6-K 1 d619100d6k.htm SONY CORPORATION 6-K SONY CORPORATION 6-K
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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

For the month of November 2018

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/ Hiroki Totoki
          (Signature)
Hiroki Totoki
Senior Executive Vice President and
Chief Financial Officer

Date: November 5, 2018


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Quarterly Securities Report

For the three months ended September 30, 2018

(TRANSLATION)

Sony Corporation


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CONTENTS

 

    

Page

 

 

Note for readers of this English translation

     1     

Cautionary Statement

     1     
  

    I   Corporate Information

     3     

(1)   Selected Consolidated Financial Data

     3     

(2)   Business Overview

 

     4     

    II   State of Business

     5     

(1)   Risk Factors

     5     

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

     5     

(3)   Material Contracts

 

     14    

   III   Company Information

     15    

(1)   Information on the Company’s Shares

     15    

(2)   Directors and Corporate Executive Officers

 

     18    

  IV  Financial Statements

     19    

(1)   Consolidated Financial Statements

     20    

(2)   Other Information

     49    


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Note for readers of this English translation

On November 5, 2018, Sony Corporation (the “Company”, “Sony” or “Sony Corporation”) filed its Japanese-language Quarterly Securities Report (Shihanki Houkokusho) for the three months ended September 30, 2018 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 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)

Sony’s ability to maintain product quality and customer satisfaction with its products and services;

(ii)

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 image sensors, game and network platforms, smartphones and televisions, 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 customer preferences;

(iii)

Sony’s ability to implement successful hardware, software, and content integration strategies, and to develop and implement successful sales and distribution strategies in light of new technologies and distribution platforms;

(iv)

the effectiveness of Sony’s strategies and their execution, including but not limited to the success of Sony’s acquisitions, joint ventures, investments, capital expenditures, restructurings and other strategic initiatives;

(v)

changes in laws, regulations and government policies in the markets in which Sony and its third-party suppliers, service providers and business partners operate, including those related to taxation, as well as growing consumer focus on corporate social responsibility;

(vi)

Sony’s continued ability to identify the products, services and market trends with significant growth potential, to devote sufficient resources to research and development, to prioritize investments and capital expenditures correctly and to recoup its investments and capital expenditures, including those required for technology development and product capacity;

(vii)

Sony’s reliance on external business partners, including for the procurement of parts, components, software and network services for its products or services, the manufacturing, marketing and distribution of its products, and its other business operations;

(viii)

the global economic and political environment in which Sony operates and the economic and political conditions in Sony’s markets, particularly levels of consumer spending;

(ix)

Sony’s ability to meet operational and liquidity needs as a result of significant volatility and disruption in the global financial markets or a ratings downgrade;

(x)

Sony’s ability to forecast demands, manage timely procurement and control inventories;



 

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(xi)

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, liabilities and operating results are denominated;

(xii)

Sony’s ability to recruit, retain and maintain productive relations with highly skilled personnel;

(xiii)

Sony’s ability to prevent unauthorized use or theft of intellectual property rights, to obtain or renew licenses relating to intellectual property rights and to defend itself against claims that its products or services infringe the intellectual property rights owned by others;

(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)

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;

(xvi)

risks related to catastrophic disasters or similar events;

(xvii)

the ability of Sony, its third-party service providers or business partners to anticipate and manage cybersecurity risk, including the risk of unauthorized access to Sony’s business information and the personally identifiable information of its employees and customers, potential business disruptions or financial losses; and

(xviii) 

the outcome of pending and/or future legal and/or regulatory proceedings.

Risks and uncertainties also include the impact of any future events with material adverse impact. Important information

regarding risks and uncertainties is also set forth in Sony’s most recent Form 20-F, which is on file with the SEC.



 

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I     Corporate Information

(1) Selected Consolidated Financial Data

    Yen in millions, Yen per share amounts  
   

  Six months ended  

  September 30, 2017  

   

  Six months ended  

  September 30, 2018  

   

  Fiscal year ended  

  March 31, 2018  

 

 

 
  Sales and operating revenue     3,920,644          4,136,384          8,543,982     

 

 
  Operating income     361,839          434,517          734,860     

 

 
  Income before income taxes     347,459          558,484          699,049     

 

 

Net income attributable to Sony Corporation’s stockholders

    211,723          399,448          490,794     

 

 
  Comprehensive income     267,514          449,051          553,220     

 

 
  Total equity     3,380,652          4,013,157          3,647,157     

 

 
  Total assets     18,797,106          20,325,450          19,065,538     

 

 

Net income attributable to Sony Corporation’s stockholders per share of common stock, basic (yen)

    167.61          315.02          388.32     

 

 

Net income attributable to Sony Corporation’s stockholders per share of common stock, diluted (yen)

    164.06          308.17          379.75     

 

 

Ratio of stockholders’ equity to total assets (%)

    14.5          16.6          15.6     

 

 

Net cash provided by operating activities

    265,356          410,829          1,253,971     

 

 
  Net cash used in investing activities     (411,846)         (528,001)         (823,068)    

 

 

Net cash provided by (used in) financing activities

    179,523          (270)         246,456     

 

 

Cash and cash equivalents at end of the period

    1,000,832          1,540,779          1,586,329     

 

 
    Yen in millions, Yen per share amounts        
   

  Three months ended  

  September 30, 2017  

   

  Three months ended  

  September 30, 2018  

 

 

 

Sales and operating revenue

    2,062,531          2,182,760     

 

 

Net income attributable to Sony Corporation’s stockholders

    130,852          173,001     

 

 

Net income attributable to Sony Corporation’s stockholders per share of common stock, basic (yen)

    103.57          136.38     

 

 

Net income attributable to Sony Corporation’s stockholders per share of common stock, diluted (yen)

    101.35          133.43     

 

   

  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.

Certain revisions have been made for the six months ended September 30, 2017 and the fiscal year ended March 31, 2018 to conform to the presentation for the six months ended September 30, 2018 due to the adoption of Accounting Standards Update 2016-18 from the fiscal year beginning April 1, 2018. Please refer to “IV Financial Statements – Notes to Consolidated Financial Statements – 1. Summary of significant accounting policies – (1) Recently adopted accounting pronouncements”.

  4.

Consumption taxes are not included in sales and operating revenue.

  5.

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

  6.

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

  7.

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

 

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(2) Business Overview

There was no significant change in the business of Sony during the six months ended September 30, 2018.

As of September 30, 2018, the Company had 1,344 subsidiaries and 130 affiliated companies, of which 1,314 companies are consolidated subsidiaries (including variable interest entities) of the Company. The Company has applied the equity accounting method for 119 affiliated companies.

 

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II    State of Business

(1) Risk Factors

 

Note for readers of this English translation:

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 SEC on June 19, 2018. 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 19, 2018

https://www.sec.gov/Archives/edgar/data/313838/000119312518196263/d556845d20f.htm

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

i) Results of Operations

All amounts are presented on the basis of U.S. GAAP. “Sales and operating revenue” (“sales”) in each business segment represents sales and operating revenue recorded before intersegment transactions are eliminated. “Operating income (loss)” in each business segment represents operating income (loss) reported before intersegment transactions are eliminated and excludes unallocated corporate expenses. For details regarding each segment’s product categories, please refer to “IV Financial Statements – Notes to Consolidated Financial Statements – 9. Business segment information.”

Consolidated Financial Results

 

     (Billions of yen)  
     Six months ended September 30  
      2017     2018  

  Sales and operating revenue

       ¥ 3,920.6     ¥ 4,136.4  

  Operating income

     361.8       434.5  

  Income before income taxes

     347.5       558.5  

  Net income attributable to Sony Corporation’s stockholders

     211.7       399.4  

Sales for the six months ended September 30, 2018 (“the current six months”) increased 215.7 billion yen compared to the same period of the previous fiscal year (“year-on-year”) to 4,136.4 billion yen. This increase was primarily due to a significant increase in sales in the Game & Network Services (“G&NS”) segment.

Operating income in the current six months increased 72.7 billion yen year-on-year to 434.5 billion yen. This increase was primarily due to a significant increase in operating income in the G&NS segment.

Operating income for the current six months included the following:

 

Impairment charge against long-lived assets: 16.2 billion yen (MC segment)*

* In light of smartphone sales results in the current quarter, as well as the expectation of continued difficulty in the business environment in the second half of the fiscal year ending March 31, 2019 and beyond, Sony conducted a review of the future profitability forecast for the MC segment, which resulted in a downward revision in that forecast. The outcome of this downward revision was a decrease in expected future cash flows, which resulted in the recording of an impairment charge against long-lived assets of 16.2 billion yen in the smartphone business within the MC segment, recorded as an operating loss in the current quarter. When it established the new profitability forecast for the smartphone business, Sony revised its profitability improvement plan and adopted a new goal of reducing operating costs in the fiscal year ending March 31, 2021 compared with the fiscal year ended March 31, 2018 by 50% compared with its previous goal of 30%.

Operating income for the same period of the previous fiscal year included the following:

 

A gain resulting from the sale of the entire equity interest in a manufacturing subsidiary in the camera module business: 27.5 billion yen (Semiconductors segment)

 

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Insurance recoveries income, mainly for opportunity losses related to the 2016 Kumamoto Earthquakes (the “Kumamoto Earthquakes”): 6.7 billion yen (Semiconductors segment) and 2.6 billion yen (IP&S segment)

During the current six months, restructuring charges, net, increased 1.0 billion yen year-on-year to 5.0 billion yen. Restructuring charges are recorded as an operating expense and are included in operating income.

