6-K 1 sony6k0207.htm

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

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

For the month of February 2017
Commission File Number: 001-06439

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

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

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

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

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
SONY CORPORATION
 
(Registrant)
   
   
 
By:  /s/  Kenichiro Yoshida
 
                (Signature)
 
Kenichiro Yoshida
 
Executive Deputy President and
 
Chief Financial Officer

 

Date: February 8, 2017 

 

 

 
 

 

 

 

Quarterly Securities Report

 

For the three months ended December 31, 2016

 

(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   6
  (3)     Management’s Discussion and Analysis of Financial Condition, Results of Operations and Status of Cash Flows   7
       
III Company Information   15
  (1)     Information on the Company’s Shares   15
  (2)     Directors and Corporate Executive Officers   20
       
IV Financial Statements   21
  (1)     Consolidated Financial Statements   22
  (2)     Other Information   52

 

 

 

 

Note for readers of this English translation

On February 8, 2017, Sony Corporation (the “Company” or “Sony Corporation”) filed its Japanese-language Quarterly Securities Report (Shihanki Houkokusho) for the three months ended December 31, 2016 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 and network platforms and smartphones, which are offered in highly competitive markets characterized by severe price competition and continual new product and service introductions, rapid development in technology and subjective and changing consumer preferences; (iv) Sony’s ability and timing to recoup large-scale investments required for technology development and production capacity; (v) Sony’s ability to implement successful business restructuring and transformation efforts under changing market conditions; (vi) Sony’s ability to implement successful hardware, software, and content integration strategies for all segments excluding the Financial Services segment, and to develop and implement successful sales and distribution strategies in light of the Internet and other technological developments; (vii) Sony’s continued ability to devote sufficient resources to research and development and, with respect to capital expenditures, to prioritize investments correctly (particularly in the electronics businesses); (viii) Sony’s ability to maintain product quality and customers’ satisfaction with its existing products and services; (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 changes in interest rates and 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; (xv) Sony’s ability to anticipate and manage cybersecurity risk, including the risk of unauthorized access to Sony’s business information, potential business disruptions or financial losses; and (xvi) risks related to catastrophic disasters or similar events. Risks and uncertainties also include the impact of any future events with material adverse impact.

 

- 1

 

 

I    Corporate Information

 

(1) Selected Consolidated Financial Data

 

  Yen in millions, Yen per share amounts
  Nine months ended
December 31, 2015
Nine months ended
December 31, 2016
Fiscal year ended
March 31, 2016
Sales and operating revenue 6,281,611 5,699,646 8,105,712
Operating income 387,070 194,311 294,197
Income before income taxes 404,184 163,763 304,504
Net income attributable to Sony Corporation’s stockholders 236,128 45,639 147,791
Comprehensive income (loss) 231,207 75,551 (44,915)
Total equity 3,422,148 3,079,285 3,124,410
Total assets 17,106,723 17,695,074 16,673,390
Net income attributable to Sony Corporation’s stockholders per share of common stock, basic (yen) 191.98 36.17 119.40
Net income attributable to Sony Corporation’s stockholders per share of common stock, diluted (yen)  189.17 35.43 117.49
Ratio of stockholders’ equity to total assets (%) 16.2 13.9 14.8
Net cash provided by operating activities 321,511 313,252 749,089
Net cash used in investing activities (669,802) (981,514) (1,030,403)
Net cash provided by financing activities 497,750 467,851 380,122
Cash and cash equivalents at end of the period 1,090,637 771,676 983,612

 

  Yen in millions, Yen per share amounts  
  Three months ended
December 31, 2015
Three months ended
December 31, 2016
 
Sales and operating revenue 2,580,812 2,397,499  
Net income attributable to Sony Corporation’s stockholders 120,134 19,631  
Net income attributable to Sony Corporation’s stockholders per share of common stock, basic (yen) 95.25 15.55  
Net income attributable to Sony Corporation’s stockholders per share of common stock, diluted (yen) 93.33 15.24  

 

Notes: 

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

2.The Company reports equity in net income 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.

 

- 2

 

 

(2) Business Overview

 

There was no significant change in the business of Sony during the nine months ended December 31, 2016.

 

Sony realigned its reportable segments effective from the first quarter of the fiscal year ending March 31, 2017. For further information on the realignment, please refer to “IV Financial Statements – Notes to Consolidated Financial Statements – 9. Business segment information”.

 

As of December 31, 2016, the Company had 1,341 subsidiaries and 113 affiliated companies, of which 1,304 companies are consolidated subsidiaries (including variable interest entities) of the Company. The Company has applied the equity accounting method for 107 affiliated companies. 

 

- 3

 

 

II   State of Business

 

(1) Risk Factors

 

Note for readers of this English translation:

 

Except for the revised risk factors below, there was no significant change from the information presented in the Risk Factors section of the Annual Report on Form 20-F filed with the Securities and Exchange Commission (the “SEC”) on June 17, 2016. 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 17, 2016 

https://www.sec.gov/Archives/edgar/data/313838/000119312516624169/d168822d20f.htm

  

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

Sony is implementing restructuring initiatives that focus on profitability, business autonomy, shareholder value and the clear positioning of each business within the overall business portfolio. Restructuring charges in the amount of 80.6 billion yen, 98.0 billion yen and 38.3 billion yen were recorded in the fiscal years ended March 31, 2014, 2015 and 2016, respectively. While Sony anticipates recording approximately 45 billion yen of restructuring charges in the fiscal year ending March 31, 2017, including an impairment charge of approximately 33 billion yen as an operating loss resulting from the planned transfer of the battery business, significant additional or future restructuring charges may be recorded due to reasons such as the impact of economic downturns or exiting from unprofitable businesses, including the potential sale of certain businesses. Restructuring charges are recorded primarily in cost of sales, selling, general and administrative (“SGA”) expenses and other operating (income) expense, net and thus adversely affect Sony’s operating income (loss) and net income (loss) attributable to Sony’s stockholders (Refer to Note 19 of the consolidated financial statements). Sony continues to take initiatives to optimize its manufacturing operations, utilize outsourced manufacturing, reduce SGA expenses across the Sony group, outsource support functions and information processing operations, and optimize business process across functions, including sales and marketing, manufacturing, logistics, procurement, quality and R&D.

 

Due to internal or external factors, efficiencies and cost savings from the above-mentioned and other restructuring and transformation initiatives may not be realized as scheduled and, even if those benefits are realized, Sony may not be able to achieve the expected level of profitability due to market conditions worsening beyond expectations. 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 or unanticipated burdens from local legal or regulatory restrictions, including labor regulations and labor union agreements, or from customary Japanese labor practices that may prevent Sony from executing its restructuring initiatives as planned. The inability to fully and successfully implement restructuring and transformation programs may adversely affect Sony’s operating results and financial condition. Additionally, operating cash flows may be reduced as a result of payments for restructuring charges.

  

Sony’s acquisitions, joint ventures and investments may not be successful.

 

Sony actively engages in acquisitions, joint ventures and other strategic investments in order to acquire new technologies, efficiently develop new businesses, and enhance its business competitiveness. For example, in February 2016, Sony completed the acquisition of Altair Semiconductor, which develops and sells products focused on LTE (Long Term Evolution) technologies. Additionally, in August 2016, Sony entered into definitive agreements to acquire TEN Sports Network, which owns leading sports networks both within and outside of India. Furthermore, Sony has previously engaged in joint ventures with third parties in order to reduce its capital investment, reduce operating costs and share risk with its joint venture partners, and may do so again in the future. Moreover, Sony may sell its equity interest in a joint venture or buy out the joint venture partner’s equity due to the achievement of its original objectives or other reasons. For example, in September 2016, Sony acquired the 50% equity interest in Sony/ATV Music Publishing LLC (“Sony/ATV”) held by the Estate of Michael Jackson (“The Estate”) and Sony/ATV became a wholly-owned subsidiary of Sony. Sony/ATV was Sony’s joint venture with The Estate in the music publishing business.

  

Sony may incur significant expenses to acquire and integrate businesses. Additionally, Sony may not achieve strategic objectives, planned revenue improvements and cost savings, and may not retain key personnel of the acquired businesses. Sony’s operating results may also be adversely affected by the assumption of liabilities related to any acquired businesses.

