6-K 1 sony-6k_0213.htm

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 February 2014
Commission File Number: 001-06439

SONY CORPORATION

(Translation of registrant’s name into English)

7-1, KONAN 1-CHOME, 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 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

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 December 31, 2013

 

(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   4
  (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   16
         
IV Financial Statements   17
  (1) Consolidated Financial Statements   18
  (2) Other Information   46

 

 
 

 

Note for readers of this English translation

 

On February 13, 2014, Sony Corporation (the “Company” or “Sony Corporation”) filed its Japanese-language Quarterly Securities Report (Shihanki Houkokusho) for the three months ended December 31, 2013 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 smart phones, 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.

 

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I Corporate Information

 

(1) Selected Consolidated Financial Data

 

   Yen in millions, Yen per share amounts 
   Nine months ended December 31, 2012   Nine months ended December 31, 2013   Fiscal year ended March 31, 2013 
Sales and operating revenue   5,067,822    5,901,017    6,800,851 
Operating income   82,955    141,453    230,100 
Income before income taxes   58,493    141,986    245,681 
Net income (loss) attributable to Sony Corporation’s stockholders   (50,874)   11,172    43,034 
Comprehensive income   75,288    259,234    326,523 
Total equity   2,481,409    2,941,846    2,681,178 
Total assets   13,861,045    15,653,354    14,206,292 
Net income (loss) attributable to Sony Corporation’s stockholders per share of common stock, basic (yen)   (50.69)   10.92    42.80 
Net income (loss) attributable to Sony Corporation’s stockholders per share of common stock, diluted (yen)   (50.69)   9.56    40.19 
Ratio of stockholders’ equity to total assets (%)   14.5    15.5    15.5 
Net cash provided by operating activities   220,353    248,181    481,512 
Net cash used in investing activities   (721,020)   (436,808)   (705,280)
Net cash provided by financing activities   286,574    146,365    83,181 
Cash and cash equivalents at end of the period   698,029    849,248    826,361 

 

   Yen in millions, Yen per share amounts 
   Three months ended December 31, 2012   Three months ended December 31, 2013 
Sales and operating revenue   1,947,980    2,412,819 
Net income (loss) attributable to Sony Corporation’s stockholders   (10,763)   26,979 
Net income (loss) attributable to Sony Corporation’s stockholders per share of common stock, basic (yen)   (10.72)   26.00 
Net income (loss) attributable to Sony Corporation’s stockholders per share of common stock, diluted (yen)   (10.72)   23.09 

 

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.
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.

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

 

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(2) Business Overview

 

There was no significant change in the business of Sony during the nine months ended December 31, 2013.

 

As of December 31, 2013, the Company had 1,329 subsidiaries and 114 affiliated companies, of which 1,307 companies are consolidated subsidiaries (including variable interest entities) of the Company. The Company has applied the equity accounting method for 107 affiliated companies.

 

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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 27, 2013. 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 27, 2013 

http://www.sec.gov/Archives/edgar/data/313838/000119312513273660/d519176d20f.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 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 77.5 billion yen in restructuring charges was recorded in the fiscal year ended March 31, 2013. While Sony anticipates recording approximately 70 billion yen of restructuring charges for the fiscal year ending March 31, 2014 and 2015, respectively, 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. Sony plans to continue rationalizing its manufacturing operations, shifting and consolidating manufacturing to lower-cost countries, utilizing outsourced manufacturing, reducing SGA expenses at sales companies, and outsourcing its support functions and information processing operations to external partners. In addition, Sony continues to implement business process optimization through horizontal platforms such as global 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 the payments for restructuring charges.

 

(2) Material Contracts

 

There were no material contracts executed during the three months ended December 31, 2013.

 

Note for readers of this English translation:

 

Except for the matters as updated in the Quarterly Securities Report on Form 6-K submitted to the SEC on August 9, 2013 (“Material Contracts”), 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 27, 2013.

 

URL: The Annual Report on Form 20-F filed with the SEC on June 27, 2013 

http://www.sec.gov/Archives/edgar/data/313838/000119312513273660/d519176d20f.htm

  

URL: The Quarterly Securities Report on Form 6-K submitted to SEC on August 9, 2013 

http://www.sec.gov/Archives/edgar/data/313838/000090342313000456/sony-6k_0809.htm

 

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(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 nine-month periods ended December 31, 2013, since it is the same as described in a press release previously submitted to the SEC. Please refer to “Consolidated Financial Results for the Third Quarter Ended December 31, 2013” submitted to the SEC on Form 6-K on February 6, 2014.

 

URL: The press release titled “Consolidated Financial Results for the Third Quarter Ended December 31, 2013”

http://www.sec.gov/Archives/edgar/data/313838/000115752314000456/a50797072.htm

 

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 27, 2013. Although foreign exchange rates have fluctuated during the three-month period ended December 31, 2013, 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 27, 2013

http://www.sec.gov/Archives/edgar/data/313838/000119312513273660/d519176d20f.htm

 

During the three months ended December 31, 2013, the average rates of the yen were 100.5 yen against the U.S. dollar and 136.7 yen against the euro, which were 19.1 percent and 22.9 percent lower, respectively, than the same quarter of the previous fiscal year (“year-on-year”).

 

For the three months ended December 31, 2013, sales were 2,412.8 billion yen, an increase of 23.9 percent year-on-year, while on a constant currency basis, sales increased 5 percent year-on-year. For references to information on a constant currency basis, see Note at the bottom of this section.

 

Consolidated operating income of 90.3 billion yen was recorded for the three months ended December 31, 2013, an increase of 43.9 billion yen year-on-year (a deterioration of approximately 11.2 billion yen year-on-year on a constant currency basis). Most of the foreign exchange rate impact was attributable to the Imaging Products & Solutions (“IP&S”), Game, Mobile Products & Communications (“MP&C”), Home Entertainment & Sound (“HE&S”) and Devices segments.

 

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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)  
    Third quarter ended December 31     Change     Change on constant currency     Impact of changes in  foreign exchange  
      2012       2013     in yen     basis     rates  
IP&S Sales   186.9       198.1       +6.0 %     -12 %     +34.4  
Operating income (loss)   (2.9 )     12.1       +15.0       -4.1       +19.1  
Game Sales   268.5       441.8       +64.6 %     +33 %     +84.0  
Operating income   4.6       18.0       +13.4       -3.8       +17.2  
MP&C Sales   318.8       461.5       +44.8 %     +18 %     +86.4  
Operating loss   (21.3 )     (12.6 )     +8.8       +11.6       -2.8  
HE&S Sales   323.8       404.0       +24.8 %   +3 %     +71.9  
Operating income (loss)   (8.0 )     6.4       +14.4       +15.9       -1.5  
Devices Sales   217.3       216.0       -0.6 %     -14 %     +29.1  
Operating income (loss)   9.7       (23.8 )     -33.4       -51.1       +17.7  

 

In addition, sales for the Pictures segment increased 7.1 percent year-on-year to 223.7 billion yen, a 13 percent decrease on a constant currency (U.S. dollar) basis. In the Music segment, sales increased 14.4 percent year-on-year to 144.7 billion yen. On a constant currency basis, sales in the Music segment decreased 1 percent year-on-year. For a detailed analysis of segment performance, please refer to the Pictures and Music segments under the “Results of Operations” section above. Sony’s Financial Services segment consolidates the yen-based results of Sony Financial Holdings Inc. As most of the operations in this segment are based in Japan, Sony’s management analyzes the performance of the Financial Services segment on a yen basis only.

 

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 December 31, 2013. 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 December 31, 2013. In certain cases, most significantly in the Pictures segment, and Sony Music Entertainment and Sony/ATV Music Publishing LLC (“Sony/ATV”) 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.

 

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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 nine-month period ended December 31, 2013, since it is the same as described in a press release previously submitted to the SEC. Please refer to “Consolidated Financial Results for the Third Quarter Ended December 31, 2013” submitted to the SEC on Form 6-K on February 6, 2014.

 

URL: The press release titled “Consolidated Financial Results for the Third Quarter Ended December 31, 2013”

http://www.sec.gov/Archives/edgar/data/313838/000115752314000456/a50797072.htm

 

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

 

Note for readers of this English translation:

 

Except for the revised trend information 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 27, 2013. 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 27, 2013

http://www.sec.gov/Archives/edgar/data/313838/000119312513273660/d519176d20f.htm

 

While there are signs of a recovery in consumer demand in the U.S. and economic activity in Japan is forecasted to recover due to new economic stimulus policies from the Japanese government, a global economic recovery remains uncertain due to the continuing euro zone crisis and uncertainty about the economic growth of emerging markets.