Equity in net income (loss) of affiliated companies in the current six months, recorded within operating income, was a loss of 2.2 billion yen, compared to income of 3.1 billion yen in the same period of the previous fiscal year. This deterioration was mainly due to a year-on-year deterioration of equity in net income (loss) for EMI Music Publishing (“EMI”) in the Music segment. For details, please refer to the operating performance analysis of the Music segment below.

The net effect of other income and expenses was income of 124.0 billion yen, compared to an expense of 14.4 billion yen in the same period of the previous fiscal year. This was mainly due to a 117.8 billion yen gain on equity securities, net, recorded in the current six months as a result of Spotify Technology S.A.’s (“Spotify”) public listing.

Income before income taxes increased 211.0 billion yen year-on-year to 558.5 billion yen.

During the current six months, Sony recorded 134.5 billion yen of income tax expense, resulting in an effective tax rate of 24.1%, which was lower than the effective tax rate of 31.7% in the same period of the previous fiscal year. This lower effective tax rate was mainly due to an increase during the current six months in income before income taxes recorded in Sony Corporation and its national tax filing group in Japan, and income before income taxes, including a portion of the gain on Spotify’s shares, recorded in its U.S. consolidated tax filing group. These jurisdictions have established valuation allowances against deferred tax assets resulting in effective tax rates lower than the statutory tax rates in each jurisdiction.

Net income attributable to Sony Corporation’s stockholders increased 187.7 billion yen year-on-year to 399.4 billion yen.

Operating performance by business segment for the current six months is as follows:

Game & Network Services (G&NS)

Sales increased 240.9 billion yen year-on-year to 1,022.2 billion yen, primarily due to an increase in game software sales. Operating income increased 101.6 billion yen year-on-year to 174.1 billion yen, primarily due to the impact of the above-mentioned increase in sales.

Music

The Music segment results include the yen-translated results of Sony Music Entertainment (“SME”) and Sony/ATV Music Publishing (“Sony/ATV”), both U.S.-based operations which aggregate the results of their worldwide subsidiaries on a U.S. dollar basis, and the results of Sony Music Entertainment (Japan) Inc., a Japan-based music company which aggregates its results in yen. The segment also includes equity in net income (loss) for EMI, an affiliated company accounted for under the equity method for which Sony records 39.8% of EMI’s net income in the segment’s operating income.

Sales increased 10.2 billion yen year-on-year to 385.3 billion yen. This increase was due to higher sales for Music Publishing resulting from higher streaming revenues, as well as higher sales for Visual Media and Platform resulting from the continued strong performance of the mobile gaming application Fate/Grand Order. Recorded Music sales decreased due to the impact of the new accounting standard regarding revenue from contracts with customers, partially offset by higher streaming revenues. Operating income increased 6.1 billion yen year-on-year to 63.6 billion yen primarily due to the above-mentioned increase in sales, partially offset by the recording of equity in net loss for EMI, compared to equity in net income in the same period of the previous fiscal year. Equity in net loss for EMI during the current six months was recorded due to an increase in expenses incurred for EMI’s warrant and management equity plans, resulting from an appreciation in the EMI valuation as a result of Sony’s agreement to acquire the approximately 60% interest in EMI owned by the consortium led by Mubadala Investment Company.

Pictures

The results presented in Pictures are a yen-translation of the results of Sony Pictures Entertainment Inc. (“SPE”), a U.S.-based operation that aggregates the results of its worldwide subsidiaries on a U.S. dollar basis. Management analyzes the results of SPE in U.S. dollars, so discussion of certain portions of its results is specified as being on “a U.S. dollar basis.”

 

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Sales decreased 33.9 billion yen, an 8% decrease year-on-year (an approximate 7% decrease on a U.S. dollar basis), to 416.0 billion yen. The decrease in sales on a U.S. dollar basis was due to lower sales for Motion Pictures, Television Productions and Media Networks. The decrease in sales for Motion Pictures was primarily due to lower worldwide theatrical revenues compared to the same period of the previous fiscal year, during which there was the strong performance of Spider-Man: Homecoming. This decrease was partially offset by higher television licensing and home entertainment revenues in the current six months due to the strong performance of previous fiscal year titles including Jumanji: Welcome to the Jungle and Peter Rabbit. The decrease in sales for Television Productions was primarily due to lower licensing revenues for U.S. television series. The decrease in sales for Motion Pictures and Television Productions was partially offset by higher sales due to the impact of the new accounting standard, primarily related to licensing revenues. The decrease in sales for Media Networks was primarily due to lower advertising revenues as compared to the same period of the previous fiscal year, which included revenues for the Indian Premier League cricket competition.

Operating income of 15.9 billion yen was recorded, as compared to an operating loss of 1.8 billion yen in the same period of the previous fiscal year. The improvement in operating results was primarily due to the 9.4 billion yen impact of the new accounting standard, primarily related to licensing revenue, lower theatrical marketing expenses compared to the same period of the previous fiscal year in which marketing expenses were recorded for the July 2017 release of Spider-Man: Homecoming, as well as the above-mentioned impact of higher television licensing and home entertainment revenues. This improvement was partially offset by the impact of the above-mentioned decrease in sales.

Home Entertainment & Sound (HE&S)

Sales decreased 10.8 billion yen year-on-year to 547.0 billion yen due to a decrease in television unit sales resulting from a strategic decision not to pursue scale in order to focus on profitability, as well as the impact of foreign exchange rates. This decrease was partially offset by an increase in Audio and Video sales resulting from strong sales of headphones. Operating income decreased 5.1 billion yen year-on-year to 41.8 billion yen. This decrease was primarily due to the negative impact of foreign exchange rates, as well as an increase in indirect costs* at sales companies, research and development expenses, and marketing costs, partially offset by an improvement in the product mix of televisions reflecting a shift to high value-added models, as well as the impact of the above-mentioned increase in Audio and Video sales.

* For further details, please refer to “IV Financial Statements – Notes to Consolidated Financial Statements – 9. Business segment information.”

Imaging Products & Solutions (IP&S)

Sales increased 15.7 billion yen year-on-year to 328.1 billion yen, mainly due to an improvement in the product mix of Still and Video Cameras reflecting a shift to high value-added models, partially offset by a decrease in unit sales. Operating income increased 5.8 billion yen year-on-year to 47.9 billion yen, primarily due to the above-mentioned improvement in product mix, partially offset by the above-mentioned decrease in unit sales and the absence of 2.6 billion yen in insurance recoveries related to the Kumamoto Earthquakes recorded in the same period of the previous fiscal year.

Mobile Communications (MC)

Sales decreased 102.9 billion yen year-on-year to 250.3 billion yen, due to a significant decrease in smartphone unit sales mainly in Europe, the Middle East and Japan. An operating loss of 40.6 billion yen was recorded, compared to operating income of 1.2 billion yen recorded in the same period of the previous fiscal year, due to the impact of the decrease in sales as well as the above-mentioned impairment charge against long-lived assets of 16.2 billion yen that was recorded as an operating loss, partially offset by reductions in operating costs.

Semiconductors

Sales increased 24.1 billion yen year-on-year to 456.7 billion yen, primarily due to a significant increase in sales of image sensors for mobile products, partially offset by a significant decrease in sales of camera modules, a business which was downsized. Operating income decreased 27.7 billion yen year-on-year to 77.1 billion yen primarily due to the absence in the current six months of the 27.5 billion yen gain resulting from the sale of the entire equity interest in a manufacturing subsidiary in the camera module business, the above-mentioned 6.7 billion yen in insurance recoveries recorded in the same period of the previous fiscal year and an increase in research and development expenses as well as in depreciation and amortization expenses. These negative factors were partially offset by the impact of the above-mentioned increase in sales of image sensors for mobile products.

 

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Financial Services

The Financial Services segment results include Sony Financial Holdings Inc. (“SFH”) and SFH’s consolidated subsidiaries such as Sony Life Insurance Co., Ltd. (“Sony Life”), Sony Assurance Inc. and Sony Bank Inc. (“Sony Bank”). The results of SFH and its consolidated subsidiaries discussed in the Financial Services segment differ from the results that these companies disclose separately on a Japanese statutory basis.

Financial Services revenue increased 106.3 billion yen year-on-year to 688.7 billion yen, mainly due to an increase in revenue at Sony Life. Revenue at Sony Life increased 102.9 billion yen year-on-year to 619.3 billion yen, mainly due to an improvement in investment performance in the separate accounts, as well as higher insurance premium revenue reflecting an increase in the policy amount in force. Operating income decreased 3.1 billion yen year-on-year to 79.7 billion yen, primarily due to a loss at Sony Bank related to foreign-currency denominated bonds compared to a gain in the same period of the previous fiscal year. Operating income at Sony Life decreased 0.6 billion yen year-on-year to 70.8 billion yen.

Operating Performance by Geographic Area

For operating performance by geographic area, please refer to “Sales and operating revenue attributed to countries and areas based on location of external customers” in “IV Financial Statements – Notes to Consolidated Financial Statements – 9. Business segment information”.

*    *    *    *    *

 

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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 19, 2018. Although foreign exchange rates have fluctuated during the six-month period ended September 30, 2018, 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  19, 2018

https://www.sec.gov/Archives/edgar/data/313838/000119312518196263/d556845d20f.htm

During the current six months, the average rates of the yen were 110.3 yen against the U.S. dollar and 129.9 yen against the euro, which were 0.8 yen higher and 3.7 yen lower year-on-year, respectively.

For the current six months, sales were 4,136.4 billion yen, an increase of 6% year-on-year, while on a constant currency basis sales also increased approximately 6% year-on-year.

