Boston, U.S.A.

(3-11-1, Nihonbashi, Chuo-ku,

Tokyo)

23,748 2.07

Goldman, Sachs & Co. Reg *3

(Local Custodian: Goldman Sachs Japan Co., Ltd.)

New York, U.S.A.

(Roppongi Hills Mori Tower, 6-10-1, Roppongi, Minato-ku, Tokyo)

21,479 1.87

Euroclear Bank S.A./N.V. *3

(Local Custodian: The Bank of Tokyo-Mitsubishi UFJ, Ltd.)

Brussels, Belgium

(2-7-1, Marunouchi, Chiyoda-ku,

Tokyo)

18,684 1.63

The Bank of New York Mellon SA/NV 10 *3

(Local Custodian: The Bank of Tokyo-Mitsubishi UFJ, Ltd.)

Brussels, Belgium

(2-7-1, Marunouchi, Chiyoda-ku,

Tokyo)

12,456 1.08

State Street Bank West Client - Treaty *3

(Local Custodian: Mizuho Bank, Ltd.)

North Quincy, U.S.A.

(4-16-13, Tsukishima, Chuo-ku,

Tokyo)

12,338 1.07

State Street Bank and Trust Company *3

(Local Custodian: Mizuho Bank, Ltd.)

Boston, U.S.A.

(4-16-13, Tsukishima, Chuo-ku,

Tokyo)

12,187 1.06
Japan Trustee Services Bank, Ltd.
(Trust account 6) *2
1-8-11, Harumi, Chuo-ku, Tokyo 11,646 1.01
Total 338,607 29.45

Notes:

*1.   Moxley and Co. LLC is the nominee of JPMorgan Chase Bank, N.A., which was the Depositary for holders of the Company’s American depositary receipts as of September 31, 2014. On October 16, 2014, the Depositary for holders of the Company’s American depositary receipts was changed from JPMorgan Chase Bank, N.A. to Citibank, N.A. On the same date, Citibank As Depositary Bank For Depositary Receipt Holders became the nominee of Citibank, N.A .
*2.  The shares held by each shareholder are held in trust for investors, including shares in securities investment trusts.
*3.  Each shareholder provides depositary services for shares owned by institutional investors, mainly in Europe and North America. They are also the nominees for these investors.
4.  BlackRock Japan Co., Ltd. sent a copy of its “Bulk Shareholding Report” (which was filed with the Kanto Financial Bureau in Japan) to the Company as of July 22, 2014 and reported that it held shares of the Company (including ADRs) as of July 15, 2014 as provided in the below table. As of September 30, 2014, the Company has not been able to confirm any entry of BlackRock Japan Co., Ltd. in the register of shareholders.
     
Name

Number of shares held
(Thousands)

Percentage of shares held
to total shares issued (%)

BlackRock Japan Co., Ltd. 52,314 5.01

 

 

14 -
 

 

 

vii) Status of Voting Rights

1) Shares Issued

(As of September 30, 2014)

Classification Number of shares of
common stock

Number of voting rights
(Units)

Description
Shares without voting rights

Shares with restricted voting rights
(Treasury stock, etc.)

Shares with restricted voting rights (Others)

Shares with full voting rights
(Treasury stock, etc.)

       1,008,800
Shares with full voting rights (Others) 1,146,315,200 11,463,152
Shares constituting less than one full unit        2,364,229

Shares constituting
less than one full unit
(100 shares)

Total number of shares issued 1,149,688,229
Total voting rights held by all shareholders 11,463,152
Note:Included in “Shares with full voting rights (Others)” under “Number of shares of common stock” are 19,500 shares of common stock held under the name of Japan Securities Depository Center, Incorporated. Also included in “Shares with full voting rights (Others)” under “Number of voting rights (Units)” are 195 units of voting rights relating to the shares of common stock with full voting rights held under the name of Japan Securities Depository Center, Incorporated.

 

2) Treasury Stock, Etc.

(As of September 30, 2014)

Name of shareholder Address of shareholder Number of
shares held
under own
name
Number of
shares held
under the names
of others
Total number of shares held

Percentage of
shares held to
total shares
issued (%)

Sony Corporation
(Treasury stock)

1-7-1, Konan, Minato-ku, Tokyo 1,008,800 1,008,800 0.09
Total 1,008,800  — 1,008,800 0.09
Note:In addition to the 1,008,800 shares listed above, there are 300 shares of common stock held in the name of the Company in the register of shareholders that the Company does not beneficially own. These shares are included in “Shares with full voting rights (Others)” in Table 1 “Shares Issued” above.

 

(2)    Directors and Corporate Executive Officers

There was no change in directors or corporate executive officers in the period from the filing date of the Securities Report (Yukashoken Houkokusho) for the fiscal year ended March 31, 2014 to the filing date of this Quarterly Securities Report (Shihanki Houkokusho), though the following person is planned to retire as of November 16, 2014.

 

Retiring Corporate Executive Officer

 

Title Position Name Date of Retirement
(Planned)
Corporate Executive Officer

Executive Vice President
(Officer in charge of Mobile Business)

Kunimasa Suzuki November 16, 2014

 

 

15 -
 

 

IV   Financial Statements

  Page
(1) Consolidated Financial Statements 17
  (i) Consolidated Balance Sheets 17
  (ii) Consolidated Statements of Income 19
  (iii) Consolidated Statements of Comprehensive Income 21
  (iv) Consolidated Statements of Cash Flows 22
(2) Other Information 47

 

 

16 -
 

 

(1)    Consolidated Financial Statements

 

(i) Consolidated Balance Sheets (Unaudited)

Sony Corporation and Consolidated Subsidiaries

 

   Yen in millions
   At March 31,
2014
  At September 30,
2014
ASSETS      
Current assets:      
Cash and cash equivalents   1,046,466    610,509 
Marketable securities   832,566    936,729 
Notes and accounts receivable, trade   946,553    1,075,558 
Allowance for doubtful accounts and sales returns   (75,513)   (73,238)
Inventories   733,943    946,812 
Other receivables   224,630    326,274 
Deferred income taxes   53,068    54,064 
Prepaid expenses and other current assets   443,173    475,773 
     Total current assets   4,204,886    4,352,481 
Film costs   275,799    295,121 
Investments and advances:          
Affiliated companies   181,263    179,542 
Securities investments and other   7,737,748    7,958,170 
    7,919,011    8,137,712 
Property, plant and equipment:          
Land   125,890    125,995 
Buildings   674,841    685,467 
Machinery and equipment   1,705,774    1,732,751 
Construction in progress   39,771    41,975 
    2,546,276    2,586,188 
Less – Accumulated depreciation   1,796,266    1,835,048 
    750,010    751,140 
Other assets:          
Intangibles, net   675,663    663,842 
Goodwill   691,803    538,131 
Deferred insurance acquisition costs   497,772    512,015 
Deferred income taxes   105,442    96,171 
Other   213,334    222,391 
    2,184,014    2,032,550 
Total assets   15,333,720    15,569,004 

(Continued on following page.)