 

The uncertain economic environment 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 operating losses in the fiscal years ended March 31, 2012 and 2013.

 

Under these circumstances, Sony has been accelerating initiatives to revitalize and grow its electronics businesses based on the corporate strategy announced on April 12, 2012 and updated on May 22, 2013, while further growing the entertainment and financial services businesses that have been contributing stable profit, in order to enhance the entire Sony Group’s ability to heighten corporate value. Sony is also implementing the following key strategies for the fiscal year ending March 31, 2014.

 

1.Accelerate execution of strategies in the three core electronics businesses (Mobile, Imaging and Game)

 

Mobile business — In the smartphone and tablet businesses, where continued market growth is anticipated, Sony aims to achieve further growth while enhancing profitability. Sony intends to accelerate the speed with which it develops compelling products that incorporate the best of Sony’s technologies and execute the timely launch of new and highly competitive products that build on the success of Xperia Z, which has been well-accepted in many markets worldwide. By further strengthening relations with major operators globally and expanding sales channels, Sony is seeking to secure a leading position in each of its focus markets around the globe. Through these efforts, Sony aims to capitalize on the growing market for smartphones in which Sony has had minimal market share due to long product development lead times compared to its competitors. Following a comprehensive analysis of factors, including the drastic changes in the global PC industry, Sony’s overall business portfolio and strategy, the need for continued support of Sony’s valued VAIO customers, and future employment opportunities, Sony has determined that concentrating its mobile product lineup on smartphones and tablets and transferring its PC business to a new company established by Japan Industrial Partners Inc.(“JIP”) is the optimal solution and concluded a memorandum of understanding confirming the parties’ intent for Sony to sell to JIP Sony’s PC business on February 6, 2014. As a part of the sale to JIP, Sony will cease planning, design and development of PC products. Sony’s manufacturing and sales will be discontinued after the Spring 2014 lineup.

 

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Imaging business — Placing image sensors, a particularly strong category for Sony, at its core, Sony is focusing its imaging businesses on creating value-added products, while aggressively exploring new applications for its imaging technologies in both the consumer and professional markets. With respect to image sensors, Sony will continue to commercialize new technologies capable of differentiating finished products for use in a range of consumer and professional applications. Sony also plans to engage in aggressive capital investment in order to meet the robust demand for these components. At the same time, Sony is developing technologies that further expand the range of sensor applications, including sensors capable of sensing beyond the visible light spectrum, and sensors capable of detecting and categorizing different types of information. In the professional market, Sony will continue to reinforce its professional camera lineup centering on 4K-compatible cameras, as well as cameras for cinematography. Sony will also target further business growth by extending the scope of its digital imaging technologies to new business areas such as security, sports and medical, and will reallocate resources accordingly. In the consumer market, where business conditions continue to shift rapidly, Sony aims to expand sales of value-added compact digital still cameras by introducing models that leverage Sony’s image sensor technologies to further enhance image quality, and also incorporate such other enhancements as reduced size and weight, and higher-powered zoom. Sony believes that there is room for considerable growth in the category of mirrorless lens cameras, and will seek to firmly maintain its position in this category. In addition to these efforts, Sony aims to capitalize on the growing market for smartphones in response to the shift in consumer demand away from dedicated camera devices (including both still cameras and video cameras) to camera-equipped smartphones.

 

Game business — “PlayStation 3” continues to deliver stable hardware and software sales, and Sony will continue to reinforce the business’ position as a stable source of profit. In particular, Sony will seek to grow sales of content and services through PlayStation Store to contribute to profit. For “PlayStation Vita” (“PS Vita”), Sony will aim to secure further sales and profit through various hardware sales initiatives and the introduction of compelling software titles. The next generation platform, “PlayStation 4” (“PS4”) is expected to launch this year-end holiday season. PS4 will deliver a quality gaming experience only possible through a dedicated gaming system, and will also enable smartphone and tablet users to share in the enjoyment of PS4, even without owning PS4 themselves. Furthermore, customers who own both PS4 and PS Vita will be able to experience new services and game entertainment. Sales of digital downloads are increasing rapidly as the delivery of game content transitions from disc media to sales over the network. Sony is also working towards streaming PlayStation games by leveraging the cloud technologies of Gaikai Inc., which Sony acquired in the fiscal year ended March 31, 2013. This would enable the PlayStation experience to be enjoyed across a wide range of products, providing significant opportunities for further business expansion. Through these efforts, Sony aims to re-invigorate the game market, which has recently experienced a shift in consumer preferences to casual, free-to-play games played on mobile devices. Sony also aims to increase its share in the online gaming market, which has expanded at a pace faster than Sony’s growth in that market.

  

2.Pursue initiatives to return the TV business to profitability

 

Sony has been engaged in various cost reduction initiatives for the TV business, as outlined in its TV business profitability improvement plan announced in November 2011. These initiatives include enhancing LCD panel-related cost efficiency and rationalizing R&D expenses, while also strengthening product competitiveness and operational efficiency in order to improve marginal profit ratio.

 

While Sony now anticipates that its target of returning the TV business to profitability will not be achieved within the fiscal year ending March 31, 2014 largely due to unexpected factors such as the slowdown in emerging markets and declining currency rates, the reforms executed within the TV business over the past two years are putting the business on a path to turnaround. In particular, Sony has significantly enhanced product competitiveness by benefitting its shift to high-end models, especially in the 4K television market in Japan and the U.S., where Sony has gained high market share. TVs continue to play a vital role as the centerpiece of the home viewing experience. Sony aims to leverage the wealth of technological expertise and assets accumulated within this business as key differentiation technologies across its entire product lineup. In light of the TV business’ continued importance within Sony’s overall strategy, Sony has decided to execute the additional reform measures detailed below, with the aim of establishing a structure capable of delivering stable profit beginning in the fiscal year ending March 31, 2015.

 

First, Sony will shift its product mix and focus on increasing the proportion of sales from high-end models in the fiscal year ending March 31, 2015. Sony plans to reinforce the its leading position in the 4K market by strengthening its product lineup while also bolstering its 2K models with wide color range and image-enhancing technologies. In emerging markets, Sony will aim to harness market expansion by developing and launching models tailored to specific local needs. Second, Sony will accelerate and broaden its on-going cost reduction and operational improvement measures, focusing attention across all functions relevant to the TV business, including manufacturing, sales, and headquarters/indirect functions (as outlined below). In addition, to help transform this business into a more efficient and dynamic organization, optimized in size and structure for the current competitive business environment and fully accountable for its operations, Sony has decided to split out the TV business and operate it as a wholly-owned subsidiary. The targeted timeframe for this transition is July 2014. By implementing these measures, Sony is aiming to further enhance its TV business’ profit structure and return the business to profitability during the fiscal year ending March 31, 2015.

 

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3.Manufacturing, Sales, Headquarters/Indirect functions

 

In view of these strategic decisions about the PC and TV businesses announced on February 6, 2014, and the increasingly aggressive process of selection and focus being implemented across Sony’s electronics business, Sony plans to optimize the scale of the manufacturing, sales and headquarters/indirect functions that support these businesses.

 

In terms of electronics sales companies, Sony plans to identify focused product categories for each specific country and region, rationalize support functions, and proactively implement outsourcing and other efficiency measures with the objective of achieving total cost reductions of approximately 20% by the fiscal year ending March 31, 2016, compared to the fiscal year ending March 31, 2014.

 

With respect to manufacturing sites, Sony will proceed with the further optimization of manufacturing and other operations.

 

Sony will also streamline Sony Corporation headquarters and support functions and expects to achieve cost reductions of approximately 30% by the fiscal year ending March 31, 2016 within these operations, compared to the fiscal year ending March 31, 2014.

 

4.Further strengthen profitability in the entertainment and financial services businesses

 

In the Pictures business, Sony is focusing on the production and acquisition of a diversified portfolio of motion picture and television product with worldwide appeal and is targeting expansion of its worldwide television networks in rapidly growing markets such as India. Sony also is exploring new digital distribution methods for its product, while optimizing existing distribution methods, and continuing to explore alternative avenues for financing its motion pictures. At the same time, Sony continues to face intense competition, rising costs, digital theft, continuing industry-wide decline in physical media sales, and limited access to third-party financing. As announced in November 2013, within the Pictures segment, Sony is in the process of implementing over 250 million U.S. dollars of cost reduction initiatives, including overhead costs reductions, operational efficiency enhancements and procurement costs savings, which are planned to be completed by the fiscal year ending March 31, 2016.