Consolidated operating income increased 72.7 billion yen year-on-year to 434.5 billion yen for the current six months. Most of the foreign exchange rate impact was attributable to the impact of foreign exchange rates in the G&NS, HE&S, IP&S, MC and Semiconductors segments.

The table below indicates the impact of changes in foreign exchange rates on sales and operating results of each of the above-mentioned five segments. Also, please refer to the “Results of Operations” section, which discusses the impact of foreign exchange rates within segments and categories where foreign exchange rate fluctuations had a significant impact.

 

          (Billions of yen)
                

Impact of

changes in
foreign

exchange rates

                      Six months ended             
September 30
 
          2017            2018  

  G&NS

       Sales      781.3        1,022.2               +6.1
         Operating income      72.5        174.1               +3.9

  HE&S

       Sales      557.8        547.0                -5.0
         Operating income      47.0        41.8                -4.8

  IP&S

       Sales      312.4        328.1               +1.7
         Operating income      42.1        47.9               +0.9

  MC

       Sales      353.2        250.3                -1.7
         Operating income (loss)      1.2        (40.6)              +3.0
  Semiconductors        Sales      432.6        456.7                -2.0
         Operating income      104.8        77.1                -1.7

In addition, sales for the Music segment increased 3% year-on-year to 385.3 billion yen, an approximate 3% increase on a constant currency basis. In the Pictures segment, sales decreased 8% year-on-year to 416.0 billion yen, an approximate 7% decrease on a U.S. dollar 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:

The descriptions of sales on a constant currency basis reflect sales calculated by applying the yen’s monthly average exchange rates from the same period of the previous fiscal year to local currency-denominated monthly sales in the current six months. For SME and Sony/ATV in the Music segment, the constant currency amounts are calculated by applying the monthly average U.S. dollar / yen exchange rates after aggregation on a U.S. dollar basis.

Results for the Pictures segment are described on a U.S. dollar basis as the Pictures segment reflects the operations of SPE, a U.S.-based operation that aggregates the results of its worldwide subsidiaries in U.S. dollars.

 

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The impact of foreign exchange rate fluctuations on sales is calculated by applying the change in the yen’s periodic weighted average exchange rate for the same period of the previous fiscal year from the current six months to the major transactional currencies in which the sales are denominated. The impact of foreign exchange rate fluctuations on operating income (loss) 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.

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.

Status of Cash Flows*

Operating Activities: During the current six months, there was a net cash inflow of 410.8 billion yen from operating activities, an increase of 145.5 billion yen year-on-year.

For all segments excluding the Financial Services segment, there was a net cash inflow of 176.5 billion yen, an increase of 107.5 billion yen year-on-year. This increase was primarily due to a year-on-year increase in net income after taking into account non-cash adjustments (including depreciation and amortization, other operating (income) expense, net and (gain) loss on marketable securities and securities investments, net).

The Financial Services segment had a net cash inflow of 250.7 billion yen, an increase of 40.0 billion yen year-on-year. This increase was primarily due to a year-on-year increase in insurance premium revenues at Sony Life.

Investing Activities: During the current six months, Sony used 528.0 billion yen of net cash in investing activities, an increase of 116.2 billion yen year-on-year.

For all segments excluding the Financial Services segment, there was a net cash outflow of 96.2 billion yen, a decrease of 0.7 billion yen year-on-year. This change was mainly due to cash inflow from the sale of certain shares of Spotify, partially offset by an increase in payments for fixed asset purchases such as semiconductor manufacturing equipment.

The Financial Services segment used 431.9 billion yen of net cash in investing activities, an increase of 117.6 billion yen year-on-year. This increase was mainly due to a year-on-year increase in payments for investments and advances at Sony Life.

Financing Activities: Net cash outflow by financing activities during the current six months was 0.3 billion yen, compared to a net cash inflow of 179.5 billion yen in the same period of the previous fiscal year.

For all segments excluding the Financial Services segment, there was a 270.3 billion yen net cash outflow, an increase of 247.9 billion yen year-on-year. This increase was mainly due to the redemption of straight bonds as well as the repayment of long-term debt and a payment for the acquisition of the 25.1% equity interest in Nile Acquisition LLC in the current six months.

In the Financial Services segment, there was a 253.6 billion yen net cash inflow, an increase of 66.9 billion yen year-on-year. This increase was primarily due to an increase in short-term borrowings at Sony Life and a larger increase in deposits from customers at Sony Bank.

Total Cash and Cash Equivalents: Accounting for the above factors and the effect of fluctuations in foreign exchange rates, the total outstanding balance of cash and cash equivalents at September 30, 2018 was 1,540.8 billion yen. Cash and cash equivalents of all segments excluding the Financial Services segment was 1,075.1 billion yen at September 30, 2018, a decrease of 118.1 billion yen compared with the balance as of March 31, 2018, and an increase of 425.9 billion yen, compared with the balance as of September 30, 2017. Within the Financial Services segment, the outstanding balance of cash and cash equivalents was 465.6 billion yen at September 30, 2018, an increase of 72.5 billion yen compared with the balance as of March 31, 2018, and an increase of 114.1 billion yen compared with the balance as of September 30, 2017.

 

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* Sony’s disclosure includes information regarding cash flow for all segments excluding the Financial Services segment. This information is derived from the following condensed statement of cash flows. The condensed statement of cash flows, which includes the above-mentioned cash flow information, is not prepared in accordance with U.S. GAAP, which Sony uses to prepare its consolidated financial statements. However, because the Financial Services segment is different in nature from Sony’s other segments, Sony believes that a comparative presentation may be useful in understanding and analyzing Sony’s consolidated financial statements. Transactions between the Financial Services segment and Sony without the Financial Services segment, including noncontrolling interests, are included in those respective presentations, but are eliminated in the consolidated figures shown below.

 

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Table of Contents

Condensed Statements of Cash Flows

 

    (Yen in millions)  
    Six months ended September 30  
    Financial Services      

Sony without

Financial Services

 

 

     Consolidated  
    2017       2018       2017       2018        2017        2018  

 

   

 

 

    

 

 

 

Cash flows from operating activities:

             

Net income (loss)

    58,996       57,775       193,288       382,662        237,212        423,994  

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

             

Depreciation and amortization, including amortization of deferred insurance acquisition costs and contract costs

    32,381       33,438       137,581       138,388        169,962        171,826  

Amortization of film costs

    -       -       160,142       133,892        160,142        133,892  

Other operating (income) expense, net

    (24     39       (26,988     13,019        (27,012      13,058  

(Gain) loss on marketable securities and securities investments, net

    (47,715     (109,791     (167     (124,717      (47,882      (234,508

Changes in assets and liabilities:

             

(Increase) decrease in notes and accounts receivable, trade and contract assets

    (1,351     388       (195,822     (185,352      (197,747      (185,855

(Increase) decrease in inventories

    -       -       (272,386     (118,255      (272,386      (118,255

(Increase) decrease in film costs

    -       -       (188,281     (190,494      (188,281      (190,494

Increase (decrease) in notes and accounts payable, trade

    -       -       309,160       302,979        309,160        302,979  

Increase (decrease) in future insurance policy benefits and other

    258,762       368,871       -       -        258,762        368,871  

(Increase) decrease in deferred insurance acquisition costs

    (43,394     (47,090     -       -        (43,394      (47,090

(Increase) decrease in marketable securities held in the life insurance business

    (44,002     (43,949     -       -        (44,002      (43,949

Other

    (2,918     (8,949     (47,521     (175,651      (49,178      (183,640

 

   

 

 

    

 

 

 

Net cash provided by (used in) operating activities

    210,735       250,732       69,006       176,471        265,356        410,829  

 

   

 

 

    

 

 

 

Cash flows from investing activities:

             

Payments for purchases of fixed assets

    (6,559     (9,600     (123,701     (145,228      (130,254      (154,819

Payments for investments and advances

    (460,995     (563,301     (10,306     (25,373      (472,015      (588,674

Proceeds from sales or return of investments and collections of advances

    153,177       140,969       3,603       84,463        156,780        225,432  

Other

    79       78       33,566       (10,019      33,643        (9,940

 

   

 

 

    

 

 

 

Net cash provided by (used in) investing activities

    (314,298     (431,854     (96,838     (96,157      (411,846      (528,001

 

   

 

 

    

 

 

 

Cash flows from financing activities:

             

Increase (decrease) in borrowings, net

    122,241       146,992       (10,200     (192,289      112,035        (45,298

Increase (decrease) in deposits from customers, net

    88,344       132,628       -       -        88,344        132,628  

Dividends paid

    (23,921     (26,100     (12,649     (18,992      (12,649      (18,992

Other

    111       114       502       (58,987      (8,207      (68,608

 

   

 

 

    

 

 

 

Net cash provided by (used in) financing activities

    186,775       253,634       (22,347     (270,268      179,523        (270

 

   

 

 

    

 

 

 

Effect of exchange rate changes on cash and cash equivalents

    -       -       6,650       70,344        6,650        70,344  

 

   

 

 

    

 

 

 

Net increase (decrease) in cash and cash equivalents including restricted

    83,212       72,512       (43,529     (119,610      39,683        (47,098

Cash and cash equivalents, including restricted, at beginning of the fiscal year

    268,382       393,133       700,242       1,199,805        968,624        1,592,938  

 

   

 

 

    

 

 

 

Cash and cash equivalents, including restricted, at end of the period

    351,594       465,645       656,713       1,080,195        1,008,307        1,545,840  

 

   

 

 

    

 

 

 

Less – restricted cash and cash equivalents, included in other current assets and other assets

    -       -       7,475       5,061        7,475        5,061  

 

   

 

 

    

 

 

 

Cash and cash equivalents at end of the period

    351,594       465,645       649,238       1,075,134        1,000,832        1,540,779  

 

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

 

Note for readers of this English translation:

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 19, 2018. 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 19, 2018

https://www.sec.gov/Archives/edgar/data/313838/000119312518196263/d556845d20f.htm

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 19, 2018.