 

- 4

 

 

Sony currently has investments in several joint ventures and strategic partnerships, and may engage in new investments in the future. If Sony and its partners are unable to reach their common financial objectives successfully due to changes in the competitive environment, strategic or cultural differences, failure to achieve synergies or other reasons, Sony’s operating results may be adversely affected. Sony’s operating results may also be adversely affected in the short- and medium-term during a partnership, even if Sony and its partners remain on course to achieve their common financial objectives. In addition, by participating in joint ventures or other strategic investments, Sony may encounter conflicts of interest, may not maintain sufficient control over these relationships, including over cash flow, and may be faced with an increased risk of the loss of proprietary technology or know-how. Sony’s reputation may be harmed by the actions or activities of a joint venture that uses the Sony brand. Sony may also be required to provide additional funding or debt guarantees to a joint venture, or to buy-out a joint venture partner, sell its share or dissolve a joint venture, whether as a result of financial performance, or otherwise. Moreover, if the value of any of Sony’s investments in an affiliate accounted for under the equity method declines below the carrying value of Sony’s investment, and such decrease is judged to be other than temporary, Sony will be required to record an impairment loss, and the loss may increase if Sony is unable to dispose of such investments due to contractual or other reasons.

 

Sony may not be able to recoup the capital expenditures or investments it makes to increase production capacity.

 

Sony continues to invest in production facilities and equipment in its electronics businesses, including image sensor fabrication facilities to meet the demand for image sensors, particularly for use in smartphones. For example, in March 2014, Sony acquired semiconductor fabrication equipment and certain related assets for 7.5 billion yen from Renesas Electronic Corporation, and established Sony Semiconductor Manufacturing Corporation Yamagata Technology Center. Also, in the fiscal year ended March 31, 2016, Sony signed an agreement with Toshiba Corporation to acquire semiconductor fabrication facilities, equipment and related assets for 19.0 billion yen, of which 16.7 billion yen were acquired by March 2016. Sony invested approximately 205 billion yen of capital in the fiscal year ended March 31, 2016 in order to increase image sensor production capacity, and expects to invest approximately 45 billion yen of capital in the fiscal year ending March 31, 2017. However, if market changes and corresponding declines in demand result in a mismatch between sales volume and anticipated production volumes, or if unit sales prices decline due to market oversupply, Sony may not be able to recover its capital expenditures or investments, in part or in full, or the recovery of these capital expenditures or investments may take longer than expected. In particular, with respect to image sensors, much of Sony’s sales depends on smartphones, and it is possible that Sony will not be able to achieve its expected sales volume, based on factors such as consumer demand and the competitive environment in the smartphone market, or the business decisions, operating results, or financial condition of Sony’s major customers. As a result of these factors, the carrying value of the related assets may be subject to an impairment charge, which may adversely affect Sony’s profitability.

 

Sony must efficiently manage its procurement of parts and components, the market conditions for which are volatile, and control its inventory of products, parts, and components, the demand for which is volatile.

 

In Sony’s electronics businesses, Sony uses a large volume of parts and components, such as semiconductors including chipsets for mobile products, and LCD panels, for its products. Fluctuations in the availability and pricing of parts and components can adversely affect Sony’s operating results. For instance, shortages of parts or components or fluctuations in the prices of raw materials may result in sharply higher prices and an increase in the cost of goods sold. Also, shortages or delayed shipments of critical parts or components, particularly where Sony is substantially reliant on one supplier, where there is limited production capacity for custom components, or where there are initial manufacturing capacity constraints for products or components which use new technologies, may result in a reduction or suspension of production at Sony’s or its business partners’ manufacturing sites.

 

Sony places orders for parts and components in line with production and inventory plans determined in advance based on its forecast of consumer demand, which is highly volatile and difficult to predict. Inaccurate forecasts of consumer demand or inadequate management can lead to a shortage or excess of inventory, which can disrupt production plans and result in lost sales opportunities or inventory adjustments. Sony writes down the value of its inventory when the underlying parts, components or products have become obsolete, when inventory levels exceed the amount expected to be used, or when the value of the inventory is otherwise recorded at a value higher than net realizable value. For example, in the fiscal year ended March 31, 2014, Sony recorded a 17.4 billion yen write-down of excess components in inventory, as well as 8.0 billion yen of expenses to compensate suppliers for unused components, as a result of the termination of future manufacturing following Sony’s announcement to exit from the PC business. In the fiscal year ended March 31, 2015, Sony recorded an 11.2 billion yen write-down of PlayStation®Vita (“PS Vita”) and PlayStation TV (“PS TV”) components because the latest forecast of PS TV unit sales did not reach Sony’s original forecast. Additionally, Sony recorded a 9.4 billion yen inventory write-down of certain for mobile products image sensors in the Semiconductors segment for the three months ended September 30, 2016. Sony has experienced shortages of certain parts and components as a result of the damage to its suppliers caused by natural disasters, and may experience such shortages due to similar circumstances again

 

- 5

 

 

in the future. Such lost sales opportunities, inventory adjustments, or shortages of parts and components have had and may have an adverse impact on Sony’s operating results and financial condition.

 

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

 

Sony has a significant amount of goodwill, intangible assets and other long-lived assets, including production facilities and equipment in its electronics businesses. A decline in financial performance, market capitalization or changes in estimates and assumptions used in the impairment analysis, which in many cases requires significant judgment, could result in impairment charges against these assets. Goodwill and indefinite lived intangible assets are tested annually for impairment during the fourth quarter of the fiscal year and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value below the carrying amount. Such an event or change in circumstances would include unfavorable variances from or adjustments to established business plans, significant changes in forecasted results or volatility inherent to external markets and industries. The increased levels of global competition and the faster pace of technological change to which Sony is exposed can result in greater volatility of these estimates, assumptions and judgments, and increase the likelihood of impairment charges. In addition, the recoverability of the carrying value of long-lived assets held and used and long-lived assets to be disposed of is reviewed whenever events or changes in circumstances, including the types of events or changes described above with respect to goodwill and intangible assets, indicate that the carrying value of the assets or asset groups may not be recoverable. If the carrying value of the asset or asset group is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the asset or asset group exceeds its fair value. For example, in the fiscal year ended March 31, 2014, Sony recorded impairment charges including a 32.1 billion yen impairment charge related to long-lived assets in the battery business in the Devices segment, a 25.6 billion yen impairment charge related to long-lived assets in the disc manufacturing business outside of Japan and the U.S. and goodwill across the entire disc manufacturing business in All Other, and a 12.8 billion yen impairment charge related to long-lived assets in the PC business in All Other. In the fiscal year ended March 31, 2015, Sony recorded a 176.0 billion yen impairment charge related to goodwill in the Mobile Communications segment. In the fiscal year ended March 31, 2016, Sony recorded impairment charges in the Devices segment related to long-lived assets in the battery business and in the camera module business of 30.6 billion yen and 59.6 billion yen, respectively. In the six months ended September 30, 2016, Sony recorded a 23.9 billion yen impairment charge against long-lived assets in the Semiconductors segment resulting from the termination of development and manufacturing of certain high-functionality camera modules for external sale. In the three months ended December 31, 2016, Sony recorded a 112.1 billion yen impairment charge related to goodwill in the Pictures segment. Any such charge may adversely affect Sony’s operating results and financial condition.

 

(2) Material Contracts

 

There were no material contracts executed or determined to be executed during the three months ended December 31, 2016.

 

Note for readers of this English translation:

 

There was no significant change from the information presented in the Annual Report on Form 20-F (“Patents and Licenses” in Item 4) filed with the SEC on June 17, 2016.

  

URL: The Annual Report on Form 20-F filed with the SEC on June 17, 2016

https://www.sec.gov/Archives/edgar/data/313838/000119312516624169/d168822d20f.htm

 

- 6

 

 

(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, 2016, 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, 2016” submitted to the SEC on Form 6-K on February 2, 2016.

  

URL: The press release titled “Consolidated Financial Results for the Third Quarter Ended December 31, 2016” 

https://www.sec.gov/Archives/edgar/data/313838/000115752317000292/a51502219.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 17, 2016. Although foreign exchange rates have fluctuated during the three-month period ended December 31, 2016, 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 17, 2016 

https://www.sec.gov/Archives/edgar/data/313838/000119312516624169/d168822d20f.htm

  

During the three months ended December 31, 2016, the average rates of the yen were 109.3 yen against the U.S. dollar, which is 11.1 percent higher than the same quarter of the previous fiscal year (“year-on-year”) and 117.8 yen against the euro, which is 12.8 percent higher year-on-year.