 

In the Music business, Sony is aiming to increase market share by discovering and nurturing exciting new talent, and is also exploring growth opportunities such as leveraging its music content for use across increasingly popular online music service platforms. Sony is also pursuing new business revenue streams such as sponsorships and music-based television programming. In the music publishing business, which manages music publishing rights, Sony/ATV began administering EMI Music Publishing’s world-class global music catalog in June 2012. Sony plans to solidify its position in the music publishing industry through efficient management and strong creative decisions. However, the music business has been operating in a challenging market environment for several years, with declines in industry revenues each year from 2000 to 2011, as declines in the industry’s physical sales have not been offset by growth in the digital sales. While 2012 marked the first year since 1999 that global music industry sales did not decline, showing a modest 0.2 percent growth in revenue, the overall declining trend may continue in the medium term despite the digital arena having significant potential, with current digital platforms continuing overall growth in the U.S. and expanding globally, as well as with new digital platforms and innovative products being introduced in the digital marketplace.

 

In the financial services businesses, these businesses are striving to deliver highly dependable services backed by high customer satisfaction ratings, and, by doing so, achieve a consistent increase in corporate value underpinned by the businesses’ stable revenue base and solid financial foundation. To this end, the financial services businesses aim to achieve sustainable growth through further enhancing customer satisfaction and expanding their customer base by pursuing their core competency of providing high-quality services. These businesses also aim to strengthen their solid revenue base in the face of a changing business environment.

 

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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/.

  

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 27, 2013.

 

URL: The Annual Report on Form 20-F filed with the SEC on June 27, 2013

http://www.sec.gov/Archives/edgar/data/313838/000119312513273660/d519176d20f.htm

 

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

 

The Advanced Device Technology Platform, the Corporate R&D and the System & Software Technology Platform were realigned in June 2013, to form the R&D Platform and the Software Design Group to accelerate the development of next generation core technology to deliver Sony products and services in order to increase customer value.

 

Research and development costs for the nine months ended December 31, 2013 totaled 344.6 billion yen.

 

- 10 -
 

 

iv) Liquidity and Capital Resources

 

Note for readers of this English translation:

 

Except for the information related to the committed lines of credit and the issuance of unsecured straight bonds, and the rating downgrade below, there was no significant change from the information presented in the Annual Report on Form 20-F filed with the SEC on June 27, 2013. 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 27, 2013

http://www.sec.gov/Archives/edgar/data/313838/000119312513273660/d519176d20f.htm

 

Liquidity Management and Market Access

 

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 844.3 billion yen in unused committed lines of credit, as of December 31, 2013. 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 2.02 billion U.S. dollar multi-currency committed line of credit contracted with a syndicate of foreign banks, effective until April 2015. On January 9, 2014, the amount of the 2.02 billion U.S. dollar committed line of credit was decreased to 1.01 billion U.S. dollars. In all of these committed lines of credit, Sony Corporation and Sony Global Treasury Services Plc are defined as borrowers. In September 2013, Sony extended by five years the term for the 1.5 billion U.S. dollar multi-currency committed line of credit contracted with a syndicate of Japanese banks, and in November 2013, Sony extended by one year the term for the 475.0 billion yen committed line of credit contracted with a syndicate of Japanese banks. 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.

 

In June 2013, Sony issued unsecured straight bonds for Japanese retail investors in the aggregate principal amount of 150.0 billion yen. The proceeds from the issuance of the bonds have been applied to the repayment of borrowings and debt, and to capital expenditures.

 

Ratings

 

Sony considers one of management’s top priorities to be the maintenance of stable and appropriate credit ratings in order to ensure financial flexibility for liquidity and capital management and continued adequate access to sufficient funding resources in the financial and capital markets.

 

In order to facilitate access to global capital markets, Sony obtains credit ratings from two rating agencies, Moody’s (Japan) K.K. (“Moody’s”) and Standard & Poor’s Ratings Japan K.K. (“S&P”). In order to facilitate access to Japanese financial and capital markets, Sony obtains credit ratings from two agencies in Japan, including Rating and Investment Information, Inc. (“R&I”) and, since May 2013, Japan Credit Rating Agency, Ltd.

 

During the fiscal year ended March 31, 2013, Sony’s ratings were downgraded by Moody’s, S&P and R&I. During the fiscal year ending March 31, 2014, Sony’s ratings were further downgraded by Moody’s. However, Sony has not recognized any material negative impact on its liquidity and financial flexibility due to these rating downgrades. Sony currently believes that it has access to sufficient funding resources in 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   third quarterly period   (December 31, 2013) As of the filing date of   the Quarterly   Securities Report   (February 13, 2014)
Common stock 1,038,669,459 1,038,670,259 Tokyo Stock Exchange
New York Stock Exchange
London Stock Exchange
The number of shares constituting one full unit is one hundred (100).
Total 1,038,669,459 1,038,670,259

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 February 2014, the month in which this Quarterly Securities Report (Shihanki Houkokusho) was filed.

 

ii) Stock Acquisition Rights

 

Note for readers of this English translation:

 

The Japanese-language Quarterly Securities Report includes a summary of the main terms and conditions of the SARs listed below which were issued during the three months ended December 31, 2013. A summary of such terms and conditions has previously been filed with or submitted to the SEC on Form 6-K or Form S-8. There has been no change to such terms and conditions since the applicable date of such filings or submissions.

 

URL: The list of documents previously filed or submitted by the Company

http://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000313838&owner=include&count=40

 

Stock acquisition rights (outstanding as of December 31, 2013)

Name  (Date of resolution of the Board of Directors) Number of  SARs issued Number of shares of common stock to be issued or transferred
The twenty-sixth series of Common Stock Acquisition Rights  (October 30, 2013) 8,665 866,500
The twenty-seventh series of Common Stock Acquisition Rights (October 30, 2013) 11,277 1,127,700

 

- 12 -
 

 

iii) Status of the Exercise of Moving Strike Convertible Bonds

 

Not applicable.

  

iv) Description of Rights Plan

 

Not applicable.

 

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 October 1 to December 31, 2013 35 1,038,669 31 643,733 31 857,426

Notes:

 1.The increase is due to the exercise of SARs. 
2.Upon the exercise of SARs during the period from January 1, 2014 to January 31, 2014, the total number of shares issued increased by 1 thousand shares, the amount of common stock and the legal capital surplus increased by 1 million yen, respectively.

 

- 13 -
 

 

vi) Status of Major Shareholders

 

(As of December 31, 2013)

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) 82,964 7.99
The Master Trust Bank of Japan, Ltd.   (Trust account) *2 2-11-3, Hamamatsu-cho, Minato-ku, Tokyo 37,845 3.64
Japan Trustee Services Bank, Ltd.   (Trust account) *2 1-8-11, Harumi, Chuo-ku, Tokyo 34,751 3.35
The Bank of New York, Non-Treaty Jasdec Account *3   (Local Custodian: The Bank of Tokyo-Mitsubishi UFJ, Ltd.) New York, U.S.A.   (2-7-1, Marunouchi, Chiyoda-ku,   Tokyo) 33,038 3.18
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) 17,081 1.64
Japan Trustee Services Bank, Ltd.   (Trust account 9) *2 1-8-11, Harumi, Chuo-ku, Tokyo 14,321 1.38
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) 11,880 1.14
State Street Bank West Client - Treaty *3   (Local Custodian: Mizuho Bank, Ltd.) North Quincy, U.S.A.   (4-16-13, Tsukishima, Chuo-ku,   Tokyo) 11,445 1.10
UBS Securities LLC-HFS Customer Segregated Account *3   (Local Custodian: Citibank Japan Ltd.) Stamford, U.S.A.   (2-3-14, Higashi-Shinagawa, Shinagawa-ku, Tokyo) 10,045 0.97
Barclays Capital Inc A/C Client Safe Custody *3   (Local Custodian: Barclays Securities Japan Limited) New York, U.S.A.   (6-10-1, Roppongi, Minato-ku, Tokyo) 10,000 0.96
Total 263,371 25.36

Notes: 

*1.Moxley and Co. LLC is the nominee of JPMorgan Chase Bank, N.A., which is the Depositary for holders of the Company’s American Depositary Receipts.

*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.

 

- 14 -
 

 

vii) Status of Voting Rights

 

1) Shares Issued

 

(As of December 31, 2013)

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.) 1,016,500
Shares with full voting rights (Others) 1,035,262,600 10,352,626
Shares constituting less than one full unit 2,390,359 Shares constituting less than one full unit   (100 shares)
Total number of shares issued 1,038,669,459
Total voting rights held by all shareholders 10,352,626
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 December 31, 2013)

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 1,016,500 1,016,500 0.10
Total 1,016,500  — 1,016,500 0.10
Note:In addition to the 1,016,500 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.