 

17 -
 

 

Consolidated Balance Sheets (Unaudited)

 

   Yen in millions
   At March 31,
2014
  At September 30,
2014
LIABILITIES      
Current liabilities:      
Short-term borrowings   111,836    112,143 
Current portion of long-term debt   265,918    136,551 
Notes and accounts payable, trade   712,829    889,973 
Accounts payable, other and accrued expenses   1,175,413    1,216,547 
Accrued income and other taxes   81,842    125,250 
Deposits from customers in the banking business   1,890,023    1,824,665 
Other   545,753    553,970 
     Total current liabilities   4,783,614    4,859,099 
Long-term debt   916,648    745,832 
Accrued pension and severance costs   284,963    281,644 
Deferred income taxes   410,896    421,663 
Future insurance policy benefits and other   3,824,572    3,982,461 
Policyholders’ account in the life insurance business   2,023,472    2,130,408 
Other   302,299    304,439 
Total liabilities   12,546,464    12,725,546 
Redeemable noncontrolling interest   4,115    4,277 
Commitments and contingent liabilities          
EQUITY          

Sony Corporation’s stockholders’ equity:

        
Common stock, no par value –           
At March 31, 2014–Shares authorized: 3,600,000,000, shares issued: 1,044,707,767    646,654      
At September 30, 2014–Shares authorized: 3,600,000,000, shares issued: 1,149,688,229        696,908 
Additional paid-in capital   1,127,090    1,175,267 
Retained earnings   940,262    830,729 
Accumulated other comprehensive income –          
Unrealized gains on securities, net   127,509    137,936 
Pension liability adjustment   (180,039)   (179,251)
Foreign currency translation adjustments   (399,055)   (370,660)
    (451,585)   (411,975)
Treasury stock, at cost          
Common stock           
At March 31, 2014–1,026,618 shares
   (4,284)   
At September 30, 2014–1,008,811 shares        (4,160)
    2,258,137    2,286,769 
Noncontrolling interests   525,004    552,412 
Total equity   2,783,141    2,839,181 
Total liabilities and equity   15,333,720    15,569,004 

The accompanying notes are an integral part of these statements.

 

18 -
 

 

(ii) Consolidated Statements of Income (Unaudited)

Sony Corporation and Consolidated Subsidiaries

 

   Yen in millions
   Six months ended September 30
   2013  2014
Sales and operating revenue:      
Net sales   2,949,976    3,145,965 
Financial services revenue   492,665    513,942 
Other operating revenue   43,013    51,512 
    3,485,654    3,711,419 
Costs and expenses:          
Cost of sales   2,253,995    2,319,722 
Selling, general and administrative   797,371    829,650 
Financial services expenses   407,893    422,509 
Other operating (income) expense, net   (25,481)   159,142 
    3,433,778    3,731,023 
Equity in net income (loss) of affiliated companies   (2,450)   3,830 
Operating income (loss)   49,426    (15,774)
Other income:          
Interest and dividends   9,444    5,752 
Gain on sale of securities investments, net   616    7,586 
Foreign exchange gain, net   447    —   
Other   9,370    2,082 
    19,877    15,420 
Other expenses:          
Interest   14,048    12,459 
Foreign exchange loss, net   —      4,568 
Other   4,733    4,197 
    18,781    21,224 
Income (loss) before income taxes   50,522    (21,578)
Income taxes   37,807    56,124 
Net income (loss)   12,715    (77,702)
Less - Net income attributable to noncontrolling interests   29,219    31,459 
Net loss attributable to Sony Corporation’s stockholders   (16,504)   (109,161)

 

   Yen
   Six months ended September 30
   2013  2014
Per share data:   
Net loss attributable to Sony Corporation’s stockholders      
– Basic   (16.25)   (102.14)
– Diluted   (16.25)   (102.14)

The accompanying notes are an integral part of these statements.

 

19 -
 

 

Consolidated Statements of Income (Unaudited)

Sony Corporation and Consolidated Subsidiaries

 

   Yen in millions
   Three months ended September 30
   2013  2014
Sales and operating revenue:      
Net sales   1,511,040    1,606,159 
Financial services revenue   242,495    268,192 
Other operating revenue   20,700    27,160 
    1,774,235    1,901,511 
Costs and expenses:          
Cost of sales   1,155,115    1,168,883 
Selling, general and administrative   412,378    419,203 
Financial services expenses   203,596    220,831 
Other operating (income) expense, net   (12,808)   178,811 
    1,758,281    1,987,728 
Equity in net income (loss) of affiliated companies   (2,025)   629 
Operating income (loss)   13,929    (85,588)
Other income:          
Interest and dividends   5,557    2,337 
Gain on sale of securities investments, net   116    2,386 
Other   908    1,465 
    6,581    6,188 
Other expenses:          
Interest   7,092    6,047 
Foreign exchange loss, net   5,744    2,592 
Other   2,545    1,916 
    15,381    10,555 
Income (loss) before income taxes   5,129    (89,955)
Income taxes   11,339    30,078 
Net loss   (6,210)   (120,033)
Less - Net income attributable to noncontrolling interests   13,421    15,936 
Net loss attributable to Sony Corporation’s stockholders   (19,631)   (135,969)

 

   Yen
   Three months ended September 30
   2013  2014
Per share data:   
Net loss attributable to Sony Corporation’s stockholders      
– Basic   (19.25)   (124.32)
– Diluted   (19.25)   (124.32)

The accompanying notes are an integral part of these statements.

 

 

20 -
 

 

(iii) Consolidated Statements of Comprehensive Income (Unaudited)

Sony Corporation and Consolidated Subsidiaries

 

   Yen in millions
   Six months ended September 30
   2013  2014
Net income (loss)   12,715    (77,702)
Other comprehensive income, net of tax ―          
Unrealized gains on securities   2,546    15,066 
Unrealized gains on derivative instruments   595    —   
Pension liability adjustment   (3,184)   750 
Foreign currency translation adjustments   63,795    30,717 
Total comprehensive income (loss)   76,467    (31,169)
Less – Comprehensive income attributable to noncontrolling interests   25,599    38,382 
Comprehensive income (loss) attributable to Sony Corporation’s stockholders   50,868    (69,551)

 

   Yen in millions
   Three months ended September 30
   2013  2014
Net loss   (6,210)   (120,033)
Other comprehensive income, net of tax ―          
Unrealized gains on securities   17,440    13,191 
Unrealized gains on derivative instruments   402    —   
Pension liability adjustment   63    414 
Foreign currency translation adjustments   1,423    51,557 
Total comprehensive income (loss)   13,118    (54,871)
Less – Comprehensive income attributable to noncontrolling interests   19,389    19,655 
Comprehensive loss attributable to Sony Corporation’s stockholders   (6,271)   (74,526)

The accompanying notes are an integral part of these statements.

 

21 -
 

 

(iv) Consolidated Statements of Cash Flows (Unaudited)

Sony Corporation and Consolidated Subsidiaries

 

   Yen in millions
   Six months ended September 30
   2013  2014
Cash flows from operating activities:      
 Net income (loss)   12,715    (77,702)
Adjustments to reconcile net income (loss) to net cash          
provided by (used in) operating activities–          
Depreciation and amortization, including amortization
    of deferred insurance acquisition costs
   188,956    166,747 
Amortization of film costs   116,847    127,868 
    Stock-based compensation expense   612    592 
    Accrual for pension and severance costs, less payments   (3,672)   (5,754)
    Other operating (income) expense, net   (25,481)   159,142 
    Gain on sale or devaluation of securities investments, net   (531)   (7,582)
Gain on revaluation of marketable securities held in the
   financial services business for trading purposes, net
   (35,062)   (37,019)
Gain on revaluation or impairment of securities investments
     held in the financial services business, net
   (2,778)   (1,251)
    Deferred income taxes   (11,131)   (1,783)
Equity in net loss of affiliated companies, net of dividends   4,145    681 
    Changes in assets and liabilities:          
     Increase in notes and accounts receivable, trade   (70,549)   (102,544)
     Increase in inventories   (240,382)   (190,425)
     Increase in film costs   (148,661)   (129,316)
     Increase in notes and accounts payable, trade   260,074    163,389 
     Increase in accrued income and other taxes   16,022    19,036 
     Increase in future insurance policy benefits and other   205,663    223,669 
     Increase in deferred insurance acquisition costs   (37,982)   (38,560)
Increase in marketable securities held in the
     financial services business for trading purposes
   (14,469)   (30,631)
     Increase in other current assets   (151,311)   (100,128)
     Increase (decrease) in other current liabilities   (39,003)   1,836 
    Other   (36,782)   (36,190)
          Net cash provided by (used in) operating activities   (12,760)   104,075 

(Continued on following page.)