 

For the three months ended December 31, 2016, sales were 2,397.5 billion yen, a decrease of 7.1 percent year-on-year, while on a constant currency basis, sales were essentially flat year-on-year. For references to information on a constant currency basis, see Note at the bottom of this section.

 

Consolidated operating income of 92.4 billion yen was recorded for the three months ended December 31, 2016, a decrease of 109.8 billion yen year-on-year (a decrease of approximately 91.4 billion yen year-on-year on a constant currency basis). Most of the foreign exchange rate impact was attributable to the Mobile Communications (“MC”), Game & Network Services (“G&NS”), Imaging Products & Solutions (“IP&S”), Home Entertainment & Sound (“HE&S”), Semiconductors and Components segments.

 

- 7

 

 

The table below indicates the impact of changes in foreign exchange rates on sales and operating results of each of the above-mentioned six 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)
    Change on constant currency basis Impact of changes in foreign exchange rates
Three months ended
December 31
Change in yen
2015 2016
MC Sales 384.5 248.6 -35.3% -32% -12.6
Operating income 24.1 21.2 -2.9   -15.0   +12.1
G&NS Sales 587.1 617.7 +5.2% +15% -57.8
Operating income 40.2 50.0 +9.8   +8.5   +1.4
IP&S Sales 184.8 167.1 - 9.6% 0% -18.5
Operating income 22.8 21.1 - 1.7   +7.5   -9.2
HE&S Sales 402.0 353.4 -12.1% -2% -39.4
Operating income 31.2 25.9 -5.3   -0.4   -4.8
Semiconductors Sales 200.0 233.9 +16.9% +28% -23.0
Operating income 21.3 27.2 +5.9   +20.0   -14.1
Components Sales 57.3 51.4 -10.3% -1% -5.2
Operating loss (32.7)  (3.7)  +29.0   +30.1   -1.1

 

In addition, sales for the Pictures segment decreased 14.1 percent year-on-year to 225.2 billion yen, an approximately 5 percent decrease on a constant currency (U.S. dollar) basis. In the Music segment, sales decreased 1.8 percent year-on-year to 178.5 billion yen, an approximately 4 percent increase on a constant currency basis. As most of the operations in Sony’s Financial Services segment are based in Japan, Sony’s management analyzes the performance of the Financial Services segment on a yen basis only.

 

Note: In this section, for all segments other than Pictures and Music, the impact of foreign exchange rate fluctuations on sales is calculated by applying the change in the yen’s periodic weighted average exchange rates for the three months ended December 31, 2015 from the three months ended December 31, 2016 to the major transactional currencies in which the sales are denominated. The impact of foreign exchange rate fluctuations on operating income (loss) described herein is calculated by subtracting from the impact on sales the impact on cost of sales and selling, general and administrative expenses calculated by applying the same major transactional currencies calculation process to cost of sales and selling, general and administrative expenses as for the impact on sales. Additionally, the MC segment enters into its own foreign exchange hedging transactions. The impact of those transactions is included in the impact of foreign exchange rate fluctuations on operating income (loss) for that segment. Since the worldwide subsidiaries of the Pictures segment and of SME and Sony/ATV in the Music segment are aggregated on a U.S. dollar basis and are translated into yen, the impact of foreign exchange rate fluctuations is calculated by applying the change in the periodic weighted average exchange rates for the three months ended December 31, 2015 from the three months ended December 31, 2016 from U.S. dollar to yen to the U.S. dollar basis operating results. This information is not a substitute for Sony’s consolidated financial statements measured in accordance with U.S. GAAP. However, Sony believes that these disclosures provide additional useful analytical information to investors regarding the operating performance of Sony.

 

 - 8 -

 

 

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, 2016, 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, 2016” submitted to the SEC on Form 6-K on February 2, 2016.

 

URL: The press release titled “Consolidated Financial Results for the Third Quarter Ended December 31, 2016” 

https://www.sec.gov/Archives/edgar/data/313838/000115752317000292/a51502219.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 in the Trend Information section of the Annual Report on Form 20-F filed with the SEC on June 17, 2016. 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 17, 2016

https://www.sec.gov/Archives/edgar/data/313838/000119312516624169/d168822d20f.htm

 

Issues Facing Sony and Management’s Response to those Issues

 

The global economic recovery has been weakening amid increasing financial turbulence, with recovery in advanced economies remaining only modest, and prospects across emerging countries continue to be uneven and generally weaker than in the past 20 years. In advanced economies, factors such as unfavorable demographic trends and low productivity growth continue to weigh on the recovery. In emerging markets, while growth in China and most of emerging Asia is generally projected to be high, Brazil, Russia and other commodity exporters face severe macroeconomic conditions. Furthermore, shocks of a noneconomic origin, related to geopolitical conflicts, political discord, or terrorism loom over many regions, and could have a significant impact on the global economy.

 

The uncertain economic environment surrounding Sony is compounded by continued, intense pricing pressure from competitors, shrinking markets for certain key products and shorter product cycles, primarily in Sony’s Electronics businesses.

 

On February 18, 2015, Sony unveiled its mid-range plan announcing that it would position Return on Equity (“ROE”) as its most important performance indicator. With the goal of transforming into a highly profitable enterprise, Sony set targets of ROE above 10 percent and operating income above 500 billion yen for the fiscal year ending March 31, 2018, the last year of the mid-range plan.

 

Sony’s key strategies for business operations are as follows:

 

Business management that emphasizes profitability, without necessarily pursuing volume.

 

Business management that grants each business unit greater autonomy and mandates a focus on shareholder value.

 

Clearly defined positioning of each business within a broader business portfolio perspective.

 

Based on its specific characteristics and the competitive landscape, each of the Sony Group’s businesses is classified as a “growth driver,” “stable profit generator,” or “area focusing on volatility management” in terms of its position within Sony’s overall business portfolio. Each business has been assigned a target figure for Return on Invested Capital (“ROIC”) linked with the ROE target for Sony Group as a whole, and managed with a clear emphasis on profitability.

 

On June 29, 2016, Sony held its Corporate Strategy Meeting for the fiscal year ending March 31, 2017 and provided an update on the progress of its mid-range corporate plan covering the fiscal year ended March 31, 2016 through the fiscal year ending March 31, 2018. Sony also presented details of initiatives it is undertaking to establish the Company’s foundations for the future beyond the fiscal year ending March 31, 2018. Highlights from this presentation are outlined below.

 

 - 9 -

 

 

1. Progress of Mid-range Corporate Plan (fiscal year ended March 31, 2016 – fiscal year ending March 31, 2018)

 

Sony’s mid-range corporate plan from the fiscal year ended March 31, 2016 through the fiscal year ending March 31, 2018 is transitioning the Company from a period focused primarily on restructuring to a new phase with “profit generation and investment for growth” as its theme. Under this plan, Sony is aiming to realize its transformation into a highly profitable enterprise. Sony’s target of consolidated ROE of more than 10% and consolidated operating profit of more than 500 billion yen for the Sony Group in the fiscal year ending March 31, 2018, the final year of its mid-range corporate plan, remains unchanged, and the Company is continuing to manage each of its businesses with the aim of achieving its transformation into a highly profitable enterprise.

 

In the fiscal year ended March 31, 2016, the first year of its mid-range plan, Sony significantly improved consolidated operating income and consolidated net income attributable to stockholders compared with the previous year. In particular, the revitalization of its “SONY”-branded consumer electronics businesses contributed significantly to this improved profitability. Sony recognizes that this revitalization was a result of comprehensive measures that have steadily been carried out to enhance product competitiveness and differentiation in these businesses, as well as structural reform and cost optimization measures. These businesses are expected to provide the foundations for the Company’s achievement of its financial target for the fiscal year ending March 31, 2018 of consolidated operating profit of more than 500 billion yen. At the same time, with the competitive environment in the consumer electronics industry continuing to drastically change, Sony also plans to aggressively undertake new challenges within these businesses.

 

Progress of Key Segments and Related Initiatives

 

Game and Network Services

 

Sony considers the G&NS segment the largest growth driver of its mid-range corporate plan, and as of January 2017, PlayStation®4 has cumulatively sold through more than 53.4 million units to customers worldwide, continuing its rapid growth and expansion as the fastest-selling console in PlayStation® history. The platform as a whole, including network services, is receiving widespread customer acclaim, and profit growth is exceeding the expectations held when the mid-range corporate plan was initially formed.