 

- 15 -
 

 

(2) Directors and Corporate Executive Officers

 

The 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, 2013 to the filing date of this Quarterly Securities Report (Shihanki Houkokusho) is as follows:

 

Newly Appointed Corporate Executive Officer

 

Title Position Name Date of   Birth Prior and Current Position Term Number of shares held   (Thousands) Appointment Date
               
Corporate Executive   Officer Executive Vice President (Chief Strategy Officer and Deputy Chief Financial Officer) Kenichiro Yoshida October 20, 1959 1983.4 Joined Sony Corporation * - December 1, 2013
2001.5 Senior Vice President, So-net Corporation
2005.4 President and Representative Director, So-net Corporation
2013.12 Executive Vice President, Corporate Executive Officer, Chief Strategy Officer and Deputy Chief Financial Officer, Sony Corporation (Present)

 

Note: * The term of office will expire at the conclusion of the first meeting of the Board of Directors held immediately after the conclusion of the Ordinary General Meeting of Shareholders held for the fiscal year ending March 31, 2014.

 

- 16 -
 

 

IV Financial Statements

 

  Page
(1) Consolidated Financial Statements 18
  (i) Consolidated Balance Sheets 18
  (ii) Consolidated Statements of Income 20
  (iii) Consolidated Statements of Comprehensive Income 22
  (iv) Consolidated Statements of Cash Flows 23
(2) Other Information 46

 

- 17 -
 

 

(1) Consolidated Financial Statements

 

(i) Consolidated Balance Sheets (Unaudited)

Sony Corporation and Consolidated Subsidiaries

 

   Yen in millions 
   At March 31,
2013
   At December 31,
2013
 
ASSETS          
Current assets:          
Cash and cash equivalents   826,361    849,248 
Marketable securities   697,597    833,207 
Notes and accounts receivable, trade   844,117    1,310,272 
Allowance for doubtful accounts and sales returns   (67,625)   (93,744)
Inventories   710,054    850,030 
Other receivables   148,142    227,908 
Deferred income taxes   44,615    48,145 
Prepaid expenses and other current assets   443,272    538,680 
Total current assets   3,646,533    4,563,746 
Film costs   270,089    329,500 
Investments and advances:          
Affiliated companies   198,621    183,052 
Securities investments and other   7,118,504    7,547,286 
    7,317,125    7,730,338 
Property, plant and equipment:          
Land   131,484    129,810 
Buildings   778,514    719,762 
Machinery and equipment   1,934,520    1,832,247 
Construction in progress   47,839    43,322 
    2,892,357    2,725,141 
Less – Accumulated depreciation   2,030,807    1,926,301 
    861,550    798,840 
Other assets:          
Intangibles, net   527,507    528,501 
Goodwill   643,243    706,410 
Deferred insurance acquisition costs   460,758    484,619 
Deferred income taxes   107,688    111,204 
Other   371,799    400,196 
    2,110,995    2,230,930 
Total assets   14,206,292    15,653,354 

(Continued on following page.)

 

- 18 -
 

 


Consolidated Balance Sheets (Unaudited)

 

    Yen in millions  
    At March 31,
2013
    At December 31,
2013
 
LIABILITIES                
Current liabilities:                
Short-term borrowings     87,894       107,559  
Current portion of long-term debt     156,288       272,004  
Notes and accounts payable, trade     572,102       876,922  
Accounts payable, other and accrued expenses     1,097,253       1,200,615  
Accrued income and other taxes     75,080       155,453  
Deposits from customers in the banking business     1,857,448       1,857,476  
Other     469,024       586,866  
Total current liabilities     4,315,089       5,056,895  
                 
Long-term debt     938,428       935,917  
Accrued pension and severance costs     311,469       319,185  
Deferred income taxes     373,999       379,418  
Future insurance policy benefits and other     3,540,031       3,750,747  
Policyholders’ account in the life insurance business     1,693,116       1,972,494  
Other     349,985       293,772  
Total liabilities     11,522,117       12,708,428  
Redeemable noncontrolling interest     2,997       3,080  
Commitments and contingent liabilities                
EQUITY                
Sony Corporation’s stockholders’ equity:                
Common stock, no par value –                
At March 31, 2013–Shares authorized: 3,600,000,000, shares issued: 1,011,950,206     630,923          
At December 31, 2013–Shares authorized: 3,600,000,000, shares issued: 1,038,669,459           643,733  
                 
Additional paid-in capital     1,110,531       1,124,646  
Retained earnings     1,102,297       1,100,393  
Accumulated other comprehensive income –                
Unrealized gains on securities, net     107,061       121,297  
Unrealized losses on derivative instruments, net     (742 )     (348 )
Pension liability adjustment     (191,816 )     (198,539 )
Foreign currency translation adjustments     (556,016 )     (361,963 )
      (641,513 )     (439,553 )
Treasury stock, at cost                
Common stock                
At March 31, 2013–1,048,870 shares     (4,472 )        
    At December 31, 2013–1,016,571 shares                 (4,269 )
      2,197,766       2,424,950  
Noncontrolling interests     483,412       516,896  
Total equity     2,681,178       2,941,846  
Total liabilities and equity     14,206,292       15,653,354  

The accompanying notes are an integral part of these statements.

 

- 19 -
 

 


(ii) Consolidated Statements of Income (Unaudited)

Sony Corporation and Consolidated Subsidiaries

 

   Yen in millions 
   Nine months ended December 31 
   2012   2013 
Sales and operating revenue:          
Net sales   4,297,417    5,048,906 
Financial services revenue   689,940    778,172 
Other operating revenue   80,465    73,939 
    5,067,822    5,901,017 
Costs and expenses:          
Cost of sales   3,334,185    3,839,922 
Selling, general and administrative   1,066,896    1,256,185 
Financial services expenses   594,876    643,201 
Other operating (income) expense, net   (14,855)   19,475 
    4,981,102    5,758,783 
Equity in net loss of affiliated companies   (3,765)   (781)
Operating income   82,955    141,453 
Other income:          
Interest and dividends   11,597    11,081 
Gain on sale of securities investments, net   184    8,044 
Other   2,897    11,229 
    14,678    30,354 
Other expenses:          
Interest   20,831    18,280 
Loss on devaluation of securities investments   7,477    114 
Foreign exchange loss, net   5,812    4,300 
Other   5,020    7,127 
    39,140    29,821 
Income before income taxes   58,493    141,986 
Income taxes   67,917    84,391 
Net income (loss)   (9,424)   57,595 
Less - Net income attributable to noncontrolling interests   41,450    46,423 
Net income (loss) attributable to Sony Corporation’s stockholders   (50,874)   11,172 

 

   Yen 
   Nine months ended December 31 
   2012   2013 
Per share data:  -   - 
Net income (loss) attributable to Sony Corporation’s stockholders          
– Basic   (50.69)   10.92 
– Diluted   (50.69)   9.56 

The accompanying notes are an integral part of these statements.

 

- 20 -
 

 

Consolidated Statements of Income (Unaudited)

Sony Corporation and Consolidated Subsidiaries

 

   Yen in millions 
   Three months ended December 31 
   2012   2013 
Sales and operating revenue:          
Net sales   1,660,703    2,098,930 
Financial services revenue   265,578    282,963 
Other operating revenue   21,699    30,926 
    1,947,980    2,412,819 
Costs and expenses:          
Cost of sales   1,282,776    1,585,927 
Selling, general and administrative   388,687    458,814 
Financial services expenses   230,746    234,459 
Other operating (income) expense, net   (1,018)   44,956 
    1,901,191    2,324,156 
Equity in net income (loss) of affiliated companies   (360)   1,669 
Operating income   46,429    90,332 
Other income:          
Interest and dividends   2,689    1,637 
Gain on sale of securities investments, net   52    7,428 
Other   879    1,858 
    3,620    10,923 
Other expenses:          
Interest   7,356    4,232 
Loss on devaluation of securities investments   7,288    20 
Foreign exchange loss, net   4,120    4,747 
Other   1,855    2,487 
    20,619    11,486 
Income before income taxes   29,430    89,769 
Income taxes   25,907    46,050 
Net income   3,523    43,719 
Less - Net income attributable to noncontrolling interests   14,286    16,740 
Net income (loss) attributable to Sony Corporation’s stockholders   (10,763)   26,979 


   Yen 
   Three months ended December 31 
   2012   2013 
Per share data:      - 
Net income (loss) attributable to Sony Corporation’s stockholders          
– Basic   (10.72)   26.00 
– Diluted   (10.72)   23.09 

The accompanying notes are an integral part of these statements.