URL: The Annual Report on Form 20-F filed with the SEC on June 19, 2018

https://www.sec.gov/Archives/edgar/data/313838/000119312518196263/d556845d20f.htm

Research and development costs for the six months ended September 30, 2018 totaled 224.0 billion yen. There were no significant changes in research and development activities for the period.

iv) Liquidity Management and Market Access

 

Note for readers of this English translation:

Except for the information related to the committed lines of credit and others set forth below, there was no significant change from the information presented in the Annual Report on Form 20-F filed with the SEC on June 19, 2018. 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 19, 2018

https://www.sec.gov/Archives/edgar/data/313838/000119312518196263/d556845d20f.htm

An important financial objective of Sony is to maintain the strength of its balance sheet, while securing adequate liquidity for business activities. Sony defines its liquidity sources as the amount of cash and cash equivalents (“cash balance”) (excluding restrictions on capital transfers mainly due to national regulations) and the unused amount of committed lines of credit.

Funding requirements that arise from maintaining liquidity are principally covered by cash flow from operating activities, cash flow from investing activities (including asset sales) and the cash balance; however, as needed, Sony has demonstrated the ability to procure funds from financial and capital markets. In the event financial and capital markets become illiquid, based on its current forecasts, Sony could sustain sufficient liquidity through access to committed lines of credit with financial institutions, together with its cash balance.

Sony procures funds mainly from the financial and capital markets through Sony Corporation, Sony Global Treasury Services Plc (“SGTS”), a subsidiary in the U.K., and Sony Capital Corporation (“SCC”), a subsidiary in the U.S.

In order to meet working capital requirements, Sony Corporation, SGTS and SCC maintain Commercial Paper (“CP”) programs that have the ability to access the Japanese, U.S. and European CP markets, subject to prevailing market conditions. The borrowing limits under the CP program, translated into yen, were 1,067.9 billion yen in total for Sony Corporation, SGTS and SCC as of September 30, 2018.

 

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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 527.7 billion yen in unused committed lines of credit as of September 30, 2018. Details of those committed lines of credit are: a 275.0 billion yen committed line of credit contracted with a syndicate of Japanese banks, effective until July 2020, a 1.7 billion U.S. dollar multi-currency committed line of credit also with a syndicate of Japanese banks, effective until December 2023, and a 525 million U.S. dollar multi-currency committed line of credit contracted with a syndicate of foreign banks, effective until March 2020. In the above-mentioned yen committed line with a syndicate of Japanese banks and multi-currency committed line with a syndicate of foreign banks, Sony Corporation and SGTS are the borrowers. In the above-mentioned multi-currency committed line with a syndicate of Japanese banks, Sony Corporation, SGTS and SCC are the 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.

(3) Material Contracts

There were no material contracts executed or determined to be executed during the three months ended September 30, 2018.

 

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 19, 2018.

URL: The Annual Report on Form 20-F filed with the SEC on June 19, 2018

https://www.sec.gov/Archives/edgar/data/313838/000119312518196263/d556845d20f.htm

 

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Table of Contents

  III    Company Information

  (1) Information on the Company’s Shares

i) Total Number of Shares

1) Total Number of Shares

 

Class

   Total number of shares authorized to be issued

Common stock

   3,600,000,000

Total

   3,600,000,000

2) Number of Shares Issued

 

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

As of the end of the    

second quarterly period    

(September 30, 2018)    

  

As of the filing date of    

the Quarterly    

Securities Report    

(November 5, 2018)    

Common stock      1,270,063,442    1,270,069,042   

Tokyo Stock Exchange

New York Stock Exchange

   The number of shares constituting one full unit is one hundred (100).
Total       

 

1,270,063,442

 

  

 

1,270,069,042

 

  

 

 

  

 

 

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 (Shihanki Houkokusho) does not include shares issued upon the exercise of stock acquisition rights (“SARs”) (including the exercise of unsecured convertible bonds with SARs (6th series)) during November 2018, the month in which this Quarterly Securities Report was filed.

ii) Stock Acquisition Rights

    ①Description of Stock Option

Not applicable.

    ②Other Stock Acquisition Rights

Not applicable.

 

  Note for readers of this English translation:

  The above means that there was no issuance of SARs during the three months ended September 30, 2018.

iii) Status of the Exercise of Moving Strike Convertible Bonds

   Not applicable.

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

 

Period   Change in the  
total number
of shares
issued  
(Thousands)   
 

Balance of the   
total number
of shares

issued  
(Thousands)   

 

Change in  

the amount of  

common stock  
(Yen in Millions)   

 

Balance of  

the amount of  

common stock  
(Yen in Millions)   

  Change in the  
legal capital  
surplus  
(Yen in Millions)   
  Balance of the  
legal capital  
surplus  
(Yen in Millions)   
From July 1 to September 30, 2018    888   1,270,063   1,716   871,925   1,716   1,085,618

Notes:

1.

The increase mentioned above is due to the exercise of SARs (including the exercise of unsecured convertible bonds with SARs (6th series)) and the issuance of new shares of restricted stock as compensation.

2.

Upon the exercise of SARs during the period from October 1, 2018 to October 31, 2018, the total number of shares issued increased by 6 thousand shares, and the amount of common stock and the legal capital surplus each increased by 11 million yen.

 

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Table of Contents

v) Status of Major Shareholders

(As of September 30, 2018)

Name   Address  

Number of
shares held

(Thousands)

 

Percentage

of shares held
to total shares
(Excluding
treasury
shares) issued
(%)

Citibank as Depositary Bank for Depositary

Receipt Holders *1

(Local Custodian: MUFG Bank, Ltd.)

 

New York, U.S.A.

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

  122,394    9.65

Japan Trustee Services Bank, Ltd.

(Trust account) *2

  1-8-11, Harumi, Chuo-ku, Tokyo   82,694    6.52

The Master Trust Bank of Japan, Ltd.

(Trust account) *2

  2-11-3, Hamamatsu-cho, Minato-ku, Tokyo   81,986    6.46

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)

  50,568    3.99

SSBTC CLIENT OMNIBUS ACCOUNT *3

(Local Custodian: The Hongkong and Shanghai

Banking Corporation Limited)

 

Boston, U.S.A.

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

  30,808    2.43

Japan Trustee Services Bank, Ltd.

(Trust account 5) *2

  1-8-11, Harumi, Chuo-ku, Tokyo   26,111    2.06

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)

  20,548    1.62

Japan Trustee Services Bank, Ltd.

(Trust account 1) *2

  1-8-11, Harumi, Chuo-ku, Tokyo   18,993    1.50

Japan Trustee Services Bank, Ltd.

(Trust account 2) *2

  1-8-11, Harumi, Chuo-ku, Tokyo   18,733    1.48

JPMorgan Chase Bank 385151 *3

(Local Custodian: Mizuho Bank, Ltd.)

 

London, U.K

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

  18,518    1.46
Total           471,355    37.15

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 September 30, 2018, the Company has not been able to confirm such entry of Sumitomo Mitsui Trust Bank, Limited in the register of shareholders.

 

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Table of Contents
Name  

Number of shares, etc. held  

(Thousands)

 

Percentage of shares, etc. held

to total shares issued (%)

  Sumitomo Mitsui Trust Bank, Limited and the 2 Joint Holders     52,312   5.04
  5.

BlackRock Japan Co., Ltd. filed its “Amendment to the Bulk Shareholding Report” with the Kanto Financial Bureau in Japan as of March 22, 2017 and reported that it held shares of the Company as of March 15, 2017 as provided in the below table. As of September 30, 2018, 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                       79,185   6.27
  6.

Capital Research and Management Company filed its “Amendment to the Bulk Shareholding Report” with the Kanto Financial Bureau in Japan as of September 25, 2018 and reported that it held shares of the Company as of September 14, 2018 as provided in the below table. As of September 30, 2018, 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                                59,656   4.70

vi) Status of Voting Rights

1) Shares Issued

(As of September 30, 2018)

 

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.)

         1,160,800    

Shares with full voting rights (Others)

  1,266,929,700   12,669,297  

Shares constituting less than one full unit

         1,972,942     Shares constituting    
less than one full unit    

(100 shares)    

Total number of shares issued

  1,270,063,442    

Total voting rights held by all shareholders

              —                12,669,297  

 

Note:

 

Included in “Shares with full voting rights (Others)” under “Number of shares of common stock” are 19,000 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 190 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.

 

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Table of Contents

2) Treasury Stock, etc.

(As of September 30, 2018)

 

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     1,160,800     1,160,800   0.09

Total

    1,160,800     1,160,800   0.09

 

Note:

 

In addition to the 1,160,800 shares listed above, there are 300 shares of common stock held in the name of the Company in the register of shareholders that the Company does not beneficially own. These shares are included in “Shares with full voting rights (Others)” in Table 1) “Shares Issued” above.

(2)    Directors and Corporate Executive Officers

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, 2018 to the filing date of this Quarterly Securities Report (Shihanki Houkokusho) is as follows:

i) Retired Director

Through a press release issued on July 2, 2018, the Company communicated the unfortunate passing of Nicholas Donatiello, Jr. on June 27, 2018.

 

Title    Position    Name      Date of Retirement  

Director

       Compensation Committee Member          Nicholas Donatiello, Jr.     