 

The network services business is also continuing to grow, achieving a 50% increase in sales in the fiscal year ended March 31, 2016 as compared to the previous fiscal year. The user base is expanding, driven in particular by the PlayStation®Plus membership service, and Sony has continued to engage in investment towards further growth.

 

Sony’s new PlayStation®VR virtual reality system launched in October 2016. Sony has identified virtual reality as an area it believes offers great future potential for the Sony Group in games, as well as other areas. Virtual reality is an application in which Sony believes it can leverage its technological strengths in areas such as digital imaging, content acquisition and production, as well as its entertainment assets. The Company is accordingly engaging with virtual reality across the Sony Group, and also considering the possibility of cultivating it as a new business domain.

 

Pictures and Music

 

In the Pictures and Music segments, with the shift to digital and proliferation of streaming services, the industry itself is undergoing a major transition. The ways that customers consume content, and their individual needs, are becoming increasingly diverse. With the Sony Group’s array of creative talent, ability to create high-quality entertainment, and wealth of content, the current business environment presents major opportunities, and Sony intends to accelerate its growth into these areas.

 

In the Pictures segment, the growth of subscription-based video services and emergence of “binge-watching” viewing styles, has led to a significant increase in demand for high-quality television content, particularly drama. With Sony Pictures Television producing a succession of major hits, including “Breaking Bad,” “Better Call Saul,” and “The Blacklist,” Sony believes it is well-positioned to take advantage of these trends.

 

In the Music segment, the discovery, development and promotion of artists such as Adele, whose record-breaking hit “25” made a significant contribution to profit in the fiscal year ended March 31, 2016, will continue to form the basis of Sony’s business activities. At the same time Sony is engaging in strategic investment to strengthen its recurring revenue businesses within this segment, as demonstrated by the full acquisition of independent music distributor Orchard Media, Inc. in April 2015, and the full acquisition of Sony/ATV Music Publishing LLC announced in September 2016.

 

 - 10 -

 

 

Devices*

 

In the Devices segment, which Sony classified as a “growth driver” in its mid-range corporate plan alongside the three segments above, Sony announced a significant downward revision to its full year results forecast in the fiscal year ended March 31, 2016 due to lower than expected sales in the core image sensor business, caused in particular by slowing growth within the smartphone market. The rate of profit growth in this business is expected to continue to decline through the fiscal year ending March 31, 2018. Sony plans to take an approach to management that prioritizes speed of response to changes in the market environment, and focuses on Sony’s areas of strength.

 

At the same time, in terms of image sensors for mobile products, while the smartphone market itself is slowing, the shift to dual-lens cameras and the requirement for higher pixel density is expected to lead to increased demand in the future. With its technological expertise in these areas, these could be favorable market trends for Sony. By taking advantage of these shifts in the business landscape and also by continuing its existing efforts to expand sales volume, Sony is aiming to revitalize the profitability of this business from the second half of the fiscal year ending March 31, 2017 and into the fiscal year ending March 31, 2018.

 

From a mid- to long-term perspective, Sony continues to expect significant future growth for the image sensor-business. This business accordingly continues to be positioned as a growth driver.

 

In terms of new image sensor applications, Sony sees potential growth in surveillance cameras, as well as in factory automation, IoT (Internet of Things) including drones, and automotive applications. While it is expected to be some time before Sony’s image sensor business for automotive applications is fully established, it is an area where Sony anticipates growth and is investing in R&D aggressively.

 

*Sony realigned its business segments from the first quarter of the fiscal year ending March 31, 2017 to reflect a change in the Corporate Executive Officers in charge of the segment, as well as modifications to the organizational structure of certain segments as of April 1, 2016. As a result of this realignment, Sony has separated the Devices segment into two segments, a Semiconductors segment and a Components segment. The image sensor business is included in the Semiconductors segment.

 

Financial Services

 

In the Financial Services segment, each of the life insurance, non-life insurance, banking and nursing care business have continued to steadily expand their business operations, based on the high level of trust they have gained among customers. However, the ultra-low interest rate environment in Japan is expected to present challenges in terms of generating profit in this segment for the duration of the current mid-range corporate plan, and therefore projections for this segment which were incorporated in our mid-range corporate plan have been revised.

 

In the core life insurance business, Sony is reevaluating its product lineup and sales strategy and executing initiatives, including comprehensive risk management measures, in order to maintain and improve profitability. Sony will target mid- to long-term growth by continuing to focus on providing high-quality and convenient services in life insurance and across all its other businesses.

 

2.  New Initiatives Looking Towards the Future

 

Based on its mission of being a company that provides customers with kando, and inspires and fulfills their curiosity, Sony will continue to target growth by developing the three pillars of its business—electronics, entertainment and financial services—and creating new business opportunities in these business domains.

 

Sony believes its strength lies in its ability to develop products that exist at the closest point of contact with its customers and resonate with them at an emotional level, and to place them in the hands of customers around the world. In other words, Sony connects with its customers at the “last one inch” of the user experience.

 

Sony intends to accelerate efforts to leverage its strengths in new business areas, based on the dual principles of its mission to provide customers with kando, and the pursuit of recurring revenue business models that generate sustainable business and profit growth.

 

While continuing to proceed with the new business creation initiatives in which Sony is currently engaged, the Company will aim to combine its existing strengths in areas such as video and audio technologies, sensors and mechatronics,

 

 - 11 -

 

 

with artificial intelligence (AI), robotics, communications and other elements, and by doing so offer new proposals at the “last one inch” across all types of living spaces.

 

In addition to initiatives already under way, such as the drone-based enterprise solutions that have been launched by Aerosense Inc., Sony’s joint venture with ZMP Inc., and the development of a range of Xperia smart products announced earlier this year, Sony has also embarked on the development of a robot capable of forming an emotional bond with customers, and able to grow to inspire love and affection. In April 2016 Sony established a new organization in this area that is working towards a business launch. Sony will seek to propose new business models that integrate hardware and services to provide emotionally compelling experiences. In the future, Sony will explore broader business opportunities for its robotics and AI technologies, including applications such as production processes and logistics.

 

In order to accelerate R&D in the areas that Sony will focus on going forward, Sony intends to further strengthen its collaboration with leading external researchers and start-up companies, and create a more open ecosystem. As part of these efforts, Sony established the “Sony Innovation Fund,” a corporate venture capital fund, which launched in July 2016. Having advisors and business incubators actively participate in strategically important businesses will enable Sony to support the growth of companies in which it invests, and also provide opportunities to nurture Sony’s leaders of tomorrow.

 

Due to the earthquake of April 14, 2016 and subsequent earthquakes in the Kumamoto region, manufacturing operations were affected at Sony Semiconductor Manufacturing Corporation’s Kumamoto Technology Center, which is the primary manufacturing site of image sensors mainly for digital cameras, security cameras and micro-display devices. As a result of Sony’s recovery effort, full utilization on a wafer input basis was reached by the end of July 2016.

 

Group Environmental Mid-Term Targets “Green Management 2020”

 

Sony announced in June 2015 the establishment of its “Green Management 2020” group environmental mid-term targets that will take effect from fiscal 2016 (the fiscal year ending March 31, 2017) through fiscal 2020 (the fiscal year ending March 31, 2021). Based on the following three pillars, Sony plans to implement various initiatives to reduce the Sony Group’s environmental footprint:

 

Formulate targets and implement initiatives that leverage the distinctive characteristics of Sony’s businesses, from Electronics to entertainment. Among these, reduce annual energy consumption by an average of 30 percent (compared to levels at the fiscal year ended March 31, 2014) in Electronics products, and in entertainment, continue to look to use its contents to raise awareness of sustainability issues and inspire environmentally conscious actions.

 

Enhance efforts to reduce Sony’s environmental footprint across its entire value chain, including manufacturing partners and suppliers, by calling on them to reduce greenhouse gas (GHG) emissions and water consumption.

 

Accelerate the use of renewable energy.

 

Sony’s long-term vision is to achieve a “zero environmental footprint” throughout all stages of its product lifecycles and business activities by 2050. The “Green Management 2020” mid-term plan has been backcasted (calculated backwards) in order to determine the necessary intermediate steps that need to be taken by fiscal 2020 (the fiscal year ending March 31, 2021) on the way to this long-term goal. Sony achieved almost all of the targets set forth in its previous plan, “Green Management 2015,” which covered the five-year period up to and including fiscal 2015 (the fiscal year ended March 31, 2016). With “Green Management 2020,” Sony plans to further accelerate its various initiatives directed towards its ultimate goal of a “zero environmental footprint.”