  

- 21 -
 

 

(iii) Consolidated Statements of Comprehensive Income (Unaudited)

Sony Corporation and Consolidated Subsidiaries

 

   Yen in millions 
   Nine months ended December 31 
   2012   2013 
Net income (loss)   (9,424)   57,595 
Other comprehensive income, net of tax ―          
Unrealized gains on securities   39,176    12,863 
Unrealized gains on derivative instruments   306    394 
Pension liability adjustment   (1,375)   (6,711)
Foreign currency translation adjustments   46,605    195,093 
Total comprehensive income   75,288    259,234 
Less – Comprehensive income attributable to noncontrolling interests   46,318    46,102 
Comprehensive income attributable to Sony Corporation's stockholders   28,970    213,132 

 

   Yen in millions 
   Three months ended December 31 
   2012   2013 
Net income   3,523    43,719 
Other comprehensive income, net of tax ―          
Unrealized gains on securities   20,524    9,987 
Unrealized gains (losses) on derivative instruments   169    (201)
Pension liability adjustment   (3,421)   (3,527)
Foreign currency translation adjustments   131,934    131,298 
Total comprehensive income   152,729    181,276 
Less – Comprehensive income attributable to noncontrolling interests   15,628    19,906 
Comprehensive income attributable to Sony Corporation's stockholders   137,101    161,370 

The accompanying notes are an integral part of these statements.

 

- 22 -
 

 

(iv) Consolidated Statements of Cash Flows (Unaudited)

Sony Corporation and Consolidated Subsidiaries

 

   Yen in millions 
   Nine months ended December 31 
   2012   2013 
Cash flows from operating activities:          
Net income (loss)   (9,424)   57,595 
Adjustments to reconcile net income (loss) to net cash provided by operating activities –          
Depreciation and amortization, including amortization of deferred insurance acquisition costs   242,221    240,364 
Amortization of film costs   147,004    191,773 
Stock-based compensation expense   995    842 
Accrual for pension and severance costs, less payments   831    (5,914)
Other operating (income) expense, net   (14,855)   19,475 
(Gain) loss on sale or devaluation of securities investments, net   7,293    (7,930)
Gain on revaluation of marketable securities held in the financial services business for trading purposes, net   (19,265)   (82,837)
(Gain) loss on revaluation or impairment of securities investments held in the financial services business, net   547    (5,606)
Deferred income taxes   6,737    (16,436)
Equity in net loss of affiliated companies, net of dividends   4,834    2,647 
Changes in assets and liabilities:          
Increase in notes and accounts receivable, trade   (130,727)   (338,694)
Increase in inventories   (36,057)   (77,988)
Increase in film costs   (124,645)   (218,943)
Increase (decrease) in notes and accounts payable, trade   (123,181)   263,032 
Increase in accrued income and other taxes   19,587    55,888 
Increase in future insurance policy benefits and other   283,133    323,906 
Increase in deferred insurance acquisition costs   (54,384)   (58,240)
Increase in marketable securities held in the financial services business for trading purposes   (20,708)   (24,049)
(Increase) decrease in other current assets   34,417    (123,873)
Increase (decrease) in other current liabilities   (40,125)   86,985 
Other   46,125    (33,816)
Net cash provided by operating activities   220,353    248,181 

(Continued on following page.)

 

- 23 -
 

 


Consolidated Statements of Cash Flows (Unaudited)

 

   Yen in millions 
   Nine months ended December 31 
   2012   2013 
Cash flows from investing activities:          
Payments for purchases of fixed assets   (236,302)   (214,335)
Proceeds from sales of fixed assets   26,157    93,370 
Payments for investments and advances by financial services business   (779,259)   (729,272)
Payments for investments and advances (other than financial services business)   (58,323)   (11,047)
Proceeds from sales or return of investments and collections of advances by financial services business   269,826    345,697 
Proceeds from sales or return of investments and collections of advances (other than financial services business)   27,847    63,514 
Proceeds from sales of businesses   52,756    1,668 
Other   (23,722)   13,597 
Net cash used in investing activities   (721,020)   (436,808)
Cash flows from financing activities:          
Proceeds from issuance of long-term debt   149,767    179,225 
Payments of long-term debt   (235,444)   (148,877)
Increase in short-term borrowings, net   109,973    19,917 
Increase in deposits from customers in the financial services business, net   197,809    161,656 
Proceeds from issuance of convertible bonds   150,000     
Dividends paid   (25,072)   (25,604)
Payment for purchase of So-net shares from noncontrolling interests   (54,944)    
Other   (5,515)   (39,952)
Net cash provided by financing activities   286,574    146,365 
Effect of exchange rate changes on cash and cash equivalents   17,546    65,149 
Net increase (decrease) in cash and cash equivalents   (196,547)   22,887 
Cash and cash equivalents at beginning of the fiscal year   894,576    826,361 
Cash and cash equivalents at end of the period   698,029    849,248 

The accompanying notes are an integral part of these statements.

  

- 24 -
 

 

Index to Notes to Consolidated Financial Statements

Sony Corporation and Consolidated Subsidiaries

 

Notes to Consolidated Financial Statements Page
       
  1. Summary of significant accounting policies 26
  2. Marketable securities and securities investments 27
  3. Fair value measurements 28
  4. Supplemental equity and comprehensive income information 30
  5. Sale and leaseback transactions 31
  6. Reconciliation of the differences between basic and diluted EPS 32
  7. Commitments, contingent liabilities and other 33
  8. Business segment information 35

 

- 25 -
 

 

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:

 

Disclosure about balance sheet offsetting -

 

In December 2011, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance which requires entities to disclose information about offsetting and related arrangements to enable financial statement users to understand the effect of such arrangements on their financial position as well as to improve comparability of balance sheets prepared under U.S. GAAP and International Financial Reporting Standards. Subsequently, in January 2013, the FASB issued updated accounting guidance clarifying the scope of disclosures about offsetting assets and liabilities. The new guidance is required to be applied retrospectively and was effective for Sony as of April 1, 2013. Since this guidance impacts disclosures only, its adoption did not have an impact on Sony’s results of operations and financial position.

 

Testing indefinite lived intangible assets for impairment -

 

In July 2012, the FASB issued new accounting guidance to simplify how entities test indefinite lived intangible assets for impairment. The new guidance allows entities an option to first assess qualitative factors to determine whether it is more likely than not that indefinite lived intangible assets are impaired as a basis for determining if it is necessary to perform the quantitative impairment test. Under the new guidance, entities are no longer required to calculate the fair value of the assets unless the entities determine, based on the qualitative assessment, that it is more likely than not that indefinite lived intangible assets are impaired. The new guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. This guidance was effective for Sony as of April 1, 2013. The adoption of this guidance is not expected to have a material impact on Sony’s results of operations and financial position.

 

Presentation of amounts reclassified out of accumulated other comprehensive income -

 

In February 2013, the FASB issued new accounting guidance for reporting of amounts reclassified out of accumulated other comprehensive income. The amendments require entities to report the significant reclassifications out of accumulated other comprehensive income if the amount is required to be reclassified in its entirety to net income. For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period, entities are required to cross-reference other disclosures required that provide additional detail about those amounts. This guidance was effective for Sony as of April 1, 2013. Sony applied this guidance prospectively from the date of adoption. Since this guidance impacts disclosures only, its adoption did not have an 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.

  

(3) Reclassifications:

 

Certain reclassifications of the financial statements and accompanying footnotes for the nine and three months ended December 31, 2012 have been made to conform to the presentation for the nine and three months ended December 31, 2013.