 

22 -
 

 

Consolidated Statements of Cash Flows (Unaudited)

 

   Yen in millions
   Six months ended September 30
   2013  2014
Cash flows from investing activities:      
Payments for purchases of fixed assets   (135,857)   (95,778)
Proceeds from sales of fixed assets   85,088    30,407 
Payments for investments and advances by financial services business   (470,121)   (459,625)
Payments for investments and advances
     (other than financial services business)
   (4,059)   (9,408)
Proceeds from sales or return of investments and collections of advances
     by financial services business
   242,294    232,550 
Proceeds from sales or return of investments and collections of advances
     (other than financial services business)
   42,260    32,916 
Other   16,284    (13,921)
          Net cash used in investing activities   (224,111)   (282,859)
Cash flows from financing activities:          
 Proceeds from issuance of long-term debt   167,961    12,471 
 Payments of long-term debt   (44,106)   (231,652)
 Increase (decrease) in short-term borrowings, net   10,508    (926)
Increase (decrease) in deposits from customers in the financial services
     business, net
   16,660    (22,750)
 Dividends paid   (12,588)   (13,060)
 Other   (27,248)   (17,100)
          Net cash provided by (used in) financing activities   111,187    (273,017)
Effect of exchange rate changes on cash and cash equivalents   24,991    15,844 
Net decrease in cash and cash equivalents   (100,693)   (435,957)
Cash and cash equivalents at beginning of the fiscal year   826,361    1,046,466 
Cash and cash equivalents at end of the period   725,668    610,509 

The accompanying notes are an integral part of these statements.

 

 

23 -
 

 

Index to Notes to Consolidated Financial Statements

Sony Corporation and Consolidated Subsidiaries

 

Notes to Consolidated Financial Statements Page
  1. Summary of significant accounting policies 25
  2. Marketable securities and securities investments 27
  3. Sale and leaseback transactions 27
  4. Impairment of goodwill related to mobile communications business 28
  5. Fair value measurements 29
  6. Supplemental equity and comprehensive income information 31
  7. Reconciliation of the differences between basic and diluted EPS 33
  8. Acquisition of CSC Media Group 33
  9. Commitments, contingent liabilities and other 34
  10. Business segment information 36

 

 

24 -
 

 

Notes to Consolidated Financial Statements (Unaudited)

Sony Corporation and Consolidated Subsidiaries

1.Summary of significant accounting policies

The accompanying consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), except for certain disclosures which have been omitted. Certain adjustments and reclassifications have been incorporated in the accompanying consolidated financial statements to conform with U.S. GAAP. These adjustments were not recorded in the statutory books and records as Sony Corporation and its subsidiaries in Japan maintain their records and prepare their statutory financial statements in accordance with accounting principles generally accepted in Japan while its foreign subsidiaries maintain their records and prepare their financial statements in conformity with accounting principles generally accepted in the countries of their domiciles.

 

(1)   Recently adopted accounting pronouncements:

Obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date -

In February 2013, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance for obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. The guidance requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors, plus any additional amount the reporting entity expects to pay on behalf of its co-obligors. This guidance was effective for Sony as of April 1, 2014. The adoption of this guidance did not have a material impact on Sony’s results of operations and financial position.

Parent’s accounting for the cumulative translation adjustment upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity -

In March 2013, the FASB issued new accounting guidance for the parent’s accounting for the cumulative translation adjustment upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. The guidance resolved diversity in practice and clarifies the applicable guidance for the release of the cumulative translation adjustment when the parent sells a part or all of its investment in a foreign entity, ceases to have a controlling financial interest in a subsidiary or group of assets that is a business within a foreign entity, or obtains control in a business combination achieved in stages involving an equity method investment that is a foreign entity. After adoption of this guidance, any accumulated translation adjustments associated with a previously held equity interest, are included in earnings in a business combination achieved in stages. This guidance was effective for Sony as of April 1, 2014. The adoption of this guidance did not have a material impact on Sony’s results of operations and financial position.

Presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists -

In July 2013, the FASB issued new accounting guidance for the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The guidance requires an unrecognized tax benefit to be presented as a reduction to a deferred tax asset for a net operating loss, a similar tax loss, or a tax credit carryforward if certain criteria are met. This guidance was effective for Sony as of April 1, 2014. The adoption of this guidance did not have a material impact on Sony’s results of operations and financial position.

 

(2)   Accounting methods used specifically for interim consolidated financial statements:

Income Taxes -

Sony estimates the annual effective tax rate (“ETR”) derived from a projected annual net income before taxes and calculates the interim period income tax provision based on the year-to-date income tax provision computed by applying the ETR to the year-to-date net income before taxes at the end of each interim period. The income tax provision based on the ETR reflects anticipated income tax credits and net operating loss carryforwards; however, it excludes the income tax provision related to significant unusual or extraordinary transactions. Such income tax provision is separately reported from the provision based on the ETR in the interim period in which they occur.

 

25 -
 

 

 

(3)   Reclassifications:

Certain reclassifications of the financial statements and accompanying footnotes for the six and three months ended September 30, 2013 have been made to conform to the presentation for the six and three months ended September 30, 2014. Reclassifications include changes in the presentation and disclosure related to internal-use software, effective on March 31, 2014.  Due to the changes, the amortization of internal-use software was reclassified from other to depreciation and amortization, including amortization of deferred insurance acquisition costs in the cash flows from operating activities section of the consolidated statements of cash flows.  Certain information in Note 10 was also reclassified, accordingly.

 

(4)   Revisions:

During the fourth quarter of the fiscal year ended March 31, 2014, Sony revised its financial statements related to the recognition of revenue for certain of its universal life insurance contracts as disclosed in the previous fiscal year. Accordingly, certain financial information for the comparable period has been revised. The principal amounts that have been revised are indicated below.

 

   Yen in millions
   Six months ended September 30, 2013
   As previously
reported
  As adjusted
Consolidated Statements of Income      
Financial services revenue   495,209    492,665 
Financial services expenses   408,742    407,893 
Net income   13,876    12,715 
           
Consolidated Statements of Comprehensive Income          
Unrealized gains on securities   2,876    2,546 
Comprehensive income attributable to Sony Corporation’s stockholders   51,762    50,868 
           
Consolidated Statements of Cash Flows          
Increase in future insurance policy benefits and other   205,633    205,663 
Increase in deposits from customers in the financial services business, net   14,116    16,660 

 

   Yen in millions
   Three months ended September 30, 2013
   As previously
reported
  As adjusted
Consolidated Statements of Income      
Financial services revenue   243,746    242,495 
Financial services expenses   204,012    203,596 
Net loss   (5,637)   (6,210)
           
Consolidated Statements of Comprehensive Income          
Unrealized gains on securities   16,807    17,440 
Comprehensive loss attributable to Sony Corporation’s stockholders   (6,307)   (6,271)

 

 

26 -
 

 

2.   Marketable securities and securities investments

 

Marketable securities and securities investments, primarily included in the Financial Services segment, are comprised of debt and equity securities for which the aggregate cost, gross unrealized gains and losses and fair value pertaining to available-for-sale securities and held-to-maturity securities are as follows:

 

   Yen in millions
   March 31, 2014  September 30, 2014
   Cost  Gross
unrealized
gains
  Gross
unrealized
losses
  Fair value  Cost  Gross
unrealized
gains
  Gross
unrealized
losses
  Fair value
                         
Available-for-sale:                        
Debt securities:                        
Japanese national
government bonds
   1,130,397    113,684    (28)   1,244,053    1,092,123    127,882    —      1,220,005 
                                         
Japanese local
government bonds
   62,670    468    (7)   63,131    63,892    336    (14)   64,214 
                                         
Japanese corporate
bonds
   168,275    984    (8)   169,251    140,677    706    (19)   141,364 
                                         
Foreign
government bonds
   27,587    3,684    (17)   31,254    32,085    4,849    (2)   36,932 
                                         