  June 27, 2018  

(Deceased)

ii) Change of Position

 

Title    Position after Change    Position before Change      Name    Date of Change

Director

  

Nominating Committee Member,

Compensation Committee Member

   Nominating Committee Member    John V. Roos    July 31, 2018

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

   The Directors and Corporate Executive Officers are composed of 14 males and 2 females.

   (The percentage of female Directors and Corporate Executive Officers is 12.5%.)

 

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Table of Contents

(1) Consolidated Financial Statements

(i)    Consolidated Balance Sheets (Unaudited)

 

Sony Corporation and Consolidated Subsidiaries

 

                Yen in millions                  
     At March 31,
            2018            
    At September 30,
            2018             
 

ASSETS

   

Current assets:

   

Cash and cash equivalents

    1,586,329       1,540,779  

Marketable securities

    1,176,601       1,335,735  

Notes and accounts receivable, trade and contract assets

    1,061,442       1,290,317  

Allowance for doubtful accounts

    (48,663     (24,349

Inventories

    692,937       814,639  

Other receivables

    190,706       305,880  

Prepaid expenses and other current assets

    516,744       480,714  

Total current assets

    5,176,096       5,743,715  

Film costs

    327,645       416,527  

Investments and advances:

   

Affiliated companies

    157,389       171,798  

Securities investments and other

    10,598,669       11,133,787  
      10,756,058       11,305,585  

Property, plant and equipment:

   

Land

    84,358       84,549  

Buildings

    655,434       666,852  

Machinery and equipment

    1,798,722       1,852,401  

Construction in progress

    38,295       29,245  
    2,576,809       2,633,047  

Less – Accumulated depreciation

    1,837,339       1,891,203  
      739,470       741,844  

Other assets:

   

Intangibles, net

    527,168       522,616  

Goodwill

    530,492       551,058  

Deferred insurance acquisition costs

    586,670       605,989  

Deferred income taxes

    96,772       98,652  

Other

    325,167       339,464  
      2,066,269       2,117,779  

Total assets

    19,065,538       20,325,450  

  (Continued on following page.)

 

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Table of Contents

            Consolidated Balance Sheets (Unaudited)

 

 

                Yen in millions                      
     At March 31,
            2018            
    At September 30,
            2018            
 

LIABILITIES

   

Current liabilities:

   

Short-term borrowings

    496,093       628,528  

Current portion of long-term debt

    225,522       166,423  

Notes and accounts payable, trade

    468,550       781,338  

Accounts payable, other and accrued expenses

    1,514,433       1,549,389  

Accrued income and other taxes

    145,905       197,721  

Deposits from customers in the banking business

    2,159,246       2,252,480  

Other

    610,792       655,871  

Total current liabilities

    5,620,541       6,231,750  

Long-term debt

    623,451       510,165  

Accrued pension and severance costs

    394,504       388,955  

Deferred income taxes

    449,863       430,704  

Future insurance policy benefits and other

    5,221,772       5,452,484  

Policyholders’ account in the life insurance business

    2,820,702       2,998,376  

Other

    278,338       291,417  

Total liabilities

    15,409,171       16,303,851  

Redeemable noncontrolling interest

    9,210       8,442  

Commitments and contingent liabilities

               

EQUITY

               

Sony Corporation’s stockholders’ equity:

   

Common stock, no par value –

   

At March 31, 2018–Shares authorized: 3,600,000,000, shares issued: 1,266,552,149

    865,678    

At September 30, 2018–Shares authorized: 3,600,000,000, shares issued: 1,270,063,442

      871,925  

Additional paid-in capital

    1,282,577       1,264,863  

Retained earnings

    1,440,387       1,828,777  

Accumulated other comprehensive income –

   

Unrealized gains on securities, net

    126,191       99,673  

Unrealized losses on derivative instruments, net

    (1,242 )       (327

Pension liability adjustment

    (296,444     (291,770

Foreign currency translation adjustments

    (445,251     (403,476
    (616,746     (595,900

Treasury stock, at cost

   

Common stock

   

At March 31, 2018–1,127,101 shares

    (4,530  

At September 30, 2018–1,160,849 shares

            (4,627
      2,967,366       3,365,038  

Noncontrolling interests

    679,791       648,119  

Total equity

    3,647,157       4,013,157  

Total liabilities and equity

    19,065,538       20,325,450  

  The accompanying notes are an integral part of these statements.

 

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Table of Contents

  (ii)    Consolidated Statements of Income (Unaudited)

 

Sony Corporation and Consolidated Subsidiaries

    Yen in millions  
              Six months ended September 30             
     2017     2018  

Sales and operating revenue:

   

Net sales

    3,293,559       3,411,934  

Financial services revenue

    578,794       684,733  

Other operating revenue

    48,291       39,717  
      3,920,644       4,136,384  

Costs and expenses:

   

Cost of sales

    2,349,738       2,335,231  

Selling, general and administrative

    743,658       746,890  

Financial services expenses

    495,563       604,490  

Other operating (income) expense, net

    (27,012     13,058  
      3,561,947       3,699,669  

Equity in net income (loss) of affiliated companies

    3,142       (2,198

Operating income

    361,839       434,517  

Other income:

   

Interest and dividends

    13,037       9,305  

Gain on equity securities, net

    -       124,714  

Other

    1,644       2,194  
      14,681       136,213  

Other expenses:

   

Interest

    7,246       7,194  

Foreign exchange loss, net

    19,266       3,911  

Other

    2,549       1,141  
      29,061       12,246  

Income before income taxes

    347,459       558,484  

Income taxes

    110,247       134,490  

Net income

    237,212       423,994  

Less - Net income attributable to noncontrolling interests

    25,489       24,546  

Net income attributable to Sony Corporation’s stockholders

    211,723       399,448  
    Yen  
                Six months ended September 30               
         2017             2018      

Per share data:

   

Net income attributable to Sony Corporation’s stockholders

   

– Basic

    167.61       315.02  

– Diluted

    164.06       308.17  

The accompanying notes are an integral part of these statements.

 

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Table of Contents

Consolidated Statements of Income (Unaudited)

 

Sony Corporation and Consolidated Subsidiaries

    Yen in millions  
              Three months ended September 30             
     2017     2018  

Sales and operating revenue:

   

Net sales

    1,764,916       1,809,739  

Financial services revenue

    277,434       351,493  

Other operating revenue

    20,181       21,528  
      2,062,531       2,182,760  

Costs and expenses:

   

Cost of sales

    1,234,646       1,222,744  

Selling, general and administrative

    386,279       397,129  

Financial services expenses

    240,305       312,334  

Other operating (income) expense, net

    (901     13,383  
      1,860,329       1,945,590  

Equity in net income of affiliated companies

    2,026       2,341  

Operating income

    204,228       239,511  

Other income:

   

Interest and dividends

    4,252       4,571  

Gain on equity securities, net

    -       9,935  

Other

    511       1,461  
      4,763       15,967  

Other expenses:

   

Interest

    2,730       3,876  

Foreign exchange loss, net

    6,298       4,922   

Other

    1,398       282  
      10,426       9,080  

Income before income taxes

    198,565       246,398  

Income taxes

    55,751       59,268  

Net income

    142,814       187,130  

Less - Net income attributable to noncontrolling interests

    11,962       14,129  

Net income attributable to Sony Corporation’s stockholders

    130,852       173,001  
    Yen  
            Three months ended September 30          
         2017             2018      

Per share data:

   

Net income attributable to Sony Corporation’s stockholders

   

– Basic

    103.57       136.38  

– Diluted

    101.35       133.43  

The accompanying notes are an integral part of these statements.

 

 

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Table of Contents

  (iii)     Consolidated Statements of Comprehensive Income (Unaudited)

 

Sony Corporation and Consolidated Subsidiaries

    Yen in millions  
              Six months ended September 30             
         2017             2018      

Net income

    237,212       423,994  

Other comprehensive income, net of tax —

   

Unrealized losses on securities

    (4,658     (21,066

Unrealized gains on derivative instruments

    229       915  

Pension liability adjustment

    4,644       4,743  

Foreign currency translation adjustments

    30,087       40,465  

Total comprehensive income

    267,514       449,051  

Less – Comprehensive income attributable to noncontrolling interests

    27,356       13,231  

Comprehensive income attributable to Sony Corporation’s stockholders

    240,158       435,820  
    Yen in millions  
            Three months ended September 30          
         2017             2018      

Net income

    142,814       187,130  

Other comprehensive income, net of tax —

   

Unrealized losses on securities

    (1,469     (24,337

Unrealized gains (losses) on derivative instruments

    594       (563

Pension liability adjustment

    2,339       2,467  

Foreign currency translation adjustments

    16,502       32,168  

Total comprehensive income

    160,780       196,865  

Less – Comprehensive income attributable to noncontrolling interests

    13,178       5,314  

Comprehensive income attributable to Sony Corporation’s stockholders

    147,602       191,551  

  The accompanying notes are an integral part of these statements.