 

- 26 -
 

 

2.Marketable securities and securities investments

 

Marketable securities and securities investments, mainly included in the Financial Services segment, are comprised of debt and equity securities of 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, 2013     December 31, 2013  
    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     1,106,265       114,806       (463 )     1,220,608       1,100,432       102,425       (470 )     1,202,387  
                                                                 
Japanese local government bonds     66,553       643       (1 )     67,195       64,181       489       (5 )     64,665  
                                                                 
Japanese corporate bonds     210,519       1,715       (70 )     212,164       178,029       1,138       (13 )     179,154  
                                                                 
Foreign corporate bonds     425,892       17,502       (620 )     442,774       430,417       18,116       (246 )     448,287  
                                                                 
Other     20,607       4,431       (2 )     25,036       22,911       4,248       (21 )     27,138  
      1,829,836       139,097       (1,156 )     1,967,777       1,795,970       126,416       (755 )     1,921,631  
                                                                 
Equity securities     89,079       44,443       (997 )     132,525       82,440       91,097       (781 )     172,756  
                                                                 
Held-to-maturity securities:                                                                
Japanese national government bonds     3,876,600       545,188             4,421,788       4,261,404       401,868       (2 )     4,663,270  
                                                                 
Japanese local government bonds     7,195       432             7,627       6,247       347             6,594  
                                                                 
Japanese corporate bonds     28,918       3,571             32,489       28,113       2,589       (1 )     30,701  
                                                                 
Foreign corporate bonds     52,738       20             52,758       58,504       19             58,523  
                                                                 
Other                             11,587             (779 )     10,808  
      3,965,451       549,211             4,514,662       4,365,855       404,823       (782 )     4,769,896  
                                                                 
Total     5,884,366       732,751       (2,153 )     6,614,964       6,244,265       622,336       (2,318 )     6,864,283  

 

- 27 -
 

 

3.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, 2013 
       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   278,575    252,212        530,787    530,787             
Available-for-sale securities                                        
Debt securities                                        
Japanese national government bonds       1,220,608        1,220,608    24,335    1,196,273         
Japanese local government bonds       67,195        67,195    61    67,134         
Japanese corporate bonds       209,950    2,214    212,164    40,359    171,805         
Foreign corporate bonds       422,022    20,752    442,774    96,896    345,878         
Other       25,036        25,036    98    24,938         
Equity securities   132,447    78        132,525        132,525         
Other investments *1   6,742    3,126    76,892    86,760        86,760         
Derivative assets *2,*3       21,862        21,862            20,713    1,149 
Total assets   417,764    2,222,089    99,858    2,739,711    692,536    2,025,313    20,713    1,149 
Liabilities:                                        
Derivative liabilities *2,*3       41,998        41,998            20,322    21,676 
Total liabilities       41,998        41,998            20,322    21,676 

 

- 28 -
 

 

   Yen in millions 
   December 31, 2013 
       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   352,572    285,095        637,667    637,667             
Available-for-sale securities                                        
Debt securities                                        
Japanese national government bonds       1,202,387        1,202,387    26,288    1,176,099         
Japanese local government bonds       64,665        64,665    1,490    63,175         
Japanese corporate bonds       178,141    1,013    179,154    51,896    127,258         
Foreign corporate bonds       441,324    6,963    448,287    108,058    340,229         
Other       27,138        27,138    1,103    26,035         
Equity securities   172,673    83        172,756        172,756         
Other investments *1   7,991    3,934    82,072    93,997        93,997         
Derivative assets *2,*3       24,613        24,613            23,523    1,090 
Total assets   533,236    2,227,380    90,048    2,850,664    826,502    1,999,549    23,523    1,090 
Liabilities:                                        
Derivative liabilities *2,*3       39,456        39,456            26,278    13,178 
Total liabilities       39,456        39,456            26,278    13,178 

 

*1Other 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. The circumstances include when long-lived assets are measured at the lesser of carrying value or fair value if such assets are held for sale or when the estimated undiscounted future cash flows are determined to be less than the carrying value of the asset or asset group. During the nine months ended December 31, 2013, Sony measured fair value of long-lived assets and recorded impairment losses of 50,181 million yen for the difference between the carrying value of 92,595 million yen and the fair value of 42,414 million yen. The most significant fair value measurement was related to the battery business in the Devices segment. The fair value was determined using the present value of estimated net cash flows and the measurement was classified as level 3 because significant unobservable inputs, such as projections of future cash flows, timing of such cash flow and the discount rate reflecting the risk inherent in future cash flows, were considered in the fair value measurement.

 

- 29 -
 

 

4.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 nine months ended December 31, 2012 and 2013 is as follows:

 

       Yen in millions     
   Sony Corporation’s stockholders’ equity   Noncontrolling interests   Total equity 
Balance at March 31, 2012   2,028,891    461,216    2,490,107 
Exercise of stock acquisition rights        109    109 
Stock-based compensation   629         629 
Comprehensive income:               
Net income (loss)   (50,874)   41,450    (9,424)
Other comprehensive income, net of tax ―               
Unrealized gains on securities   30,683    8,493    39,176 
Unrealized gains on derivative instruments   306         306 
Pension liability adjustment   85    (1,460)   (1,375)
Foreign currency translation adjustments   48,770    (2,165)   46,605 
Total comprehensive income   28,970    46,318    75,288 
Dividends declared   (12,545)   (7,796)   (20,341)
Transactions with noncontrolling interests shareholders and other   (33,777)   (30,606)   (64,383)
Balance at December 31, 2012   2,012,168    469,241    2,481,409 

 

       Yen in millions     
   Sony Corporation’s stockholders’ equity   Noncontrolling interests   Total equity 
Balance at March 31, 2013   2,197,766    483,412    2,681,178 
Exercise of stock acquisition rights   100         100 
Conversion of zero coupon convertible bonds   25,520         25,520 
Stock-based compensation   689         689 
Comprehensive income:               
Net income   11,172    46,423    57,595 
Other comprehensive income, net of tax ―               
Unrealized gains (losses) on securities   14,236    (1,373)   12,863 
Unrealized gains on derivative instruments   394         394 
Pension liability adjustment   (6,723)   12    (6,711)
Foreign currency translation adjustments   194,053    1,040    195,093 
Total comprehensive income   213,132    46,102    259,234 
Dividends declared   (12,971)   (11,837)   (24,808)
Transactions with noncontrolling interests shareholders and other   714    (781)   (67)
Balance at December 31, 2013   2,424,950    516,896    2,941,846 

 

Sony Corporation conducted a tender offer in September 2012 to purchase an additional 96,511 common shares of its subsidiary So-net Entertainment Corporation, which was recorded as an equity transaction with noncontrolling interests, and resulted in a decrease in additional paid-in capital of 33,638 million yen. So-net Entertainment Corporation subsequently changed its name to So-net Corporation, effective July 1, 2013. There was no material effect of changes in Sony Corporation’s ownership interest in its subsidiaries on Sony Corporation’s stockholders’ equity for the nine months ended December 31, 2013.

 

- 30 -
 

 

(2)Other Comprehensive Income

                  

Changes in accumulated other comprehensive income, net of tax by component for the nine months ended December 31, 2013 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   107,061    (742)   (191,816)   (556,016)   (641,513)
Other comprehensive income (loss) before reclassifications   18,085    103    (8,670)   195,093    204,611 
Amounts reclassified out of accumulated other comprehensive income   (5,222)   291    1,959         (2,972)
Net current-period other comprehensive income (loss)   12,863    394    (6,711)   195,093    201,639 
Less: Other comprehensive income (loss) attributable to noncontrolling interests   (1,373)        12    1,040    (321)
Balance at December 31, 2013   121,297    (348)   (198,539)   (361,963)   (439,553)

 

5.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.

 

- 31 -
 

  

6.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 nine and three months ended December 31, 2012 and 2013 is as follows:

 

   Yen in millions 
   Nine months ended December 31 
   2012   2013 
Net income (loss) attributable to Sony Corporation’s stockholders for basic and diluted EPS computation   (50,874)   11,172 

 

 

   Thousands of shares 
Weighted-average shares outstanding   1,003,586    1,022,810 
Effect of dilutive securities:          
Stock acquisition rights       862 
Zero coupon convertible bonds       144,877 
Weighted-average shares for diluted EPS computation   1,003,586    1,168,549 

 

   Yen 
Basic EPS   (50.69)   10.92 
Diluted EPS   (50.69)   9.56 

 

Potential shares of common stock which were excluded from the computation of diluted EPS for the nine months ended December 31, 2012 and 2013 were 180,536 thousand shares and 16,727 thousand shares, respectively. The potential shares were excluded as anti-dilutive for the nine months ended December 31, 2012 due to Sony incurring a net loss attributable to Sony Corporation’s stockholders for the period, and potential shares related to stock acquisition rights were excluded as anti-dilutive for the nine months ended December 31, 2013 when the exercise price for those shares was in excess of the average market value of Sony’s common stock for the period.

 

   Yen in millions 
   Three months ended December 31 
   2012   2013 
Net income (loss) attributable to Sony Corporation’s stockholders for basic and diluted EPS computation   (10,763)   26,979 

  

   Thousands of shares 
Weighted-average shares outstanding   1,003,594    1,037,640 
Effect of dilutive securities:          
Stock acquisition rights       810 
Zero coupon convertible bonds       130,073 
Weighted-average shares for diluted EPS computation   1,003,594    1,168,523 

 

   Yen 
Basic EPS   (10.72)   26.00 
Diluted EPS   (10.72)   23.09 

 

Potential shares of common stock which were excluded from the computation of diluted EPS for the three months ended December 31, 2012 and 2013 were 180,536 thousand shares and 16,727 thousand shares, respectively. The potential shares were excluded as anti-dilutive for the three months ended December 31, 2012 due to Sony incurring a net loss attributable to Sony Corporation’s stockholders for the period, and potential shares related to stock acquisition rights were excluded as anti-dilutive for the three months ended December 31, 2013 when the exercise price for those shares was in excess of the average market value of Sony’s common stock for the period.