Foreign corporate bonds   434,570    16,547    (182)   450,935    472,709    15,105    (462)   487,352 
    1,823,499    135,367    (242)   1,958,624    1,801,486    148,878    (497)   1,949,867 
                                         
Equity securities   84,074    91,977    (34)   176,017    73,580    101,415    (18)   174,977 
                                         
Held-to-maturity                                        
securities:                                        
Japanese national
government bonds
   4,398,018    418,845    (3)   4,816,860    4,608,685    508,264    —      5,116,949 
                                         
Japanese local
government bonds
   6,222    373    —      6,595    6,096    403    —      6,499 
                                         
Japanese corporate
bonds
   28,030    2,705    —      30,735    27,796    3,331    —      31,127 
                                         
Foreign
government bonds
   16,359    847    (1)   17,205    25,069    3,640    —      28,709 
                                         
Foreign corporate bonds   56,284    19    —      56,303    57,609    22    —      57,631 
    4,504,913    422,789    (4)   4,927,698    4,725,255    515,660    —      5,240, 915 
                                         
Total   6,412,486    650,133    (280)   7,062,339    6,600,321    765,953    (515)   7,365,759 

 

3.   Sale and leaseback transactions

 

On May 15, 2013, Sony entered into sale and leaseback transactions regarding certain machinery and equipment with leasing companies including its equity interest affiliate, SFI Leasing Company, Limited. Transactions with total proceeds of 76,566 million yen, and terms which averaged three years, have been accounted for as a capital lease and are included within proceeds from sales of fixed assets in the investing activities section of the consolidated statements of cash flows. There was no gain or loss recorded in the sale and leaseback transactions.

 

 

27 -
 

 

4.   Impairment of goodwill related to mobile communications business

 

Goodwill is tested for impairment annually during the fourth quarter of the fiscal year and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

 

During the three months ended September 30, 2014, Sony identified events and circumstances that would more likely than not reduce the fair value of the Mobile Communications (“MC”) reporting unit below its carrying amount, including goodwill. Those events and circumstances included the revised strategy for the MC business to concentrate on premium lineup and reduce the number of models in the mid-range lineup as well as concentrating on certain selected markets due to continued increasingly competitive markets in various geographical areas, primarily resulting from rapid growth by Chinese smartphone competitors.

 

Sony assessed the aforementioned events and circumstances and determined that it was more likely than not that the fair value of the MC reporting unit was less than its carrying amount. Accordingly, Sony performed a goodwill impairment test and determined that, based on the expected future cash flows for a market participant, the implied fair value of goodwill of the MC reporting unit was impaired. Therefore, during the three months ended September 30, 2014, Sony recorded an impairment charge of 176,045 million yen. The impairment charge is included in other operating (income) expenses, net in the consolidated statements of income, and is recorded entirely within the MC segment.

 

In conjunction with Sony’s review for goodwill impairment, an assessment to determine whether the carrying amount of any of the tangible or definite-lived intangible assets of the MC segment was recoverable was performed as well. After conducting a test to determine the recoverability of the assets, Sony determined that there were no tangible or definite-lived intangible assets within the MC segment that were impaired.

 

 

28 -
 

 

5. Fair value measurements

 

The fair value of Sony’s assets and liabilities that are measured at fair value on a recurring basis are as follows:

 

   Yen in millions
   March 31, 2014
      Presentation in the consolidated balance sheets
   Level 1  Level 2  Level 3  Total  Marketable
securities
  Securities
investments
and other
  Other
current
assets/
liabilities
  Other
noncurrent
assets/
liabilities
                         
Assets:                        
Trading securities   348,832    274,835    —      623,667    623,667    —      —      —   
Available-for-sale securities                                        
Debt securities                                        
Japanese national government bonds   —      1,244,053    —      1,244,053    24,822    1,219,231    —      —   
Japanese local government bonds   —      63,131    —      63,131    1,491    61,640    —      —   
Japanese corporate bonds   —      168,240    1,011    169,251    58,661    110,590    —      —   
Foreign corporate bonds   —      444,128    6,807    450,935    113,501    337,434    —      —   
Other   3,027    28,227    —      31,254    1,134    30,120    —      —   
Equity securities   175,931    86    —      176,017    —      176,017    —      —   
Other investments *1   8,031    3,612    75,837    87,480    —      87,480    —      —   
Derivative assets *2, *3   —      11,887    —      11,887    —      —      10,863    1,024 
Total assets   535,821    2,238,199    83,655    2,857,675    823,276    2,022,512    10,863    1,024 
Liabilities:                                        
Derivative liabilities*2,*3   —      30,549    —      30,549    —      —      15,155    15,394 
Total liabilities   —      30,549    —      30,549    —      —      15,155    15,394 

 

 

29 -
 

 

  

  Yen in millions
   September 30, 2014
      Presentation in the consolidated balance sheets
   Level 1  Level 2  Level 3  Total  Marketable
securities
  Securities
investments
and other
  Other
current
assets/
liabilities
  Other
noncurrent
assets/
liabilities
                         
Assets:                        
Trading securities   397,460    293,413    —      690,873    690,873    —      —      —   
Available-for-sale securities                                        
Debt securities                                        
Japanese national government bonds   —      1,220,005    —      1,220,005    16,089    1,203,916    —      —   
Japanese local government bonds   —      64,214    —      64,214    2,040    62,174    —      —   
Japanese corporate bonds   —      140,355    1,009    141,364    58,161    83,203    —      —   
Foreign corporate bonds   —      466,908    20,444    487,352    162,065    325,287    —      —   
Other   3,034    33,898    —      36,932    52    36,880    —      —   
Equity securities   174,877    100    —      174,977    —      174,977    —      —   
Other investments *1   8,057    4,005    76,849    89,611    —      89,611    —      —   
Derivative assets *2, *3   —      32,566    —      32,566    —      —      31,503    1,063 
Total assets   584,128    2,255,464    98,302    2,937,894    929,280    1,976,048    31,503    1,063 
Liabilities:                                        
Derivative liabilities*2,*3   —      43,336    —      43,336    —      —      24,702    18,634 
Total liabilities   —      43,336    —      43,336    —      —      24,702    18,634 

 

*1 Other investments include certain hybrid financial instruments and certain private equity investments.

*2 Derivative assets and liabilities are recognized and disclosed on a gross basis.

*3 The potential effect of offsetting on assets and liabilities, which primarily consists of derivatives subject to master netting

agreements and/or collateral, is insignificant.

 

Sony also has assets and liabilities that are required to be recorded at fair value on a nonrecurring basis when certain circumstances occur. During the three months ended September 30, 2014, Sony recorded an impairment charge related to goodwill in the MC segment. Refer to Note 4. Sony’s determination of fair value of the MC reporting unit was based on the present value of expected future cash flows using for a market participant. These measurements are classsfied as a level 3 because significant unobservable inputs, such as the projections of future cash flows, the timing of such cash flows and the discount rate reflecting the risk inherent in future cash flows, were considered in the fair value measurements.