 

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Table of Contents

  (iv)     Consolidated Statements of Cash Flows (Unaudited)

 

Sony Corporation and Consolidated Subsidiaries

 

    Yen in millions  
        Six months ended September 30      
             2017                     2018          

Cash flows from operating activities:

   

Net income

    237,212       423,994  

Adjustments to reconcile net income to net cash provided by operating activities–

   

Depreciation and amortization, including amortization of deferred insurance acquisition costs and contract costs

    169,962       171,826  

Amortization of film costs

    160,142       133,892  

Accrual for pension and severance costs, less payments

    2,583       (5,310

Other operating (income) expense, net

    (27,012     13,058  

Gain on securities investments, net (other than financial services business)

    (167     (124,717

Gain on marketable securities and securities investments held in the financial services business, net

    (47,715     (109,791

Deferred income taxes

    8,160       (3,350

Equity in net (income) loss of affiliated companies, net of dividends

    (1,312     4,559  

Changes in assets and liabilities:

   

Increase in notes, accounts receivable, trade and contract assets

    (197,747     (185,855

Increase in inventories

    (272,386     (118,255

Increase in film costs

    (188,281     (190,494

Increase in notes and accounts payable, trade

    309,160       302,979  

Increase in accrued income and other taxes

    49,662       62,075  

Increase in future insurance policy benefits and other

    258,762       368,871  

Increase in deferred insurance acquisition costs

    (43,394     (47,090

Increase in marketable securities held in the life insurance business

    (44,002     (43,949

Increase in other current assets

    (125,652     (72,246

Increase (decrease) in other current liabilities

    23,571       (43,719

Other

    (6,190     (125,649

Net cash provided by operating activities

    265,356       410,829  

(Continued on following page.)

 

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Table of Contents

            Consolidated Statements of Cash Flows (Unaudited)

 

 

    Yen in millions  
        Six months ended September 30      
            2017                     2018          

Cash flows from investing activities:

               

Payments for purchases of fixed assets

    (130,254     (154,819

Proceeds from sales of fixed assets

    6,760       11,355  

Payments for investments and advances by financial services business

    (461,046     (563,301

Payments for investments and advances (other than financial services business)

    (10,969     (25,373

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

    152,561       140,969  

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

    4,219       1,996  

Proceeds from sales of businesses

    18,684       -  

Proceeds related to sales of Spotify Technology S.A. Shares

    -       82,467  

Other

    8,199       (21,295

Net cash used in investing activities

    (411,846     (528,001

Cash flows from financing activities:

   

Proceeds from issuance of long-term debt

    72,430       50,958  

Payments of long-term debt

    (16,299     (229,504

Increase in short-term borrowings, net

    55,904       133,248  

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

    88,344       132,628  

Dividends paid

    (12,649     (18,992

Payment for purchase of Nile Acquisition LLC shares from noncontrolling interests

    -       (32,041

Other

    (8,207     (36,567

Net cash provided by (used in) financing activities

    179,523       (270

Effect of exchange rate changes on cash and cash equivalents, including restricted

    6,650       70,344  

Net increase (decrease) in cash and cash equivalents, including restricted

    39,683       (47,098

Cash and cash equivalents, including restricted, at beginning of the fiscal year

    968,624       1,592,938  

Cash and cash equivalents, including restricted, at end of the period

    1,008,307       1,545,840  

Less - restricted cash and cash equivalents, included in other current assets and other assets

    7,475       5,061  

Cash and cash equivalents at end of the period

    1,000,832       1,540,779  

  The accompanying notes are an integral part of these statements.

 

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Table of Contents

    Index to Notes to Consolidated Financial Statements

 

 

Sony Corporation and Consolidated Subsidiaries

 

Notes to Consolidated Financial Statements   

Page

 

  1.   Summary of significant accounting policies

     28  

  2.   Marketable securities and securities investments

     31  

  3.   Fair value measurements

     33  

  4.   Supplemental equity and comprehensive income information

     35  

  5.   Reconciliation of the differences between basic and diluted EPS

     37  

  6.   Revenue

     38  

  7.   Acquisition of EMI Music Publishing

     38  

  8.   Commitments, contingent liabilities and other

     39  

  9.   Business segment information

     40  

 

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Table of Contents

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:

Revenue from contracts with customers -

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09 addressing revenue recognition which superseded the previous revenue recognition requirements, including most industry-specific guidance. The guidance requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Sony adopted the updated guidance from fiscal year beginning April 1, 2018 on a modified retrospective method. Under this method, Sony applied the new guidance to all open contracts existing as of April 1, 2018, recognizing in beginning retained earnings an adjustment for the cumulative effect of the change.

Although the adoption of this new guidance did not have a material impact on Sony’s results of operations and financial position, there are several areas where Sony’s revenue recognition changed as compared with historical U.S. GAAP. The more significant of these areas are as follows:

In the Pictures segment, (1) licensing revenue associated with certain renewals or extensions of existing agreements for motion pictures and television programming is recognized at a later point in time, which is when the licensee can use and benefit from the content, instead of when the agreement is renewed or extended, and (2) licensing revenue associated with minimum guarantees for symbolic intellectual property (e.g., brands, trademarks and logos) is recognized over the license term instead of at the inception of the license term.

In the Mobile Communications (“MC”) segment, the incremental costs of obtaining contracts for the internet-related service business are recognized as assets and amortized to expense over the contract period.

In addition, the ASU changed the presentation of certain items in the consolidated financial statements, such as sales returns, with no impact to the timing of the recognition of revenue or expense.

The following chart illustrates the amounts by which each summarized income statement line item was affected by the adoption of the new revenue guidance:

 

     Yen in millions  
     Six Months Ended September 30, 2018  
     As Reported      Adjustments     Without
Adoption of New
Revenue
Guidance
 

Sales and operating revenue

     4,136,384        3,691       4,132,693  

Costs of sales

     2,335,231        (7,977     2,343,208  

Selling, general and administrative

     746,890        1,105       745,785  

Others

     619,746        -       619,746  
  

 

 

    

 

 

   

 

 

 

Operating income

     434,517        10,563       423,954  

 

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Table of Contents

Recognition and measurement of financial assets and financial liabilities -

In January 2016, the FASB issued ASU 2016-01 amending various aspects of the recognition, measurement, presentation, and disclosure requirements for financial instruments. The changes mainly relate to the requirement to measure equity investments in unconsolidated subsidiaries, other than those accounted for under the equity method of accounting, at fair value with changes in fair value recognized in earnings. However, this ASU permits entities to elect to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. This ASU is effective for Sony as of April 1, 2018. As a result of the adoption of this ASU, Sony reclassified 15,526 million yen in the unrealized gains and losses, net of tax, on equity securities previously classified as available-for-sale, from accumulated other comprehensive income to retained earnings. In addition, changes in value due to the revaluation of equity securities held in the Financial Services segment at the end of the period are recorded in financial services revenue, and changes in value due to the revaluation of equity securities held in all segments other than the Financial Services segment are recorded in gain on equity securities, net in the consolidated statement of income.

Intra-entity transfers of assets other than inventory -

In October 2016, the FASB issued ASU 2016-16, which amends the accounting for income taxes. This update requires recognition of the income tax consequences of an intra-entity transfer of assets other than inventory when the transfer occurs. Under historical U.S. GAAP, the income tax consequences for asset transfers other than inventory could not be recognized until the asset was sold to a third party. This ASU is required to be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. This ASU is effective for Sony as of April 1, 2018. The adoption of this ASU did not have a material impact on Sony’s results of operations and financial position.

Changes to the opening balances resulting from the adoption of the above new guidance were as follows:

 

     Yen in millions  

 

  

March 31,

2018

           Impact of Adoption           

April 1,

2018

 
   ASU2014-09     ASU2016-01     ASU2016-16  

ASSETS

                

Current assets:

                

Notes and accounts receivable, trade

     1,061,442          (2,993     -       -          1,058,449  

Allowance for doubtful accounts and sales returns *

     (48,663        25,114       -       -          (23,549

Inventories

     692,937          (12,404     -       -          680,533  

Other receivables

     190,706          9,628       -       -          200,334  

Prepaid expenses and other current assets

     516,744          (5,520     -       -          511,224  

Film costs

     327,645          7,647       -       -          335,292  

Other assets:

                

Deferred income taxes

     96,772          (326     -       -          96,446  

Other

     325,167          1,068       -       -          326,235  

Total assets

     19,065,538          22,214       -       -          19,087,752  

LIABILITIES

                

Current liabilities:

                

Accounts payable, other and accrued expenses

     1,514,433          (3,290     -       -          1,511,143  

Other *

     610,792          31,777       -       -          642,569  

Deferred income taxes

     449,863          -       -       (14,680        435,183  

Other

     278,338          10,525       -       -          288,863  

Total liabilities

     15,409,171          39,012       -       (14,680        15,433,503  

EQUITY

                

Retained earnings

     1,440,387          (16,798     15,526       9,248          1,448,363  

Unrealized gains on securities, net

     126,191          -       (15,526     -          110,665  

Noncontrolling interests

     679,791          -       -       5,432          685,223  

Total equity

     3,647,157          (16,798     -       14,680          3,645,039  

Total liabilities and equity

     19,065,538                22,214       -       -                19,087,752  

* Under the new guidance, Sony presents sales returns as a liability instead of as a contra-asset allowance. Accordingly, Sony changed the presentation from “Allowance for doubtful accounts and sales returns” to “Allowance for doubtful accounts” on the consolidated balance sheet.

Classification of certain cash receipts and cash payments -

In August 2016, the FASB issued ASU 2016-15, which clarifies the classification of certain cash receipts and cash payments in the statement of cash flows. This ASU is effective for Sony as of April 1, 2018. The adoption of this ASU did not have a material impact on Sony’s results of operations and financial position.

 

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Table of Contents

Restricted Cash -

In November 2016, the FASB issued ASU 2016-18, which requires that restricted cash and restricted cash equivalents be included with cash and cash equivalents in the statement of cash flows. This ASU also requires entities to disclose how the statement of cash flows that includes restricted cash and restricted cash equivalents with cash and cash equivalents reconciles to the balance sheet. This ASU is effective for Sony as of April 1, 2018. This ASU is required to be applied on a retrospective basis. The adoption of this ASU did not have a material impact on Sony’s results of operations and financial position.