 

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7.Commitments, contingent liabilities and other

 

(1)Commitments:

 

A. 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 December 31, 2013, the total unused portion of the lines of credit extended under these contracts was 23,769 million yen. The aggregate amounts of future year-by-year payments for these loan commitments cannot be determined.

 

B. Purchase commitments and other

 

Purchase commitments and other outstanding at December 31, 2013 amounted to 289,810 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 5 years. As of December 31, 2013, these subsidiaries were committed to make payments under such contracts of 115,074 million yen. 

 

Certain subsidiaries in the Music segment have entered into long-term contracts with recording artists and companies for the production and/or distribution of prerecorded music and videos. These contracts cover various periods mainly within 5 years. As of December 31, 2013, these subsidiaries were committed to make payments of 57,944 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 10 years. As of December 31, 2013, Sony has committed to make payments of 59,597 million yen under such long-term contracts.

 

In addition to the above, Sony has other commitments as follows:

 

During the fiscal year ended March 31, 2012, there was a receipt of an advance payment from a commercial customer. The advance payment amounts are recouped through product sales to the commercial customer during the period specified in the contract, as amended. As of December 31, 2013, Sony recorded 21,324 million yen in other current liabilities and 14,216 million yen in other long-term liabilities based on the anticipated recoupment period. The advance payment is subject to reimbursement under certain contingent conditions including a downgrade of Sony’s credit rating by either Standard & Poor's Ratings Services (lower than “BBB-”) or Moody’s Investors Service (“Moody’s”) (lower than “Baa3”). On January 27, 2014, Sony’s rating was downgraded by Moody’s from Baa3 to Ba1.

 

(2)Contingent liabilities:

 

Sony had contingent liabilities, including guarantees given in the ordinary course of business, which amounted to 97,851 million yen at December 31, 2013. The major components of these contingent liabilities are as follows:

 

Sony has agreed to repay the outstanding principal plus accrued interest up to a maximum of 290 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. At December 31, 2013, the fair value of the collateral exceeded 290 million U.S. dollars.

 

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 EU and certain other governmental agencies outside the United States are investigating competition in the secondary batteries market. Subsequently, a number of direct and indirect purchaser class action lawsuits were 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.

  

- 33 -
 

 

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 February 13, 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 orders for reports issued by the Ministry of Economy, Trade and Industry of Japan as well as the Financial Services Agency of Japan, formal and/or informal requests for information from Attorneys General from a number of states in the United States and the U.S. Federal Trade Commission, various U.S. congressional inquiries and others.  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.  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 DOJ, the EU and certain other governmental agencies outside the United States are investigating and/or have investigated competition in optical disk drives.  Subsequently, a number of direct and indirect purchaser lawsuits, including class actions, were 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.

  

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 effect on Sony’s consolidated financial statements.

 

- 34 -
 

 

8.    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.

 

- 35 -
 

 

Business segments -

 

Sales and operating revenue:

 

   Yen in millions 
   Nine months ended December 31 
   2012   2013 
Sales and operating revenue:          
Imaging Products & Solutions -          
Customers   572,470    551,645 
Intersegment   2,574    2,812 
Total   575,044    554,457 
Game -          
Customers   408,328    550,346 
Intersegment   126,270    165,016 
Total   534,598    715,362 
Mobile Products & Communications -          
Customers   882,421    1,268,572 
Intersegment   22,405    493 
Total   904,826    1,269,065 
Home Entertainment & Sound -          
Customers   811,294    941,238 
Intersegment   270    1,746 
Total   811,564    942,984 
Devices -          
Customers   456,365    452,456 
Intersegment   228,118    167,893 
Total   684,483    620,349 
Pictures -          
Customers   524,938    559,972 
Intersegment   374    505 
Total   525,312    560,477 
Music -          
Customers   316,912    363,807 
Intersegment   7,591    7,788 
Total   324,503    371,595 
Financial Services -          
Customers   689,940    778,172 
Intersegment   2,331    3,671 
Total   692,271    781,843 
All Other -          
Customers   369,408    393,670 
Intersegment   44,061    47,119 
Total   413,469    440,789 
Corporate and elimination   (398,248)   (355,904)
Consolidated total   5,067,822    5,901,017 

 

Game intersegment amounts primarily consist of transactions with All Other.

 

Devices intersegment amounts primarily consist of transactions with the Game 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 Game segment.

 

Corporate and elimination includes certain brand and patent royalty income.

 

- 36 -
 

 

   Yen in millions 
   Three months ended December 31 
   2012   2013 
Sales and operating revenue:          
Imaging Products & Solutions -          
Customers   185,982    197,196 
Intersegment   903    867 
Total   186,885    198,063 
Game -          
Customers   218,988    368,474 
Intersegment   49,476    73,297 
Total   268,464    441,771 
Mobile Products & Communications -          
Customers   306,547    461,457 
Intersegment   12,285    75 
Total   318,832    461,532 
Home Entertainment & Sound -          
Customers   323,623    403,741 
Intersegment   148    287 
Total   323,771    404,028 
Devices -          
Customers   156,125    158,829 
Intersegment   61,178    57,180 
Total   217,303    216,009 
Pictures -          
Customers   208,794    223,450 
Intersegment   139    272 
Total   208,933    223,722 
Music -          
Customers   123,440    141,901 
Intersegment   2,989    2,764 
Total   126,429    144,665 
Financial Services -          
Customers   265,578    282,963 
Intersegment   777    1,217 
Total   266,355    284,180 
All Other -          
Customers   147,881    164,704 
Intersegment   18,320    21,442 
Total   166,201    186,146 
Corporate and elimination   (135,193)   (147,297)
Consolidated total   1,947,980    2,412,819 

 

Game intersegment amounts primarily consist of transactions with All Other.

 

Devices intersegment amounts primarily consist of transactions with the Game segment and the IP&S segment.

 

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

 

Corporate and elimination includes certain brand and patent royalty income.

 

- 37 -
 

 

Segment profit or loss:

 

   Yen in millions 
   Nine months ended December 31 
   2012   2013 
Operating income (loss):          
Imaging Products & Solutions   11,915    18,860 
Game   3,327    2,447 
Mobile Products & Communications   (72,569)   (7,568)
Home Entertainment & Sound   (33,770)   (2,319)
Devices   55,399    (985)
Pictures   28,318    10,244 
Music   31,521    42,184 
Financial Services   93,030    133,007 
All Other   (6,426)   (9,338)
Total   110,745    186,532 
Corporate and elimination   (27,790)   (45,079)
Consolidated operating income   82,955    141,453 
Other income   14,678    30,354 
Other expenses   (39,140)   (29,821)
Consolidated income before income taxes   58,493    141,986 

 

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 intangible assets acquired from Telefonaktiebolaget LM Ericsson (“Ericsson”) at the time of the Sony Mobile Communications AB (“Sony Mobile”) acquisition, which are not allocated to segments.

 

Within the Home Entertainment & Sound (“HE&S”) segment, the operating loss of Televisions, which primarily consists of LCD televisions, for the nine months ended December 31, 2012 and 2013 were 31,540 million yen and 9,046 million yen, respectively. The operating loss of Televisions excludes restructuring charges which are included in the overall segment results and not allocated to product categories.

 

Due to certain changes in the organizational structure, sales and operating revenue of the IP&S segment and All Other and operating income (loss) of the IP&S segment, All Other and Corporate and elimination for the comparable period have been restated to conform to the current presentation.

 

- 38 -
 

 

   Yen in millions 
   Three months ended December 31 
   2012   2013 
Operating income (loss):          
Imaging Products & Solutions   (2,949)   12,071 
Game   4,597    18,024 
Mobile Products & Communications   (21,332)   (12,555)
Home Entertainment & Sound   (7,972)   6,408 
Devices   9,678    (23,751)
Pictures   25,313    24,258 
Music   16,396    21,717 
Financial Services   34,238    47,815 
All Other   4,571    (1,326)
Total   62,540    92,661 
Corporate and elimination   (16,111)   (2,329)
Consolidated operating income   46,429    90,332 
Other income   3,620    10,923 
Other expenses   (20,619)   (11,486)
Consolidated income before income taxes   29,430    89,769 

 

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 intangible assets acquired from Ericsson at the time of the Sony Mobile acquisition, which are not allocated to segments.