 

30 -
 

 

6.   Supplemental equity and comprehensive income information

(1)    Stockholders’ Equity

 

A reconciliation of the beginning and ending carrying amounts of Sony Corporation’s stockholders’ equity, noncontrolling interests and the total equity for the six months ended September 30, 2013 and 2014 are as follows:

 

   Yen in millions
   Sony Corporation’s
stockholders’ equity
  Noncontrolling
interests
  Total equity
Balance at March 31,2013   2,192,262    479,742    2,672,004 
Exercise of stock acquisition rights   38         38 
Conversion of zero coupon convertible bonds   25,520         25,520 
Stock-based compensation   471         471 
Comprehensive income:               
Net income (loss)   (16,504)   29,219    12,715 
Other comprehensive income, net of tax ―               
Unrealized gains (losses) on securities   6,312    (3,766)   2,546 
Unrealized gains on derivative instruments   595         595 
Pension liability adjustment   (3,191)   7    (3,184)
Foreign currency translation adjustments   63,656    139    63,795 
Total comprehensive income   50,868    25,599    76,467 
Dividends declared   (12,970)   (6,878)   (19,848)
Transactions with noncontrolling interests
  shareholders and other
   101    227    328 
Balance at September 30, 2013   2,256,290    498,690    2,754,980 

 

   Yen in millions
   Sony Corporation’s
stockholders’ equity
  Noncontrolling
interests
  Total equity
Balance at March 31,2014   2,258,137    525,004    2,783,141 
Exercise of stock acquisition rights   91         91 
Conversion of zero coupon convertible bonds   100,400         100,400 
Stock-based compensation   529         529 
Comprehensive income:               
Net income (loss)   (109,161)   31,459    (77,702)
Other comprehensive income, net of tax ―               
Unrealized gains on securities   10,427    4,639    15,066 
Pension liability adjustment   788    (38)   750 
Foreign currency translation adjustments   28,395    2,322    30,717 
Total comprehensive income (loss)   (69,551)   38,382    (31,169)
Dividends declared        (12,270)   (12,270)
Transactions with noncontrolling interests
  shareholders and other
   (2,837)   1,296    (1,541)
Balance at September 30, 2014   2,286,769    552,412    2,839,181 

 

There was no material effect of changes in Sony Corporation’s ownership interest in its subsidiaries on Sony Corporation’s stockholders’ equity for the six months ended September 30, 2013 and 2014.

 

31 -
 

 

 

(2)     Other Comprehensive Income

Changes in accumulated other comprehensive income, net of tax by component for the six months ended September 30, 2013 and 2014 are as follows:

 

   Yen in millions
   Unrealized
gains (losses)
on securities
  Unrealized
gains (losses)
on derivative
instruments
  Pension
liability
adjustment
  Foreign
currency
translation
adjustments
  Total
Balance at March 31, 2013   109,079    (742)   (191,816)   (556,016)   (639,495)
Other comprehensive income (loss)
     before reclassifications
   2,761    394    (4,395)   63,795    62,555 
Amounts reclassified out of accumulated other
     comprehensive income
   (215)   201    1,211         1,197 
Net current-period other comprehensive
     income (loss)
   2,546    595    (3,184)   63,795    63,752 
Less: Other comprehensive income (loss)
     attributable to noncontrolling interests
   (3,766)        7    139    (3,620)
Balance at September 30, 2013   115,391    (147)   (195,007)   (492,360)   (572,123)

 

   Yen in millions
   Unrealized
gains (losses)
on securities
  Pension
liability
adjustment
  Foreign
currency
translation adjustments
  Total
Balance at March 31, 2014   127,509    (180,039)   (399,055)   (451,585)
Other comprehensive income
     before reclassifications
   20,487    48    30,717    51,252 
Amounts reclassified out of accumulated other
     comprehensive income
   (5,421)   702         (4,719)
Net current-period other comprehensive
      income
   15,066    750    30,717    46,533 
Less: Other comprehensive income (loss)
     attributable to noncontrolling interests
   4,639    (38)   2,322    6,923 
Balance at September 30, 2014   137,936    (179,251)   (370,660)   (411,975)

 

 

32 -
 

 

7.   Reconciliation of the differences between basic and diluted EPS

 

Reconciliation of the differences between basic and diluted net income (loss) attributable to Sony Corporation’s stockholders per share (“EPS”) for the six and three months ended September 30, 2013 and 2014 is as follows:

 

   Yen in millions
   Six months ended September 30
   2013  2014
Net loss attributable to Sony Corporation’s
     stockholders for basic and diluted EPS computation
   (16,504)   (109,161)

 

   Thousands of shares
Weighted-average shares outstanding   1,015,395    1,068,703 
Effect of dilutive securities:          
Stock acquisition rights   —      —   
Convertible bonds   —      —   
Weighted-average shares for diluted EPS computation   1,015,395    1,068,703 

 

   Yen
Basic EPS   (16.25)   (102.14)
Diluted EPS   (16.25)   (102.14)

 

Potential shares of common stock which were excluded from the computation of diluted EPS for the six months ended September 30, 2013 and 2014 were 148,374 thousand shares and 36,397 thousand shares, respectively. The potential shares were excluded as anti-dilutive for the six months ended September 30, 2013 and 2014 due to Sony incurring a net loss attributable to Sony Corporation’s stockholders for these periods.

 

   Yen in millions
   Three months ended September 30
   2013  2014
Net loss attributable to Sony Corporation’s
     stockholders for basic and diluted EPS computation
   (19,631)   (135,969)

 

   Thousands of shares
Weighted-average shares outstanding   1,019,875    1,093,725 
Effect of dilutive securities:          
Stock acquisition rights   —      —   
Convertible bonds   —      —   
Weighted-average shares for diluted EPS computation   1,019,875    1,093,725 

 

   Yen
Basic EPS   (19.25)   (124.32)
Diluted EPS   (19.25)   (124.32)

 

Potential shares of common stock which were excluded from the computation of diluted EPS for the three months ended September 30, 2013 and 2014 were 148,374 thousand shares and 36,397 thousand shares, respectively. The potential shares were excluded as anti-dilutive for the three months ended September 30, 2013 and 2014 due to Sony incurring a net loss attributable to Sony Corporation’s stockholders for these periods.

 

8.   Acquisition of CSC Media Group

 

On August 14, 2014, Sony acquired CSC Media Group Ltd., one of the United Kingdom’s largest independent cable and satellite TV channel groups, for cash consideration of 18,900 million yen.

 

 

33 -
 

 

9.   Commitments, contingent liabilities and other

(1)   Loan commitments

Subsidiaries in the Financial Services segment have entered into loan agreements with their customers in accordance with the condition of the contracts. As of September 30, 2014, the total unused portion of the lines of credit extended under these contracts was 23,486 million yen. The aggregate amounts of future year-by-year payments for these loan commitments cannot be determined.

(2)   Purchase commitments and other

Purchase commitments and other outstanding as of September 30, 2014 amounted to 337,220 million yen. The major components of these commitments are as follows:

 

Certain subsidiaries in the Pictures segment have entered into agreements with creative talent for the development and production of motion pictures and television programming as well as agreements with third parties to acquire completed motion pictures, or certain rights therein, and to acquire the rights to broadcast certain live action sporting events. These agreements cover various periods mainly within five years. As of September 30, 2014, these subsidiaries were committed to make payments under such contracts of 128,568 million yen.

 

Certain subsidiaries in the Music segment have entered into long-term contracts with recording artists, songwriters and companies for the future production, distribution and/or licensing of music product. These contracts cover various periods mainly within five years. As of September 30, 2014, these subsidiaries were committed to make payments of 62,181 million yen under such long-term contracts.

 

Sony has entered into long-term sponsorship contracts related to advertising and promotional rights. These contracts cover various periods mainly within ten years. As of September 30, 2014, Sony has committed to make payments of 55,186 million yen under such long-term contracts.

(3)   Litigation

In May 2011, Sony Corporation’s U.S. subsidiary, Sony Electronics Inc., received a subpoena from the U.S. Department of Justice (“DOJ”) Antitrust Division seeking information about its secondary batteries business. Sony understands that the DOJ, the European Commission and certain other governmental agencies outside the United States also opened investigations of competition in the secondary batteries market. The DOJ has notified Sony that it has closed its investigation, but the European Commission and one other agency continue to investigate. A number of direct and indirect purchaser class action lawsuits have been filed in certain jurisdictions, including the United States, in which the plaintiffs allege that Sony Corporation and certain of its subsidiaries violated antitrust laws and seek recovery of damages and other remedies. Based on the stage of these proceedings, it is not possible to estimate the amount of loss or range of possible loss, if any, that might result from adverse judgments, settlements or other resolution of all of these matters.