Clarifying the definition of a business -

In January 2017, the FASB issued ASU 2017-01, which clarifies the definition of a business. The ASU requires an entity first to determine whether substantially all of the fair value of a set of assets acquired is concentrated in either a single identifiable asset or a group of similar identifiable assets. If this criterion is met, the acquired set of assets is not deemed to be a business. If the criterion is not met, the entity then must evaluate whether the set of assets meets the requirement to be deemed a business. To be considered a business, the acquired set of assets would have to include an input and a substantive process that together significantly contribute to the ability to create outputs. This ASU is effective for Sony as of April 1, 2018. The adoption of this ASU did not have a material impact on Sony’s results of operations and financial position.

Presentation of net periodic pension and postretirement benefit costs -

In March 2017, the FASB issued ASU 2017-07, which requires separate presentation of service costs and other components of net benefit costs. The service costs will only be presented with other employee compensation costs in operating income or capitalized, while the other components of net benefit costs will be presented outside of operating income, and will not be eligible for capitalization. This ASU is effective for Sony as of April 1, 2018. This ASU is required to be applied on a retrospective basis for the presentation of service costs and other components of net benefit costs, and on a prospective basis for the capitalization of only the service costs component of net benefit costs. The adoption 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 infrequent 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 six and three months ended September 30, 2017 have been made to conform to the presentation for the six and three months ended September 30, 2018.

 

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Table of Contents
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. Sony has adopted ASU 2016-01 from April 1, 2018, and as a result, the available-for-sale classification is eliminated for equity securities as of September 30, 2018.

 

    Yen in millions  
    March 31, 2018     September 30, 2018  
    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

    1,227,139         182,830         (359)         1,409,610         1,305,190         159,854         (5,031)         1,460,013    

Japanese local government bonds

    67,574         107         (112)         67,569         78,164         90         (135)         78,119    

Japanese corporate bonds

    199,880         9,844         (1,016)         208,708         207,988         7,512         (1,923)         213,577    

Foreign government bonds

    72,204         622         (3,287)         69,539         121,098         1,283         (2,862)         119,519    

Foreign corporate bonds

    365,457         1,649         (641)         366,465         364,041         1,512         (311)         365,242    

Other

    99,349         1         (0)         99,350         182,714         3,114         -          185,828    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    2,031,603         195,053         (5,415)         2,221,241         2,259,195         173,365         (10,262)         2,422,298    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity securities

    55,676         71,723         (776)         126,623         -          -          -          -     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Held-to-maturity securities:

               

Japanese national government bonds *1

    5,892,868         1,635,036         (20,890)         7,507,014         5,979,642         1,400,657         (40,078)         7,340,221    

Japanese local government bonds

    3,850         413         -          4,263         3,746         372         -          4,118    

Japanese corporate bonds

    345,818         16,912         (17,390)         345,340         396,310         12,033         (28,236)         380,107    

Foreign government bonds *2

    300,220         8,310         (18,570)         289,960         357,551         4,501         (31,187)         330,865    

Foreign corporate bonds

    198         13         -          211         198         12         -          210    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    6,542,954         1,660,684         (56,850)         8,146,788         6,737,447         1,417,575         (99,501)         8,055,521    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    8,630,233         1,927,460         (63,041)         10,494,652         8,996,642         1,590,940         (109,763)         10,477,819    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

*1

As of September 30, 2018, held-to-maturity securities include 289,243 million yen of pledged Japanese national government bonds as collateral for short-term lending transactions.

*2

As of September 30, 2018, held-to-maturity securities include 57,712 million yen of pledged Foreign government bonds as collateral for short-term repurchase agreements.

 

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Table of Contents

During the six months ended September 30, 2018, with respect to equity securities included in marketable securities and securities investments, Sony recorded net realized gains of 62,120 million yen due to the sale of equity securities and net unrealized gains of 173,662 million yen due to revaluation of equity securities held at the end of the period for the second quarter of the fiscal year ending March 31, 2019. Gains or losses arising from equity securities held in the Financial Services segment are recorded in financial services revenue, and gains or losses arising from equity securities held in all segments other than the Financial Services segment are recorded in gain on equity securities, net in the consolidated statement of income. Included in the gains noted above were gains recorded by Sony with respect to the equity securities held by Sony in Spotify Technology S.A. (“Spotify”).

On April 3, 2018, Spotify was publicly listed for trading on the New York Stock Exchange. Sony owned 5.707% of Spotify’s shares at the time of the public listing.

During the six months ended September 30, 2018, Sony sold a portion of the shares for aggregate consideration of 82,616 million yen (768 million U.S. dollars) in cash proceeds. The sale of shares, offset by costs to be paid to its artists and distributed labels and other transaction costs which directly related to the gains recognized from the Spotify shares, resulted in a net pre-tax realized gain of 54,179 million yen (504 million U.S. dollars) recorded in gain on equity securities, net in the consolidated statement of income. The payments to its artists and distributed labels are included within other in the investing activities section of the consolidated statement of cash flows.

The remaining shares retained as of September 30, 2018 have a gross fair value of 105,242 million yen (927 million U.S. dollars), and resulted in a pre-tax unrealized gain, net of costs to be paid to its artists and distributed labels and other costs which directly related to the gains recognized from the Spotify shares, of 63,596 million yen (589 million U.S. dollars) recorded in gain on equity securities, net in the consolidated statement of income.

 

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Table of Contents
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. Sony has adopted ASU 2016-01 from April 1, 2018, and as a result, equity securities which were previously included in the trading securities category are included in the equity securities category as of September 30, 2018.

 

     Yen in millions  
     March 31, 2018  
            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

     712,113          335,949          -          1,048,062          1,048,062          -          -          -    

Available-for-sale securities

                       

Debt securities

                       

Japanese national government bonds

     -          1,409,610          -          1,409,610          20,473          1,389,137          -          -    

Japanese local government bonds

     -          67,569          -          67,569          8,548          59,021          -          -    

Japanese corporate bonds

     -          208,708          -          208,708          8,041          200,667          -          -    

Foreign government bonds

     -          69,539          -          69,539          -          69,539          -          -    

Foreign corporate bonds

     -          338,587          27,878          366,465          88,228          278,237          -          -    

Other

     -          15,736          83,614          99,350          -          99,350          -          -    

Equity securities

     126,330          293          -          126,623          -          126,623          -          -    

Other investments *1

     6,192          5,099          9,104          20,395          -          20,395          -          -    

Derivative assets *2, *3

     2,194          37,332          -          39,526          -          -          37,003          2,523    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

        846,829          2,488,422          120,596          3,455,847          1,173,352          2,242,969          37,003          2,523    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

                       

Derivative liabilities *2, *3

     1,407          34,317          -          35,724          -          -          20,550          15,174    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

     1,407          34,317          -          35,724          -          -          20,550          15,174    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     Yen in millions  
     September 30, 2018  
            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:

                       

Debt securities

                       

Trading securities

     22,016          201,835          -          223,851          223,851          -          -          -    

Available-for-sale securities

                       

Japanese national government bonds

     -          1,460,013          -          1,460,013          18,613          1,441,400          -          -    

Japanese local government bonds

     -          78,119          -          78,119          7,138          70,981          -          -    

Japanese corporate bonds

     -          213,577          -          213,577          8,063          205,514          -          -    

Foreign government bonds

     -          119,519          -          119,519          4,068          115,451          -          -    

Foreign corporate bonds

     -          340,253          24,989          365,242          89,632          275,610          -          -    

Other

     -          26,838          158,990          185,828          -          185,828          -          -    

Equity securities

     1,061,423          147,804          -          1,209,227          980,039          229,188          -          -    

Other investments *1

     5,927          1,259          15,266          22,452          -          22,452          -          -    

Derivative assets *2, *3

     9,066          8,218          -          17,284          -          -          13,984          3,300    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

     1,098,432          2,597,435          199,245          3,895,112          1,331,404          2,546,424          13,984          3,300    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

                       

Derivative liabilities *2, *3

     11,813          27,612          -          39,425          -          -          26,748          12,677    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

     11,813          27,612          -          39,425          -          -          26,748          12,677    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

*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. Sony recorded an impairment loss of 16,207 million yen for the three months ended September 30, 2018, included within the MC segment, related to long-lived assets in the smartphone business asset group. In light of smartphone sales results for the three months ended September 30, 2018, as well as expectation of continued difficulty in the business environment in the second half of the fiscal year ending March 31, 2019 and beyond, Sony conducted a review of its future profitability forecast for the smartphone business in the MC segment. Following this review, Sony reduced the corresponding estimated future cash flows of this business and the estimated ability to recover the entire carrying amount of the long-lived assets within the period applicable to the impairment determination, resulting in an impairment charge for the three months ended September 30, 2018. 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.