 

Sony plans to also continue to participate in the WWF’s Climate Savers Programme, which aims to achieve reductions in greenhouse gas emissions, from the fiscal year ending March 31, 2017 onwards. Climate change targets are verified by WWF and a third-party verification body for their degrees of difficulty and progress.

 

Further details of the group environmental mid-term targets “Green Management 2020” 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/.

 

 - 12 -

 

 

iii) Research and Development

 

Note for readers of this English translation:

 

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 17, 2016.

 

URL: The Annual Report on Form 20-F filed with the SEC on June 17, 2016

https://www.sec.gov/Archives/edgar/data/313838/000119312516624169/d168822d20f.htm

 

Research and development costs for the nine months ended December 31, 2016 totaled 325.1 billion yen. There were no significant changes in research and development activities for the period.

  

iv) Employees

 

Note for readers of this English translation:

 

Excluding the below, there was no significant change from the information presented in the Employees section of the Annual Report on Form 20-F filed with the SEC on June 17, 2016.

URL: The Annual Report on Form 20-F filed with the SEC on June 17, 2016

https://www.sec.gov/Archives/edgar/data/313838/000119312516624169/d168822d20f.htm

 

As of December 31, 2016, Sony Corporation had 6,201 employees, a decrease of 4,310 employees from 10,511 employees as of March 31, 2016. The total number of employees decreased mainly due to the separation of its Semionductors business to a subsidiary. There is no significant change in the number of employees of Sony on the consolidated basis.

 

 - 13 -

 

 

v) 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 below, there was no significant change from the information presented in the Annual Report on Form 20-F filed with the SEC on June 17, 2016. 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 17, 2016

https://www.sec.gov/Archives/edgar/data/313838/000119312516624169/d168822d20f.htm

 

Sony typically raises funds through straight bonds, CP programs and bank loans (including syndicated loans). If market disruption and volatility occur and 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 533.0 billion yen in unused committed lines of credit, as of December 31, 2016. Details of those committed lines of credit are: a 300.0 billion yen committed line of credit contracted with a syndicate of Japanese banks, effective until July 2018, 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 500 million U.S. dollar multi-currency committed line of credit contracted with a syndicate of foreign banks, effective until March 2017, in all of which Sony Corporation and Sony Global Treasury Services Plc are defined as borrowers. These contracts are aimed at securing sufficient liquidity in a quick and stable manner even in the event of turmoil within the financial and capital markets.

 

In September 2016, Sony Corporation issued unsecured straight bonds in the total principal amount of 200.0 billion yen. Sony Corporation intends to use the proceeds from the issues for the repayment of debt.

 

 - 14 -

 

 

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, 2016)

As of the filing date of

the Quarterly

Securities Report

(February 8, 2017)

Common stock 1,263,361,160 1,263,377,660

Tokyo Stock Exchange

New York Stock Exchange

The number of shares constituting one full unit is one hundred (100).
Total 1,263,361,160 1,263,377,660
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”) during February 2017, 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, 2016. A summary of such terms and conditions has previously been filed with or submitted to the SEC under 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, 2016)

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 thirty-second series of Common Stock Acquisition Rights 

(November 1, 2016) 

15,223 1,522,300

The thirty-third series of Common Stock Acquisition Rights 

(November 1, 2016) 

17,281 1,728,100

 

- 15 -

 

 

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, 2016 177 1,263,361 240 860,024 240 1,073,717

 

Notes:

1.The increase is due to the exercise of SARs.

2.Upon the exercise of SARs during the period from January 1, 2017 to January 31, 2017 the total number of shares issued increased by 17 thousand shares, and the amount of common stock and the legal capital surplus increased by 26 million yen, respectively.

 

- 16 -

 

 

vi) Status of Major Shareholders

 

(As of December 31, 2016)

Name Address

Number of
shares held 

(Thousands)

Percentage 

of shares held

to total shares

issued (%) 

Citibank as Depositary Bank for Depositary Receipt Holders *1 

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

 

New York, U.S.A. 

(2-7-1, Marunouchi, Chiyoda-ku, 

Tokyo) 

104,356 8.26
Japan Trustee Services Bank, Ltd.
(Trust account) *2
1-8-11, Harumi, Chuo-ku, Tokyo 71,729 5.68

JPMorgan Chase Bank 380055 *3 

(Local Custodian: Mizuho Bank, Ltd.) 

New York, U.S.A. 

(Shinagawa Intercity Tower A, 2-15-1, Konan, Minato-ku, Tokyo) 

57,876 4.58
The Master Trust Bank of Japan, Ltd.
(Trust account) *2

2-11-3, Hamamatsu-cho, Minato-ku, 

Tokyo 

57,545 4.55

State Street Bank and Trust Company *3 

(Local Custodian: The Hongkong and Shanghai 

Banking Corporation Limited) 

Boston, U.S.A. 

(3-11-1, Nihonbashi, Chuo-ku, 

Tokyo) 

35,236 2.79

State Street Bank and Trust Company 505223 *3 

(Local Custodian: Mizuho Bank, Ltd.) 

Boston, U.S.A. 

(Shinagawa Intercity Tower A, 2-15-1, Konan, Minato-ku, Tokyo) 

19,205 1.52

State Street Bank West Client – Treaty 505234 *3 

(Local Custodian: Mizuho Bank, Ltd.) 

North Quincy, U.S.A. 

(Shinagawa Intercity Tower A, 2-15-1, Konan, Minato-ku, Tokyo) 

18,299 1.45

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) 

17,062 1.35

State Street Bank and Trust Company 505001 *3 

(Local Custodian: Mizuho Bank, Ltd.) 

Boston, U.S.A. 

(Shinagawa Intercity Tower A, 2-15-1, Konan, Minato-ku, Tokyo) 

16,933 1.34

State Street Bank and Trust Company 505225 *3 

(Local Custodian: Mizuho Bank, Ltd.) 

Boston, U.S.A. 

(Shinagawa Intercity Tower A, 2-15-1, Konan, Minato-ku, Tokyo) 

16,238 1.29
Total 414,480 32.81
Notes:

*1.Citibank as Depositary Bank for Depositary Receipt Holders is the nominee of Citibank, N.A.

*2.The shares held by each shareholder are held in trust for investors, including shares in securities investment trusts.

*3.Each shareholder provides depositary services for shares owned by institutional investors, mainly in Europe and North America. They are also the nominees for these investors.

4.Sumitomo Mitsui Trust Bank, Limited sent a copy of its “Bulk Shareholding Report” (which was filed with the Kanto Financial Bureau in Japan) to the Company as of April 4, 2014 and reported that it held shares, etc. of the Company as of March 31, 2014 as provided in the below table. As of December 31, 2016, the Company has not been able to confirm such entry of Sumitomo Mitsui Trust Bank, Limited in the register of shareholders.

 

- 17 -

 

 

Name

Number of shares, etc. held 

(Thousands) 

Percentage of shares held

to total shares issued (%)

Sumitomo Mitsui Trust Bank, Limited and the 2 Joint Holders 52,312 5.04

 

5.BlackRock Japan Co., Ltd. sent a copy of its “Bulk Shareholding Report” (which was filed with the Kanto Financial Bureau in Japan) to the Company as of July 22, 2014 and reported that it held shares of the Company as of July 15, 2014 as provided in the below table. As of December 31, 2016, the Company has not been able to confirm such entry of BlackRock Japan Co., Ltd. in the register of shareholders.

Name

Number of shares held

(Thousands)

Percentage of shares held

to total shares issued (%)

BlackRock Japan Co., Ltd. 

and the 8 Joint Holders 

52,314 5.01

 

6.Mizuho Securities Co., Ltd. filed its “Bulk Shareholding Report” with the Kanto Financial Bureau in Japan as of October 21, 2016 and reported that it held shares, etc. of the Company as of October 14, 2016 as provided in the below table. As of December 31, 2016, the Company has not been able to confirm such entry of Mizuho Securities Co., Ltd. in the register of shareholders.

Name

Number of shares, etc. held

(Thousands)

Percentage of shares, etc. held

to total shares issued (%)

Mizuho Securities Co., Ltd. 

and the 1 Joint Holder 

63,774 5.04

 

7.Capital Research and Management Company filed its “Amendment to the Bulk Shareholding Report” with the Kanto Financial Bureau in Japan as of December 22, 2016 and reported that it held shares of the Company as of December 15, 2016 as provided in the below table. As of December 31, 2016, the Company has not been able to confirm such entry of Capital Research and Management Company in the register of shareholders.