 

Beginning in early 2011, the network services of PlayStation®Network, Qriocity™, Sony Online Entertainment LLC and websites of other subsidiaries came under cyber-attack. As of November 10, 2014, Sony has not received any confirmed reports of customer identity theft issues or misuse of credit cards from such cyber-attacks. However, in connection with certain of these matters, Sony has received inquiries from authorities in a number of jurisdictions, including formal and/or informal requests for information from Attorneys General from a number of states in the United States. Additionally, Sony Corporation and/or certain of its subsidiaries have been named in a number of purported class actions in certain jurisdictions, including the United States. A proposed settlement of the U.S. class action suits has received preliminary court approval, and is subject to final approval by the court. The settlement of a set of non-U.S. class actions has received court approval, and one non-U.S. class action suit remains pending. Based on the stage of these inquiries and proceedings, it is not possible to estimate the amount of loss or range of possible loss, if any, that might result from adverse judgments, settlements or other resolution of all of these matters.

 

In October 2009, Sony Corporation’s U.S. subsidiary, Sony Optiarc America Inc., received a subpoena from the DOJ seeking information about its optical disk drive business. Sony understands that the European Commission and certain other governmental agencies outside the United States also opened investigations of competition in the optical disk drives market. The DOJ has notified Sony that it has closed its investigation, and Sony understands that the investigations by several other agencies have now ended, but the European Commission and one other agency continue to investigate. In October 2014, the United States District Court hearing the U.S. class actions denied motions for class certification in both the direct and indirect purchaser class actions. The class plaintiffs have filed petitions to appeal these rulings. Based on the investigations and cases, it is not possible to estimate the amount of loss or range of possible loss, if any, that might ultimately result from adverse judgments, settlements or other resolution of the investigations and cases.

 

 

34 -
 

 

Trial was set for September 2014 in a lawsuit brought by the liquidating trust for a former customer of Sony Corporation’s U.S. subsidiary, Sony Electronics Inc., seeking recovery in connection with the former customer’s bankruptcy filing. In September 2014, the parties reached an agreement to settle the lawsuit and received court approval on October 22, 2014. Settlement of this matter had no material impact on Sony’s results of operations, financial position or cash flows.

 

In addition, Sony Corporation and certain of its subsidiaries are defendants or otherwise involved in other pending legal and regulatory proceedings. However, based upon the information currently available, Sony believes that the outcome from such legal and regulatory proceedings would not have a material impact on Sony’s results of operations and financial position.

(4)   Guarantees

Sony has issued guarantees that contingently require payments to guaranteed parties if certain specified events or conditions occur. The maximum potential amount of future payments under these guarantees as of September 30, 2014 amounted to 42,122 million yen.

 

Sony has agreed to repay the outstanding principal plus accrued interest up to a maximum of 284 million U.S. dollars to the creditor of the third-party investor of Sony’s U.S. based music publishing subsidiary should the third-party investor default on its obligation. The obligation of the third-party investor is collateralized by its 50% interest in Sony’s music publishing subsidiary. Should Sony have to make a payment under the terms of the guarantee, Sony would assume the creditor’s rights to the underlying collateral. As of September 30, 2014, the fair value of the collateral exceeded 284 million U.S. dollars.

 

 

35 -
 

 

10.   Business segment information

The reportable segments presented below are the segments of Sony for which separate financial information is available and for which operating profit or loss amounts are evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. The CODM does not evaluate segments using discrete asset information. Sony’s CODM is its Chief Executive Officer and President.

Sony realigned its business segments for the first quarter of the fiscal year ending March 31, 2015, to reflect modifications to its organizational structure as of April 1, 2014, primarily repositioning the operations of the previously reported Game and Mobile Products & Communications (“MP&C”) segments. In connection with this realignment, the previously-reported operations of the network business which were included in All Other are now integrated with the previously-reported Game segment and are reported as the Game & Network Services (“G&NS”) segment. The previously reported Mobile Communications category which was included in the MP&C segment has been reclassified as the newly established MC segment, while the other categories in the previously reported MP&C segment are now included in All Other. This includes the reclassification of the PC business into All Other. As of the first quarter of the fiscal year ending March 31, 2015, the power supply business, which was previously included in the Devices segment, has been integrated into All Other to reflect modifications Sony made to its organizational structure as of June 1, 2014. In connection with these realignments, the sales and operating revenue and operating income (loss) of each segment for the comparable period have been reclassified to conform to the current quarter’s presentation.

 

 

36 -
 

 

Business segments -

Sales and operating revenue:

 

   Yen in millions
   Six months ended September 30
   2013  2014
Sales and operating revenue:      
Mobile Communications -      
Customers   589,993    622,649 
Intersegment   61    32 
Total   590,054    622,681 
Game & Network Services -          
Customers   260,167    517,122 
Intersegment   40,374    49,887 
Total   300,541    567,009 
Imaging Products & Solutions -          
Customers   354,449    341,288 
Intersegment   1,945    1,922 
Total   356,394    343,210 
Home Entertainment & Sound -          
Customers   537,497    566,612 
Intersegment   1,459    1,490 
Total   538,956    568,102 
Devices -          
Customers   290,429    325,881 
Intersegment   101,236    105,919 
Total   391,665    431,800 
Pictures -          
Customers   336,522    376,573 
Intersegment   233    380 
Total   336,755    376,953 
Music -          
Customers   221,906    228,147 
Intersegment   5,024    5,468 
Total   226,930    233,615 
Financial Services -          
Customers   492,665    513,942 
Intersegment   2,454    2,601 
Total   495,119    516,543 
All Other -          
Customers   370,990    192,429 
Intersegment   35,512    44,987 
Total   406,502    237,416 
Corporate and elimination   (157,262)   (185,910)
Consolidated total   3,485,654    3,711,419 

 

G&NS intersegment amounts primarily consist of transactions with All Other.

 

Devices intersegment amounts primarily consist of transactions with the MC segment, the G&NS segment and the Imaging Products & Solutions (“IP&S”) segment.

 

All Other intersegment amounts primarily consist of transactions with the Pictures segment, the Music segment and the G&NS segment.

 

Corporate and elimination includes certain brand and patent royalty income.

 

37 -
 

 

 

   Yen in millions
   Three months ended September 30
   2013  2014
Sales and operating revenue:      
Mobile Communications -      
Customers   304,536    308,339 
Intersegment   52    24 
Total   304,588    308,363 
Game & Network Services -          
Customers   145,073    285,754 
Intersegment   23,881    23,725 
Total   168,954    309,479 
Imaging Products & Solutions -          
Customers   174,624    177,152 
Intersegment   882    1,458 
Total   175,506    178,610 
Home Entertainment & Sound -          
Customers   263,383    281,559 
Intersegment   397    795 
Total   263,780    282,354 
Devices -          
Customers   144,752    181,143 
Intersegment   56,537    66,569 
Total   201,289    247,712 
Pictures -          
Customers   177,720    181,907 
Intersegment   120    276 
Total   177,840    182,183 
Music -          
Customers   112,731    114,671 
Intersegment   2,240    2,081 
Total   114,971    116,752 
Financial Services -          
Customers   242,495    268,192 
Intersegment   1,219    1,384 
Total   243,714    269,576 
All Other -          
Customers   193,306    87,797 
Intersegment   18,712    20,847 
Total   212,018    108,644 
Corporate and elimination   (88,425)   (102,162)
Consolidated total   1,774,235    1,901,511 

 

G&NS intersegment amounts primarily consist of transactions with All Other.

 

Devices intersegment amounts primarily consist of transactions with the MC segment, the G&NS segment and the IP&S segment.

 

All Other intersegment amounts primarily consist of transactions with the Pictures segment, the Music segment and the G&NS segment.

 

Corporate and elimination includes certain brand and patent royalty income.