 

Within the HE&S segment, the operating loss of Televisions, which primarily consists of LCD televisions, for the three months ended December 31, 2012 and 2013 were 14,727 million yen and 4,992 million yen, respectively. The operating loss of Televisions excludes restructuring charges which are included in the overall segment results and not allocated to product categories.

 

Due to certain changes in the organizational structure, sales and operating revenue of the IP&S segment and All Other and operating income (loss) of the IP&S segment, All Other and Corporate and elimination for the comparable period have been restated to conform to the current presentation.

 

- 39 -
 

  

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 
   Nine months ended December 31 
Sales and operating revenue:  2012   2013 
Imaging Products & Solutions          
Digital Imaging Products   360,621    324,466 
Professional Solutions   199,592    215,149 
Other   12,257    12,030 
Total   572,470    551,645 
           
Game   408,328    550,346 
           
Mobile Products & Communications             
Mobile Communications   514,697    923,270 
Personal and Mobile Products   363,730    341,108 
Other   3,994    4,194 
Total   882,421    1,268,572 
           
Home Entertainment & Sound     
Televisions   486,373    614,585 
Audio and Video   320,536    318,813 
Other   4,385    7,840 
Total   811,294    941,238 
           
Devices             
Semiconductors   235,217    263,471 
Components   213,053    186,950 
Other   8,095    2,035 
Total   456,365    452,456 
           
Pictures          
Motion Pictures   327,872    288,737 
Television Productions   106,059    149,581 
Media Networks   91,007    121,654 
Total   524,938    559,972 
           
Music          
Recorded Music   226,770    266,110 
Music Publishing   36,293    45,109 
Visual Media and Platform   53,849    52,588 
Total   316,912    363,807 
           
Financial Services   689,940    778,172 
All Other   369,408    393,670 
Corporate   35,746    41,139 
Consolidated total   5,067,822    5,901,017 

 

- 40 -
 

 

   Yen in millions 
   Three months ended December 31 
Sales and operating revenue:  2012   2013 
Imaging Products & Solutions          
Digital Imaging Products   122,135    118,251 
Professional Solutions   60,793    74,031 
Other   3,054    4,914 
Total   185,982    197,196 
           
Game   218,988    368,474 
           
Mobile Products & Communications             
Mobile Communications   162,548    333,277 
Personal and Mobile Products   142,734    125,912 
Other   1,265    2,268 
Total   306,547    461,457 
           
Home Entertainment & Sound             
Televisions   182,675    254,893 
Audio and Video   139,589    143,865 
Other   1,359    4,983 
Total   323,623    403,741 
           
Devices             
Semiconductors   89,411    94,872 
Components   65,655    63,088 
Other   1,059    869 
Total   156,125    158,829 
           
Pictures          
Motion Pictures   137,509    119,946 
Television Productions   39,764    64,263 
Media Networks   31,521    39,241 
Total   208,794    223,450 
           
Music          
Recorded Music   93,754    107,379 
Music Publishing   11,170    14,255 
Visual Media and Platform   18,516    20,267 
Total   123,440    141,901 
           
Financial Services   265,578    282,963 
All Other   147,881    164,704 
Corporate   11,022    10,104 
Consolidated total   1,947,980    2,412,819 

 

- 41 -
 

 

In the IP&S segment, Digital Imaging Products includes compact digital cameras, video cameras and interchangeable single lens cameras; Professional Solutions includes broadcast- and professional-use products. In the Mobile Products & Communications segment, Mobile Communications includes mobile phones; Personal and Mobile Products includes personal computers. In the HE&S segment, Televisions includes LCD televisions; Audio and Video includes home audio, Blu-ray disc players and recorders, 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.

 

Due to certain changes in the organizational structure, sales and operating revenue to external customers of IP&S and All Other of the comparable period have been restated to conform to the current presentation.

 

- 42 -
 

  

   Yen in millions 
   Nine months ended December 31 
   2012   2013 
Depreciation and amortization:          
Imaging Products & Solutions   26,336    25,990 
Game   7,312    10,278 
Mobile Products & Communications   17,944    20,982 
Home Entertainment & Sound   17,307    16,242 
Devices   80,695    76,037 
Pictures   7,462    9,277 
Music   8,144    9,620 
Financial Services, including deferred insurance acquisition costs   42,271    35,066 
All Other   12,503    12,197 
Total   219,974    215,689 
           
Corporate   22,247    24,675 
           
Consolidated total   242,221    240,364 
           
Restructuring charges:          
Imaging Products & Solutions   4,085    2,672 
Game   214    392 
Mobile Products & Communications   2,943    12,307 
Home Entertainment & Sound   8,665    939 
Devices   11,665    3,531 
Pictures   174    1,149 
Music   573    148 
Financial Services        
All Other and Corporate   9,249    4,508 
           
Total net charges   37,568    25,646 

 

In addition to the restructuring charges in the table above, Sony recorded in cost of sales 1,874 million yen and 477 million yen of non-cash charges related to depreciation associated with restructured assets for the nine months ended December 31, 2012 and 2013, respectively. 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.

 

- 43 -
 

  

   Yen in millions 
   Three months ended December 31 
   2012   2013 
Depreciation and amortization:        
Imaging Products & Solutions   9,354    8,333 
Game   2,675    3,675 
Mobile Products & Communications   6,837    6,945 
Home Entertainment & Sound   5,665    4,912 
Devices   26,739    25,130 
Pictures   2,518    2,894 
Music   2,730    3,194 
Financial Services, including deferred insurance acquisition costs   10,232    9,205 
All Other   3,968    3,748 
Total   70,718    68,036 
           
Corporate   7,982    7,539 
           
Consolidated total   78,700    75,575 
           
Restructuring charges:          
Imaging Products & Solutions   2,220    289 
Game   (39)   10 
Mobile Products & Communications   869    8,658 
Home Entertainment & Sound   3,451    8 
Devices   2,890    1,102 
Pictures   174    278 
Music   663    44 
Financial Services        
All Other and Corporate   5,348    3,159 
           
Total net charges   15,576    13,548 

 

In addition to the restructuring charges in the table above, Sony recorded in cost of sales 1,115 million yen and 115 million yen of non-cash charges related to depreciation associated with restructured assets for the three months ended December 31, 2012 and 2013, respectively. 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.

 

- 44 -
 

  

Geographic Information -

 

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

 

   Yen in millions 
   Nine months ended December 31 
Sales and operating revenue:  2012   2013 
Japan   1,596,000    1,676,121 
United States   810,047    943,046 
Europe   1,013,257    1,327,137 
China   361,626    401,262 
Asia-Pacific   603,663    790,928 
Other Areas   683,229    762,523 
Total   5,067,822    5,901,017 

 

   Yen in millions 
   Three months ended December 31 
Sales and operating revenue:  2012   2013 
Japan   599,380    630,990 
United States   337,101    423,631 
Europe   419,979    619,082 
China   102,027    132,148 
Asia-Pacific   221,535    288,141 
Other Areas   267,958    318,827 
Total   1,947,980    2,412,819 

 

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 nine and three months ended December 31, 2012 and 2013.

 

- 45 -
 

 

(2) Other Information

 

(1) Dividends declared

 

An interim cash dividend for Sony Corporation’s common stock was approved at the Board of Directors meeting held on October 30, 2013 as below:

 

1.Total amount of interim cash dividends:

12,970 million yen 

2.Amount of interim cash dividends per share:

12.50 yen 

3.Payment date:

December 2, 2013 

Interim cash dividends for the fiscal year ending March 31, 2014 have been incorporated in the accompanying consolidated financial statements.

 

Note: Interim cash dividends were distributed to the shareholders recorded or registered as the holders or pledgees of shares in Sony Corporation’s register of shareholders at the end of September 30, 2013.

 

(2) 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 EU and certain other governmental agencies outside the United States are investigating competition in the secondary batteries market. Subsequently, a number of direct and indirect purchaser class action lawsuits were 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 February 13, 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 orders for reports issued by the Ministry of Economy, Trade and Industry of Japan as well as the Financial Services Agency of Japan, formal and/or informal requests for information from Attorneys General from a number of states in the United States and the U.S. Federal Trade Commission, various U.S. congressional inquiries and others. 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. 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 DOJ, the EU and certain other governmental agencies outside the United States are investigating and/or have investigated competition in optical disk drives.  Subsequently, a number of direct and indirect purchaser lawsuits, including class actions, were 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.

 

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 effect on Sony’s consolidated financial statements.

 

  - 46 -

 

 

 

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/ Masaru Kato  
    (Signature) 

Masaru Kato
Executive Vice President and Chief Financial Officer
 
       
 

February 13, 2014