Name

Number of shares held 

(Thousands) 

Percentage of shares held 

to total shares issued (%)

Capital Research and Management Company 73,712 5.84

 

- 18 -

 

 

vii) Status of Voting Rights 

1) Shares Issued

 

(As of December 31, 2016)

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.) 

1,063,200
Shares with full voting rights (Others) 1,260,150,900 12,601,509
Shares constituting less than one full unit 2,147,060

Shares constituting

less than one full unit

(100 shares)

Total number of shares issued 1,263,361,160
Total voting rights held by all shareholders 12,601,509
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, 2016)

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 1,063,200 1,063,200 0.08
Total 1,063,200  — 1,063,200 0.08
Note:In addition to the 1,063,200 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.

 

- 19 -

 

 

(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, 2016 to the filing date of this Quarterly Securities Report (Shihanki Houkokusho) is as follows:

 

i) Retired Corporate Executive Officer

 

Title Position Name Date of Retirement
Corporate Executive Officer

Executive Vice President 

(Officer in charge of Pictures and

Music Businesses)

Michael Lynton February 2, 2017

 

ii) The number of male and female Directors and Corporate Executive Officers after the change

The Directors and Corporate Executive Officers are composed of 18 males and 1 female.

(The percentage of female Directors and Corporate Executive Officers is 5.3%.)

 

- 20 -

 

 

IV    Financial Statements

 

  Page
 
(1) Consolidated Financial Statements 22
  (i) Consolidated Balance Sheets 22
  (ii) Consolidated Statements of Income 24
  (iii) Consolidated Statements of Comprehensive Income 26
  (iv) Consolidated Statements of Cash Flows 27
(2) Other Information 52

 

  - 21 -

 

 

(1) Consolidated Financial Statements

 

   (i)   Consolidated Balance Sheets (Unaudited)

 

Sony Corporation and Consolidated Subsidiaries

 

   Yen in millions
   At March 31,
2016
  At December 31,
2016
ASSETS          
Current assets:          
Cash and cash equivalents   983,612    771,676 
Marketable securities   946,397    1,028,046 
Notes and accounts receivable, trade   926,375    1,383,285 
Allowance for doubtful accounts and sales returns   (72,783)   (75,441)
Inventories   683,146    681,138 
Other receivables   206,058    208,922 
Deferred income taxes   40,940    35,710 
Prepaid expenses and other current assets   482,982    566,326 
     Total current assets   4,196,727    4,599,662 
Film costs   301,228    369,157 
Investments and advances:          
Affiliated companies   164,874    160,155 
Securities investments and other   9,069,209    9,775,710 
    9,234,083    9,935,865 
Property, plant and equipment:          
Land   121,707    118,857 
Buildings   655,379    654,037 
Machinery and equipment   1,795,991    1,854,564 
Construction in progress   69,286    54,385 
    2,642,363    2,681,843 
Less – Accumulated depreciation   1,821,545    1,913,120 
    820,818    768,723 
Other assets:          
Intangibles, net   615,754    587,490 
Goodwill   606,290    503,218 
Deferred insurance acquisition costs   511,834    537,870 
Deferred income taxes   97,639    102,480 
Other   289,017    290,609 
    2,120,534    2,021,667 
Total assets   16,673,390    17,695,074 

(Continued on following page.)

 

  - 22 -

 

 


Consolidated Balance Sheets (Unaudited)

 

  

   Yen in millions
   At March 31,
2016
  At December 31,
2016
LIABILITIES          
Current liabilities:          
Short-term borrowings   149,272    426,073 
Current portion of long-term debt   187,668    109,041 
Notes and accounts payable, trade   550,964    626,295 
Accounts payable, other and accrued expenses   1,367,115    1,417,687 
Accrued income and other taxes   88,865    129,138 
Deposits from customers in the banking business   1,912,673    2,081,101 
Other   574,193    570,567 
     Total current liabilities   4,830,750    5,359,902 
Long-term debt   556,605    703,385 
Accrued pension and severance costs   462,384    452,020 
Deferred income taxes   450,926    435,306 
Future insurance policy benefits and other   4,509,215    4,757,299 
Policyholders’ account in the life insurance business   2,401,320    2,579,816 
Other   330,302    320,192 
Total liabilities   13,541,502    14,607,920 
Redeemable noncontrolling interest   7,478    7,869 
Commitments and contingent liabilities          
EQUITY          

Sony Corporation’s stockholders’ equity: 

        

Common stock, no par value – 

At March 31, 2016–Shares authorized: 3,600,000,000, shares issued: 1,262,493,760 

   858,867     

At December 31, 2016–Shares authorized: 3,600,000,000, shares issued: 1,263,361,160 

       860,024 
Additional paid-in capital   1,325,719    1,272,577 
Retained earnings   936,331    969,346 
Accumulated other comprehensive income –          
Unrealized gains on securities, net   140,736    128,672 
Unrealized gains (losses) on derivative instruments, net   (1,198)   2,491 
Pension liability adjustment   (371,739)   (362,564)
Foreign currency translation adjustments   (421,117)   (413,312)
    (653,318)   (644,713)
Treasury stock, at cost          

Common stock 

At March 31, 2016–1,047,745 shares 

   (4,259)   

At December 31, 2016–1,063,269 shares

      (4,300)
    2,463,340    2,452,934 
Noncontrolling interests   661,070    626,351 
Total equity   3,124,410    3,079,285 
Total liabilities and equity   16,673,390    17,695,074 

The accompanying notes are an integral part of these statements.

 

  - 23 -

 

 


(ii)      Consolidated Statements of Income (Unaudited)

 

Sony Corporation and Consolidated Subsidiaries

 

   Yen in millions
   Nine months ended December 31
   2015  2016
Sales and operating revenue:          
Net sales   5,405,599    4,834,013 
Financial services revenue   807,092    806,954 
Other operating revenue   68,920    58,679 
    6,281,611    5,699,646 
Costs and expenses:          
Cost of sales   3,985,905    3,559,927 
Selling, general and administrative   1,258,448    1,088,096 
Financial services expenses   666,479    693,537 
Other operating (income) expense, net   (13,146)   165,454 
    5,897,686    5,507,014 
Equity in net income of affiliated companies   3,145    1,679 
Operating income   387,070    194,311 
Other income:          
Interest and dividends   9,055    7,859 
Gain on sale of securities investments, net   51,796    155 
Other   1,541    1,906 
    62,392    9,920 
Other expenses:          
Interest   19,321    11,902 
Loss on devaluation of securities investments   251    4,860 
Foreign exchange loss, net   20,302    19,230 
Other   5,404    4,476 
    45,278    40,468 
Income before income taxes   404,184    163,763 
Income taxes   119,354    80,931 
Net income   284,830    82,832 
Less - Net income attributable to noncontrolling interests   48,702    37,193 
Net income attributable to Sony Corporation’s stockholders   236,128    45,639 

 

   Yen
   Nine months ended December 31
   2015  2016
Per share data:  -  -
Net income attributable to Sony Corporation’s stockholders          
– Basic   191.98    36.17 
– Diluted   189.17    35.43 

The accompanying notes are an integral part of these statements.

 

  - 24 -

 

 

Consolidated Statements of Income (Unaudited)

 

Sony Corporation and Consolidated Subsidiaries 

       
  Yen in millions
  Three months ended December 31
   2015  2016
Sales and operating revenue:          
Net sales   2,238,674    2,059,578 
Financial services revenue   320,368    317,342 
Other operating revenue   21,770    20,579 
    2,580,812    2,397,499 
Costs and expenses:          
Cost of sales   1,623,410    1,495,036 
Selling, general and administrative   461,418    411,652 
Financial services expenses   267,365    286,740 
Other operating expense, net   28,253    113,013 
    2,380,446    2,306,441 
Equity in net income of affiliated companies   1,779    1,314 
Operating income   202,145    92,372 
Other income:          
Interest and dividends   2,739    2,502 
Gain on sale of securities investments, net   219    92 
Other   355    189 
    3,313    2,783 
Other expenses:          
Interest   8,346    3,749 
Loss on devaluation of securities investments   246    4,810 
Foreign exchange loss, net   1,954    18,420 
Other   1,632    1,949 
    12,178    28,928 
Income before income taxes   193,280    66,227 
Income taxes   55,676    36,956 
Net income   137,604    29,271 
Less - Net income attributable to noncontrolling interests   17,470    9,640 
Net income attributable to Sony Corporation’s stockholders   120,134    19,631 


 

   Yen
   Three months ended December 31
   2015  2016
Per share data:  -  -
Net income attributable to Sony Corporation’s stockholders          
– Basic   95.25    15.55 
– Diluted   93.33    15.24 

The accompanying notes are an integral part of these statements.