 

38 -
 

 

Segment profit or loss:

 

   Yen in millions
   Six months ended September 30
   2013  2014
Operating income (loss):          
Mobile Communications   21,368    (174,738)
Game & Network Services   (20,534)   26,109 
Imaging Products & Solutions   6,789    37,507 
Home Entertainment & Sound   (8,727)   15,627 
Devices   22,724    42,109 
Pictures   (14,014)   6,790 
Music   20,467    23,201 
Financial Services   83,497    91,458 
All Other   (19,394)   (36,595)
Total   92,176    31,468 
Corporate and elimination   (42,750)   (47,242)
Consolidated operating income (loss)   49,426    (15,774)
Other income   19,877    15,420 
Other expenses   (18,781)   (21,224)
Consolidated income (loss) before income taxes   50,522    (21,578)

 

Operating income (loss) is sales and operating revenue less costs and expenses, and includes equity in net income (loss) of affiliated companies.

 

Corporate and elimination includes headquarters restructuring costs and certain other corporate expenses, including the amortization of certain intellectual property assets such as the cross-licensing of intangible assets acquired from Ericsson at the time of the Sony Mobile Communications acquisition, which are not allocated to segments.

 

Within the Home Entertainment & Sound (“HE&S”) segment, the operating income (loss) of Televisions, which primarily consists of LCD televisions, for the six months ended September 30, 2013 and 2014 was (4,055) million yen and 12,838 million yen, respectively. The operating income (loss) of Televisions excludes restructuring charges which are included in the overall segment results and not allocated to product categories.

 

39 -
 

 

 

   Yen in millions
   Three months ended September 30
   2013  2014
Operating income (loss):          
Mobile Communications   8,802    (171,998)
Game & Network Services   (4,164)   21,790 
Imaging Products & Solutions   (2,308)   20,098 
Home Entertainment & Sound   (12,094)   7,966 
Devices   11,879    29,573 
Pictures   (17,756)   (1,041)
Music   9,696    11,815 
Financial Services   38,388    47,686 
All Other   (2,473)   (18,163)
Total   29,970    (52,274)
Corporate and elimination   (16,041)   (33,314)
Consolidated operating income (loss)   13,929    (85,588)
Other income   6,581    6,188 
Other expenses   (15,381)   (10,555)
Consolidated income (loss) before income taxes   5,129    (89,955)

 

Operating income (loss) is sales and operating revenue less costs and expenses, and includes equity in net income (loss) of affiliated companies.

 

Corporate and elimination includes headquarters restructuring costs and certain other corporate expenses, including the amortization of certain intellectual property assets such as the cross-licensing of intangible assets acquired from Ericsson at the time of the Sony Mobile Communications acquisition, which are not allocated to segments.

 

Within the HE&S segment, the operating income (loss) of Televisions, which primarily consists of LCD televisions, for the three months ended September 30, 2013 and 2014 was (9,262) million yen and 4,922 million yen, respectively. The operating income (loss) of Televisions excludes restructuring charges which are included in the overall segment results and not allocated to product categories.

 

40 -
 

 

Other Significant Items:

 

The following table includes a breakdown of sales and operating revenue to external customers by product category for certain segments. Sony management views each segment as a single operating segment.

 

   Yen in millions
   Six months ended September 30
Sales and operating revenue:  2013  2014
Mobile Communications   589,993    622,649 
           
Game & Network Services   260,167    517,122 
           
Imaging Products & Solutions          
Digital Imaging Products   220,135    215,700 
Professional Solutions   127,198    120,538 
Other   7,116    5,050 
Total   354,449    341,288 
           
Home Entertainment & Sound     
Televisions   359,692    404,731 
Audio and Video   174,948    161,137 
Other   2,857    744 
Total   537,497    566,612 
           
Devices     
Semiconductors   168,599    200,874 
Components   120,664    121,795 
Other   1,166    3,212 
Total   290,429    325,881 
           
Pictures          
Motion Pictures   168,790    201,965 
Television Productions   85,318    86,621 
Media Networks   82,414    87,987 
Total   336,522    376,573 
           
Music          
Recorded Music   158,731    159,824 
Music Publishing   30,854    32,654 
Visual Media and Platform   32,321    35,669 
Total   221,906    228,147 
           
Financial Services   492,665    513,942 
All Other   370,990    192,429 
Corporate   31,036    26,776 
Consolidated total   3,485,654    3,711,419 

 

41 -
 

 

 

   Yen in millions
   Three months ended September 30
Sales and operating revenue:  2013  2014
Mobile Communications   304,536    308,339 
           
Game & Network Services   145,073    285,754 
           
Imaging Products & Solutions          
Digital Imaging Products   105,715    109,565 
Professional Solutions   65,734    64,822 
Other   3,175    2,765 
Total   174,624    177,152 
           
Home Entertainment & Sound     
Televisions   174,113    199,742 
Audio and Video   87,567    81,717 
Other   1,703    100 
Total   263,383    281,559 
           
Devices     
Semiconductors   83,342    115,846 
Components   60,768    62,330 
Other   642    2,967 
Total   144,752    181,143 
           
Pictures          
Motion Pictures   97,556    97,339 
Television Productions   45,288    44,259 
Media Networks   34,876    40,309 
Total   177,720    181,907 


          
Music          
Recorded Music   78,057    80,429 
Music Publishing   18,273    16,366 
Visual Media and Platform   16,401    17,876 
Total   112,731    114,671 
           
Financial Services   242,495    268,192 
All Other   193,306    87,797 
Corporate   15,615    14,997 
Consolidated total   1,774,235    1,901,511 

 

In the IP&S segment, Digital Imaging Products includes compact digital cameras, interchangeable single lens cameras and video cameras; Professional Solutions includes broadcast- and professional-use products. In the HE&S segment, Televisions includes LCD televisions; Audio and Video includes Blu-ray disc players and recorders, home audio, headphones and memory-based portable audio devices. In the Devices segment, Semiconductors includes image sensors; Components includes batteries, recording media and data recording systems. In the Pictures segment, Motion Pictures includes the production, acquisition and distribution of motion pictures; Television Productions includes the production, acquisition and distribution of television programming; Media Networks includes the operation of television and digital networks. In the Music segment, Recorded Music includes the distribution of physical and digital recorded music and revenue derived from artists’ live performances; Music Publishing includes the management and licensing of the words and music of songs; Visual Media and Platform includes various service offerings for music and visual products and the production and distribution of animation titles.

 

 

42 -
 

 

 

   Yen in millions
   Six months ended September 30
   2013  2014
Depreciation and amortization:          
Mobile Communications   10,921    10,879 
Game & Network Services   7,867    8,426 
Imaging Products & Solutions   19,322    15,260 
Home Entertainment & Sound   13,228    12,243 
Devices   51,860    42,602 
Pictures   8,986    9,256 
Music   7,191    6,767 
Financial Services, including deferred insurance acquisition costs   29,503    29,221 
All Other   14,576    6,692 
Total   163,454    141,346 
           
Corporate   25,502    25,401 
           
Consolidated total   188,956    166,747 
           

 

   Yen in millions
   Six months ended September 30, 2013
   Total net
restructuring
charges
  Depreciation
associated with
restructured assets
  Total
Restructuring charges and associated depreciation:         
Mobile Communications   3,146    —      3,146 
Game & Network Services   382    —      382 
Imaging Products & Solutions   2,132    —      2,132 
Home Entertainment & Sound   713    19    732 
Devices   2,429    —      2,429 
Pictures   871    —      871 
Music   104    —      104 
Financial Services   —      —      —   
All Other and Corporate   2,320    344    2,664 
Consolidated total   12,097    363    12,460 

 

 

43 -
 

 

 

 

   Yen in millions
   Six months ended September 30, 2014
   Total net
restructuring
charges
  Depreciation
associated with
restructured assets
  Total
Restructuring charges and associated depreciation:         
Mobile Communications   57    —      57 
Game & Network Services   64    —      64 
Imaging Products & Solutions   199    —      199 
Home Entertainment & Sound   577    —      577 
Devices   2,813    552    3,365 
Pictures   16    —      16 
Music   60    —      60 
Financial Services   —      —      —   
All Other and Corporate   19,558    790    20,348 
Consolidated total   23,344    1,342    24,686 

 

Depreciation associated with restructured assets as used in the context of the disclosures regarding restructuring activities refers to the increase in depreciation expense caused by revising the useful life and the salvage value of depreciable fixed assets to coincide with the earlier end of production under an approved restructuring plan. Any impairment of the assets is recognized immediately in the period it is identified.

 

   Yen in millions
   Three months ended September 30
   2013  2014
Depreciation and amortization:      
Mobile Communications   5,502    4,435 
Game & Network Services   4,221    4,426 
Imaging Products & Solutions   9,472    8,293 
Home Entertainment & Sound   6,620    6,138 
Devices   26,171    21,588 
Pictures   4,639    4,691 
Music   3,601    3,420 
Financial Services, including deferred insurance acquisition costs   15,546    13,602 
All Other   7,393    3,226 
Total   83,165    69,819 
           
Corporate   12,862    12,630 
           
Consolidated total   96,027    82,449 

 

 

44 -
 

 

 

 

   Yen in millions
   Three months ended September 30, 2013
   Total net
restructuring
charges
  Depreciation
associated with
restructured assets
  Total
Restructuring charges and associated depreciation:         
Mobile Communications   2,391    —      2,391 
Game & Network Services   381    —      381 
Imaging Products & Solutions   1,403    —      1,403 
Home Entertainment & Sound   553    —      553 
Devices   1,053    —      1,053 
Pictures   456    —      456 
Music   78    —      78 
Financial Services   —      —      —   
All Other and Corporate   1,381    110    1,491 
Consolidated total   7,696    110    7,806 

 

 

   Yen in millions
   Three months ended September 30, 2014
   Total net
restructuring
charges
  Depreciation
associated with
restructured assets
  Total
Restructuring charges and associated depreciation:         
Mobile Communications   43    —      43 
Game & Network Services   —      —      —   
Imaging Products & Solutions   71    —      71 
Home Entertainment & Sound   38    —      38 
Devices   2,271    552    2,823 
Pictures   16    —      16 
Music   34    —      34 
Financial Services   —      —      —   
All Other and Corporate   6,278    121    6,399 
Consolidated total   8,751    673    9,424 

 

Depreciation associated with restructured assets as used in the context of the disclosures regarding restructuring activities refers to the increase in depreciation expense caused by revising the useful life and the salvage value of depreciable fixed assets to coincide with the earlier end of production under an approved restructuring plan. Any impairment of the assets is recognized immediately in the period it is identified.

 

45 -
 

 

Geographic Information –

 

Sales and operating revenue attributed to countries based on location of external customers are as follows:

 

   Yen in millions
   Six months ended September 30
Sales and operating revenue:  2013  2014
Japan   1,042,587    1,010,924 
United States   519,414    633,124 
Europe   708,055    853,591 
China   269,114    277,581 
Asia-Pacific   502,787    504,269 
Other Areas   443,697    431,930 
Total   3,485,654    3,711,419 

 

 

   Yen in millions
   Three months ended September 30
Sales and operating revenue:  2013  2014
Japan   510,837    499,545 
United States   266,872    327,838 
Europe   379,851    461,395 
China   145,883    144,540 
Asia-Pacific   245,377    259,396 
Other Areas   225,415    208,797 
Total   1,774,235    1,901,511 

 

Major areas in each geographic segment excluding Japan, United States and China are as follows:

 

(1) Europe: United Kingdom, France, Germany, Russia, Spain and Sweden
(2) Asia-Pacific: India, South Korea and Oceania
(3) Other Areas: The Middle East/Africa, Brazil, Mexico and Canada

 

There are not any individually material countries with respect to the sales and operating revenue included in Europe, Asia-Pacific and Other Areas.

 

Transfers between reportable business segments or geographic areas are made at amounts which Sony’s management believes approximate as arms-length transactions.

 

There were no sales and operating revenue with any single major external customer for the six and three months ended September 30, 2013 and 2014.

 

46 -
 

 

(2)   Other Information

 

Litigation

In May 2011, Sony Corporation’s U.S. subsidiary, Sony Electronics Inc., received a subpoena from the U.S. Department of Justice (“DOJ”) Antitrust Division seeking information about its secondary batteries business. Sony understands that the DOJ, the European Commission and certain other governmental agencies outside the United States also opened investigations of competition in the secondary batteries market. The DOJ has notified Sony that it has closed its investigation, but the European Commission and one other agency continue to investigate. A number of direct and indirect purchaser class action lawsuits have been filed in certain jurisdictions, including the United States, in which the plaintiffs allege that Sony Corporation and certain of its subsidiaries violated antitrust laws and seek recovery of damages and other remedies. Based on the stage of these proceedings, it is not possible to estimate the amount of loss or range of possible loss, if any, that might result from adverse judgments, settlements or other resolution of all of these matters.

 

Beginning in early 2011, the network services of PlayStation®Network, Qriocity™, Sony Online Entertainment LLC and websites of other subsidiaries came under cyber-attack. As of November 10, 2014, Sony has not received any confirmed reports of customer identity theft issues or misuse of credit cards from such cyber-attacks. However, in connection with certain of these matters, Sony has received inquiries from authorities in a number of jurisdictions, including formal and/or informal requests for information from Attorneys General from a number of states in the United States. Additionally, Sony Corporation and/or certain of its subsidiaries have been named in a number of purported class actions in certain jurisdictions, including the United States. A proposed settlement of the U.S. class action suits has received preliminary court approval, and is subject to final approval by the court. The settlement of a set of non-U.S. class actions has received court approval, and one non-U.S. class action suit remains pending. Based on the stage of these inquiries and proceedings, it is not possible to estimate the amount of loss or range of possible loss, if any, that might result from adverse judgments, settlements or other resolution of all of these matters.

 

In October 2009, Sony Corporation’s U.S. subsidiary, Sony Optiarc America Inc., received a subpoena from the DOJ seeking information about its optical disk drive business. Sony understands that the European Commission and certain other governmental agencies outside the United States also opened investigations of competition in the optical disk drives market. The DOJ has notified Sony that it has closed its investigation, and Sony understands that the investigations by several other agencies have now ended, but the European Commission and one other agency continue to investigate. A number of direct and indirect purchaser lawsuits, including class actions, have been filed in certain jurisdictions, including the United States, in which the plaintiffs allege that Sony Corporation and certain of its subsidiaries violated antitrust laws and seek recovery of damages and other remedies. In October 2014, the United States District Court hearing the U.S. class actions denied motions for class certification in both the direct and indirect purchaser class actions. The class plaintiffs have filed petitions to appeal these rulings. Based on the stage of the investigations and cases, it is not possible to estimate the amount of loss or range of possible loss, if any, that might ultimately result from adverse judgments, settlements or other resolution of the investigations and cases.

 

Trial was set for September 2014 in a lawsuit brought by the liquidating trust for a former customer of Sony Corporation’s U.S. subsidiary, Sony Electronics Inc., seeking recovery in connection with the former customer’s bankruptcy filing. In September 2014, the parties reached an agreement to settle the lawsuit and received court approval on October 22, 2014. Settlement of this matter had no material impact on Sony’s results of operations, financial position or cash flows.

 

In addition, Sony Corporation and certain of its subsidiaries are defendants or otherwise involved in other pending legal and regulatory proceedings. However, based upon the information currently available, Sony believes that the outcome from such legal and regulatory proceedings would not have a material impact on Sony’s results of operations and financial position.

 

 

47 -
 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

SONY CORPORATION
(Registrant)
   
   
By:  /s/  Kenichiro Yoshida
(Signature)
                
 
Kenichiro Yoshida
Executive Vice President and Chief Financial Officer

 

November 10, 2014
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