 

 

 

  - 25 -

 

 

(iii)   Consolidated Statements of Comprehensive Income (Unaudited)

 

Sony Corporation and Consolidated Subsidiaries

 

   Yen in millions
   Nine months ended December 31
   2015  2016
Net income   284,830    82,832 
Other comprehensive income, net of tax ―          
  Unrealized losses on securities   (34,864)   (25,645)
Unrealized gains on derivative instruments   2,114    3,690 
Pension liability adjustment   1,366    9,297 
Foreign currency translation adjustments   (22,239)   5,377 
Total comprehensive income   231,207    75,551 
Less – Comprehensive income attributable to noncontrolling interests   47,046    21,307 
Comprehensive income attributable to Sony Corporation’s stockholders   184,161    54,244 

  

   Yen in millions
   Three months ended December 31
   2015  2016
Net income   137,604    29,271 
Other comprehensive income, net of tax ―          
  Unrealized gains (losses) on securities   23,002    (8,314)
Unrealized gains on derivative instruments   3,855    3,430 
Pension liability adjustment   459    3,250 
Foreign currency translation adjustments   (10,338)   112,440 
Total comprehensive income   154,582    140,077 
Less – Comprehensive income attributable to noncontrolling interests   20,676    2,152 
Comprehensive income attributable to Sony Corporation’s stockholders   133,906    137,925 

The accompanying notes are an integral part of these statements.

 

  - 26 -

 

 


(iv)   Consolidated Statements of Cash Flows (Unaudited)

 

Sony Corporation and Consolidated Subsidiaries

 

   Yen in millions
   Nine months ended December 31
   2015  2016
Cash flows from operating activities:          
Net income   284,830    82,832 
Adjustments to reconcile net income to net cash provided by operating activities–          

Depreciation and amortization, including amortization of deferred insurance acquisition costs

   275,130    259,554 
Amortization of film costs   200,643    190,539 
Accrual for pension and severance costs, less payments   (6,667)   7,270 
Other operating (income) expense, net   (13,146)   165,454 
(Gain) loss on sale or devaluation of securities investments, net   (51,546)   4,706 

Gain on revaluation of marketable securities held in the financial services business for trading purposes, net 

   (4,347)   (42,727)

Loss on revaluation or impairment of securities investments held in the financial services business, net 

   2,586    29 
Deferred income taxes   12,543    4,450 
Equity in net loss of affiliated companies, net of dividends   3,816    5,770 
Changes in assets and liabilities:          
Increase in notes and accounts receivable, trade   (310,954)   (372,978)
Increase in inventories   (91,742)   (18,622)
Increase in film costs   (252,998)   (242,875)
Increase in notes and accounts payable, trade   85,718    87,698 
Increase in accrued income and other taxes   43,932    65,951 
Increase in future insurance policy benefits and other   312,040    336,157 
Increase in deferred insurance acquisition costs   (67,354)   (70,070)

Increase in marketable securities held in the financial services business for trading purposes 

   (69,941)   (60,868)
Increase in other current assets   (57,444)   (46,705)
Increase in other current liabilities   9,931    55,453 
Other   16,481    (97,766)
Net cash provided by operating activities   321,511    313,252 

(Continued on following page.)

 

 

  - 27 -

 

 

Consolidated Statements of Cash Flows (Unaudited)

 

  

       
   Yen in millions
   Nine months ended December 31
   2015  2016
Cash flows from investing activities:          
Payments for purchases of fixed assets   (254,272)   (260,457)
Proceeds from sales of fixed assets   18,369    9,134 
Payments for investments and advances by financial services business   (942,226)   (943,712)
Payments for investments and advances (other than financial services business)    (18,784)   (8,128)

    Proceeds from sales or return of investments and collections of advances by financial services business 

   465,525    212,624 

    Proceeds from sales or return of investments and collections of advances (other than financial services business) 

   79,754    14,478 
Proceeds from sales of businesses   17,790    3,262 
Other   (35,958)   (8,715)
Net cash used in investing activities   (669,802)   (981,514)
Cash flows from financing activities:          
Proceeds from issuance of long-term debt   18,772    255,416 
Payments of long-term debt   (137,743)   (182,670)
Increase in short-term borrowings, net   151,485    235,084 

Increase in deposits from customers in the financial services business, net 

   91,113    254,279 
Proceeds from issuance of convertible bonds   120,000     
Proceeds from issuance of new shares   301,708     
Dividends paid   (12,766)   (25,308)
Payment for purchase of Sony/ATV shares from noncontrolling interests       (76,565) 

Other 

   (34,819)   

 7,615

 
Net cash provided by financing activities   497,750    467,851 
Effect of exchange rate changes on cash and cash equivalents   (8,235)   (11,525)
Net increase (decrease) in cash and cash equivalents   141,224    (211,936)
Cash and cash equivalents at beginning of the fiscal year   949,413    983,612 
Cash and cash equivalents at end of the period   1,090,637    771,676 

The accompanying notes are an integral part of these statements.

 

  - 28 -

 

 

     Index to Notes to Consolidated Financial Statements
Sony Corporation and Consolidated Subsidiaries

 

Notes to Consolidated Financial Statements Page
   
1.   Summary of significant accounting policies 30
2.   Marketable securities and securities investments 31
3.   Fair value measurements 32
4.   Supplemental equity and comprehensive income information 34
5.   Reconciliation of the differences between basic and diluted EPS 36
6.   Kumamoto Earthquake 37
7.   Impairment of goodwill in the Pictures segment 37
8.   Commitments, contingent liabilities and other 37
9.   Business segment information 40
10.   Subsequent events 51

 

- 29

 

 

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:

 

Amendments to the consolidation analysis -

 

In February 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-02 that changes how companies evaluate entities for consolidation. The changes primarily relate to (i) the identification of variable interests related to fees paid to decision makers or service providers, (ii) how entities determine whether limited partnerships or similar entities are variable interest entities, (iii) how related parties and de facto agents are considered in the primary beneficiary determination, and (iv) the elimination of the presumption that a general partner controls a limited partnership. This ASU is effective for Sony as of April 1, 2016. The effect of this ASU did not have a material impact on Sony’s results of operations and financial position.

 

Customer’s accounting for fees paid in a cloud computing arrangement -

 

In April 2015, the FASB issued ASU 2015-05 for fees paid in a cloud computing arrangement. The ASU requires entities to account for a cloud computing arrangement that includes a software license element in a manner consistent with the acquisition of other software licenses. A cloud computing arrangement without a software license element is to be accounted for as a service contract. This ASU does not affect the accounting for service contracts by a customer. This ASU is effective for Sony as of April 1, 2016. The effect of this ASU did not have a material impact on Sony’s results of operations and financial position.

 

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

 

Income Taxes -

 

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

 

(3)Reclassifications:

 

Certain reclassifications of the financial statements and accompanying footnotes for the nine and three months ended December 31, 2015 have been made to conform to the presentation for the nine and three months ended December 31, 2016.

 

(4)Out-of-period adjustments:

 

For the nine months ended December 31, 2015, Sony recorded an out-of-period adjustment to correct an error in the amount of accruals for certain sales incentives being recorded at a subsidiary. The error began in the fiscal year ended March 31, 2009 and continued until it was identified by Sony during the three months ended December 31, 2015. The adjustment, which related to the HE&S segment, impacted net sales and increased income before income taxes in the consolidated statements of income by 8,447 million yen for the nine months ended December 31, 2015. Sony determined that the adjustment was not material to the consolidated financial statements for the three and nine months ended December 31, 2015 or any prior annual or interim periods.

 

- 30

 

 

2.Marketable securities and securities investments

 

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

 

   Yen in millions 
   March 31, 2016   December 31, 2016 
   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   1,136,478    218,863    (6)   1,355,335    1,161,376    194,425    (645)   1,355,156 
                                         
Japanese local government bonds   60,707    86    (254)   60,539    62,262    160    (75)   62,347 
                                         
Japanese corporate bonds   132,739    11,472    (230)   143,981    162,151    10,004    (1,599)   170,556 
                                         
Foreign government bonds   35,896    5,724    (160)   41,460    19,130    457    (648)   18,939 
                                         
Foreign corporate bonds   415,994    5,738    (3,185)   418,547    392,518    5,910    (810)   397,618 
                                         
Other   884    0        884    15,886        (0)   15,886 
    1,782,698    241,883    (3,835)   2,020,746    1,813,323    210,956    (3,777)   2,020,502 
                                         
Equity securities   44,752    70,590    (21)   115,321    55,736    66,954    (475)   122,215 
                                         
Held-to-maturity securities:                                        
Japanese national government bonds *   5,353,080    2,020,621        7,373,701    5,577,355    1,744,367    (18,287)   7,303,435 
                                         
Japanese local government bonds   4,480    522        5,002    4,134    470        4,604 
                                         
Japanese corporate bonds   61,811    17,382        79,193    200,565    14,746    (15,713)   199,598 
                                         
Foreign government bonds   42,934    10,631        53,565    220,601    5,388    (24,488)   201,501 
                                         
Foreign corporate bonds   198    24        222    198    20        218 
    5,462,503    2,049,180        7,511,683    6,002,853    1,764,991    (58,488)   7,709,356 
                                         
Total   7,289,953    2,361,653    (3,856)   9,647,750    7,871,912    2,042,901    (62,740)   9,852,073 

 

* As of December 31, 2016, held-to-maturity securities include 242,434 million yen of pledged Japanese national government bonds as collateral for transactions with short-term repurchase agreement.

 

- 31

 

 

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, 2016 
                   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   501,448    297,793        799,241    799,241             
Available-for-sale securities                                        
Debt securities                                        
Japanese national government bonds       1,355,335        1,355,335    5,084    1,350,251         
Japanese local government bonds       60,539        60,539    6,515    54,024         
Japanese corporate bonds       140,635    3,346    143,981    5,727    138,254         
Foreign government bonds       41,460        41,460    2,309    39,151         
Foreign corporate bonds       402,694    15,853    418,547    124,680    293,867         
Other           884    884        884         
Equity securities   115,200    121        115,321        115,321         
Other investments *1   7,179    4,027    13,463    24,669        24,669         
Derivative assets *2, *3   437    17,391        17,828            17,257    571 
Total assets   624,264    2,319,995    33,546    2,977,805    943,556    2,016,421    17,257    571 
Liabilities:                                        
Derivative liabilities*2,*3   668    48,467        49,135            20,680    28,455 
Total liabilities   668    48,467        49,135            20,680    28,455 

 

- 32

 

 

   Yen in millions 
   December 31, 2016 
                   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   584,629    307,181        891,810    891,810             
Available-for-sale securities                                        
Debt securities                                        
Japanese national government bonds       1,355,156        1,355,156    17,157    1,337,999         
Japanese local government bonds       62,347        62,347    9,332    53,015         
Japanese corporate bonds       167,228    3,328    170,556    4,949    165,607         
Foreign government bonds       18,939        18,939    2,923    16,016         
Foreign corporate bonds       378,900    18,718    397,618    96,718    300,900         
Other           15,886    15,886        15,886         
Equity securities   122,068    147        122,215        122,215         
Other investments *1   7,780    4,594    11,360    23,734        23,734         
Derivative assets *2, *3   159    32,861        33,020            31,338    1,682 
Total assets   714,636    2,327,353    49,292    3,091,281    1,022,889    2,035,372    31,338    1,682 
Liabilities:                                        
Derivative liabilities*2,*3   3,520    52,354        55,874            36,138    19,736 
Total liabilities   3,520    52,354        55,874            36,138    19,736 

 

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

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

*3 The potential effect of offsetting on assets and liabilities, which primarily consists of derivatives subject to master netting agreements and/or collateral, is insignificant.

 

Sony also has assets and liabilities that are required to be recorded at fair value on a nonrecurring basis when certain circumstances occur. 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 six months ended September 30, 2016, Sony measured fair value of long-lived assets related to the camera module business in the Semiconductors segment and recorded impairment losses of 23,860 million yen. These measurements are classified as level 3 because significant unobservable inputs, such as conditions of the assets or projections of future cash flows, the timing of such cash flows and the discount rate reflecting the risk inherent in future cash flows, were considered in the fair value measurement.

 

Refer to Note 7. During the three months ended December 31, 2016, Sony recorded an impairment charge against the goodwill of the Production & Distribution reporting unit in the Pictures segment. Sony’s determination of the estimated fair value of the reporting unit was based on the present value of expected future cash flows including a terminal value which is based on an exit price using an earnings multiple applied to the final year of the forecasted earnings, and which also takes into consideration a control premium. These measurements are classified as a level 3 because significant unobservable inputs, such as the projections of future cash flows, the timing of such cash flows, the earnings multiple, the growth rates beyond the forecast and mid-range plan periods, and the discount rate reflecting the risk inherent in future cash flows, were considered in the fair value measurements.

 

- 33

 

 

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, 2015 and 2016 are as follows:

 

   Yen in millions 
   Sony Corporation’s stockholders’ equity   Noncontrolling interests   Total equity 
Balance at March 31, 2015   2,317,077    611,392    2,928,469 
Issuance of new shares   301,708        301,708 
Exercise of stock acquisition rights   1,752        1,752 
Stock-based compensation   977        977 
Comprehensive income:               
Net income   236,128    48,702    284,830 
Other comprehensive income, net of tax ―               
Unrealized losses on securities   (33,853)   (1,011)   (34,864)
Unrealized gains on derivative instruments   2,114        2,114 
Pension liability adjustment   1,361    5    1,366 
Foreign currency translation adjustments   (21,589)   (650)   (22,239)
Total comprehensive income   184,161    47,046    231,207 
Dividends declared   (12,612)   (19,947)   (32,559)
Transactions with noncontrolling interests shareholders and other   (13,545)   4,139    (9,406)
Balance at December 31, 2015   2,779,518    642,630    3,422,148 

 

   Yen in millions 
   Sony Corporation’s stockholders’ equity   Noncontrolling interests   Total equity 
Balance at March 31, 2016   2,463,340    661,070    3,124,410 
Exercise of stock acquisition rights   2,314        2,314 
Stock-based compensation   1,452        1,452 
Comprehensive income:               
Net income   45,639    37,193    82,832 
Other comprehensive income, net of tax ―               
Unrealized losses on securities   (12,064)   (13,581)   (25,645)
Unrealized gains on derivative instruments   3,689    1    3,690 
Pension liability adjustment   9,175    122    9,297 
Foreign currency translation adjustments   7,805    (2,428)   5,377 
Total comprehensive income   54,244    21,307    75,551 
Dividends declared   (12,625)   (16,480)   (29,105)
Transactions with noncontrolling interests shareholders and other   (55,791)   (39,546)   (95,337)
Balance at December 31, 2016   2,452,934    626,351    3,079,285 

 

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, 2015 and 2016.

 

In September, 2016, Sony obtained full ownership of its U.S.-based music publishing subsidiary by acquiring the 50% interest in the subsidiary held by a third-party investor. The aggregate cash consideration paid to the third-party investor was 750 million U.S. dollars, including 17 million U.S. dollars of distributions to which the subsidiary previously committed. The difference between cash consideration paid and the decrease in the carrying amount of the noncontrolling interests was recognized as a decrease to additional paid-in capital of 70,730 million yen.

 

- 34

 

 

(2)Other Comprehensive Income

 

Changes in accumulated other comprehensive income, net of tax by component for the nine months ended December 31, 2015 and 2016 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, 2015   154,153        (201,131)   (338,305)   (385,283)

Other comprehensive income (loss) before reclassifications

   10,577    4,176    (359)   (22,239)   (7,845)

Amounts reclassified out of accumulated other comprehensive income

   (45,441)   (2,062)   1,725        (45,778)

Net current-period other comprehensive income (loss) 

   (34,864)   2,114    1,366    (22,239)   (53,623)

Less: Other comprehensive income (loss) attributable to noncontrolling interests

   (1,011)       5    (650)   (1,656)
Balance at December 31, 2015   120,300    2,114    (199,770)   (359,894)   (437,250)

 

 

   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, 2016   140,736    (1,198)   (371,739)   (421,117)   (653,318)

Other comprehensive income (loss) before reclassifications 

   (25,788)   6,125    (340