 

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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 six months ended September 30, 2017 and 2018 are as follows:

 

     Yen in millions  
     Sony Corporation’s
    stockholders’ equity    
    Noncontrolling
interests
        Total equity  
  

 

 

 

Balance at March 31, 2017

     2,497,246       638,176       3,135,422     

Issuance of new shares

     676       -       676     

Exercise of stock acquisition rights

     2,344       -       2,344     

Stock-based compensation

     1,159       -       1,159     

Comprehensive income:

      

Net income

     211,723       25,489       237,212     

Other comprehensive income, net of tax —

      

Unrealized gains (losses) on securities

     (4,884     226       (4,658)    

Unrealized gains on derivative instruments

     229       -       229     

Pension liability adjustment

     4,630       14       4,644     

Foreign currency translation adjustments

     28,460       1,627       30,087     
  

 

 

 

Total comprehensive income

     240,158       27,356       267,514     
  

 

 

 

Dividends declared

     (15,794     (12,134     (27,928)    

Transactions with noncontrolling interests shareholders and other

     (598     2,063       1,465     
  

 

 

 

Balance at September 30, 2017

     2,725,191       655,461       3,380,652     
  

 

 

 
     Yen in millions  
     Sony Corporation’s
    stockholders’ equity    
    Noncontrolling
interests
        Total equity      
  

 

 

 

Balance at March 31, 2018

     2,967,366       679,791       3,647,157     

Cumulative effect of newly adopted ASUs

     (7,550     5,432       (2,118)    

Issuance of new shares

     752       -       752     

Exercise of stock acquisition rights

     11,727       -       11,727     

Conversion of convertible bonds

     14       -       14     

Stock-based compensation

     61       -       61     

Comprehensive income:

      

Net income

     399,448       24,546       423,994     

Other comprehensive income, net of tax —

      

Unrealized losses on securities

     (10,992     (10,074     (21,066)    

Unrealized gains on derivative instruments

     915       -       915     

Pension liability adjustment

     4,674       69       4,743     

Foreign currency translation adjustments

     41,775       (1,310     40,465     
  

 

 

 

Total comprehensive income

     435,820       13,231       449,051     
  

 

 

 

Dividends declared

     (19,034     (27,818     (46,852)    

Transactions with noncontrolling interests shareholders and other

     (24,118     (22,517     (46,635)    
  

 

 

 

Balance at September 30, 2018

     3,365,038       648,119       4,013,157     
  

 

 

 

There was no material effect of changes in Sony Corporation’s ownership interest in its subsidiaries on Sony Corporation’s stockholders’ equity for the six months ended September 30, 2017 and 2018. For the acquisition of the interest in Nile Acquisition LLC held by the Estate of Michael Jackson, refer to Note 7.

 

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Table of Contents
(2)

Other Comprehensive Income

Changes in accumulated other comprehensive income, net of tax by component for the six months ended September 30, 2017 and 2018 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, 2017

    126,635       (58     (308,736     (436,610     (618,769)    

Other comprehensive income before reclassifications

    (3,704     (723     (88     32,850       28,335     

Amounts reclassified out of accumulated other comprehensive income

    (954     952       4,732       (2,763     1,967     
 

 

 

 

Net current-period other comprehensive income

    (4,658     229       4,644       30,087       30,302     

Less: Other comprehensive income attributable to noncontrolling interests

    226       -       14       1,627       1,867     
 

 

 

 

Balance at September 30, 2017

    121,751       171       (304,106     (408,150     (590,334)    
 

 

 

 
    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, 2018

    126,191       (1,242     (296,444     (445,251     (616,746)    

Cumulative effect of ASU2016-01

    (15,526     -       -       -       (15,526)    

Other comprehensive income before reclassifications

    (20,985     2,333       -       43,005       24,353     

Amounts reclassified out of accumulated other comprehensive income

    (81     (1,418     4,743       (2,540     704     
 

 

 

 

Net current-period other comprehensive income

    (21,066     915       4,743       40,465       25,057     

Less: Other comprehensive income attributable to noncontrolling interests

    (10,074     -       69       (1,310     (11,315)    
 

 

 

 

Balance at September 30, 2018

    99,673       (327     (291,770     (403,476     (595,900)    
 

 

 

 

 

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Table of Contents
5.

Reconciliation of the differences between basic and diluted EPS

Reconciliation of the differences between basic and diluted net income attributable to Sony Corporation’s stockholders per share (“EPS”) for the three and six months ended September 30, 2017 and 2018 is as follows:

 

    

Yen in millions

    

  Six months ended September 30  

    

2017

  

2018

Net income attributable to Sony Corporation’s stockholders for basic and diluted EPS computation

   211,723      399,448  
  

 

  

 

    

Thousands of shares

Weighted-average shares outstanding

   1,263,186      1,268,017  

Effect of dilutive securities:

     

Stock acquisition rights

   3,374      4,206  

Zero coupon convertible bonds

   23,962      23,967  
  

 

  

 

Weighted-average shares for diluted EPS computation

           1,290,522              1,296,190  
  

 

  

 

    

Yen

Basic EPS

   167.61      315.02  
  

 

  

 

Diluted EPS

                   164.06      308.17  
  

 

  

 

Potential shares of common stock that were excluded from the computation of diluted EPS for the six months ended September 30, 2017 and 2018 were 4,573 thousand shares and 1,412 thousand shares, respectively. The potential shares related to stock acquisition rights were excluded as anti-dilutive for the six months ended September 30, 2017 and 2018 when the exercise price for those shares was in excess of the average market value of Sony’s common stock for the period. The zero coupon convertible bonds issued in July 2015 were included in the diluted EPS calculation under the if-converted method beginning upon issuance.

 

    

Yen in millions

    

  Three months ended September 30  

    

2017

  

2018

Net income attributable to Sony Corporation’s stockholders for basic and diluted EPS computation

   130,852      173,001  
  

 

  

 

    

Thousands of shares

Weighted-average shares outstanding

   1,263,452      1,268,535  

Effect of dilutive securities:

     

Stock acquisition rights

   3,624      4,061  

Zero coupon convertible bonds

   23,962      23,966  
  

 

  

 

Weighted-average shares for diluted EPS computation

           1,291,038              1,296,562  
  

 

  

 

    

Yen

Basic EPS

   103.57      136.38  
  

 

  

 

Diluted EPS

                   101.35      133.43  
  

 

  

 

Potential shares of common stock that were excluded from the computation of diluted EPS for the three months ended September 30, 2017 and 2018 were 4,573 thousand shares and 1,412 thousand shares, respectively. The potential shares related to stock acquisition rights were excluded as anti-dilutive for the three months ended September 30, 2017 and 2018 when the exercise price for those shares was in excess of the average market value of Sony’s common stock for the period. The zero coupon convertible bonds issued in July 2015 were included in the diluted EPS calculation under the if-converted method beginning upon issuance.

 

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Table of Contents
6.

Revenue

 

(1)

Contract balances

Contract assets and contract liabilities are composed of the following:

 

     Yen in millions  
     April 1, 2018      September 30, 2018  

Contract assets

     15,241        17,882  

Contract liabilities *

     258,327        265,875  

* Contract liabilities are included in the consolidated balance sheets as “Other”, both current and non-current.

Contract liabilities principally relate to customer advances received prior to performance. Revenues of 166,566 million yen were recognized during the six months ended September 30, 2018, which were included in the balance of contract liabilities at April 1, 2018.

 

(2)

Performance obligations

Remaining (unsatisfied or partially unsatisfied) performance obligations represent future revenues not yet recorded for firm orders that have not yet been performed. Sony applies practical expedients to exclude certain information about the remaining performance obligations, primarily related to contracts with an expected original duration of less than one year, and sales-based or usage-based royalty revenue on licenses of intellectual property. After applying practical expedients, revenue from contracts with remaining performance obligations, which primarily relate to licensing of theatrical and television content in the Pictures segment, is expected to be recognized primarily within three years.

 

(3)

Disaggregation of revenue

For the breakdown of sales and operating revenue by segments, product categories and geographies, refer to Note 9.

 

7.

Acquisition of EMI Music Publishing

In May 2018, Sony Corporation of America (“SCA”), Sony’s wholly-owned subsidiary, reached an agreement with the investor consortium led by Mubadala Investment Company (the “Mubadala Consortium”) on the sale of the Mubadala Consortium’s approximately 60% equity interest in D.H. Publishing, L.P. (“EMI”), which owns and manages EMI Music Publishing to SCA. Sony expects to pay total cash consideration of approximately 2.3 billion U.S. dollars in connection with such acquisition as well as assume EMI’s existing gross indebtedness, which was approximately 1.359 billion U.S. dollars as of March 31, 2018.

In July 2018, SCA acquired from the Estate of Michael Jackson (the “Estate”) the 25.1% interest in Nile Acquisition LLC (“Nile”) held by the Estate. A total of 287.5 million U.S. dollars was paid to the Estate for the acquisition, which payment also includes reimbursement of various expenses and costs related to the acquisition. The difference between cash consideration paid of 287.5 million U.S. dollars and the carrying amount of the noncontrolling interests was recognized as a decrease to additional paid-in capital of 295.9 million U.S. dollars. As a result of the acquisition, Nile became a wholly-owned subsidiary of Sony. Accordingly, since Nile owned an approximately 40% equity interest in EMI, EMI will become a wholly-owned subsidiary of Sony upon the completion of SCA’s acquisition of the Mubadala Consortium’s equity interest in EMI.

 

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Table of Contents
8.

Commitments, contingent liabilities and other

 

(1)

Loan commitments

Subsidiaries in the Financial Services segment have entered into loan agreements with their customers in accordance with the condition of the contracts. As of September 30, 2018, the total unused portion of the lines of credit extended under these contracts was 30,929 million yen. The aggregate amounts of future year-by-year payments for these loan commitments cannot be determined.

 

(2)

Purchase commitments and other

Purchase commitments and other outstanding as of September 30, 2018 amounted to 664,802 million yen. The major components of these commitments are as follows:

Certain subsidiaries in the Pictures segment have entered into agreements with creative talent for the development and production of motion pictures and television programming as well as agreements with third parties to acquire completed motion pictures, or certain rights therein, and to acquire the rights to broadcast certain live action sporting events. These agreements cover various periods mainly within three years. As of September 30, 2018, these subsidiaries were committed to make payments under such contracts of 121,341 million yen.

Certain subsidiaries in the Music segment have entered into contracts with recording artists, songwriters and companies for the future production, distribution and/or licensing of music product. These contracts cover various periods mainly within five years. As of September 30, 2018, these subsidiaries were committed to make payments of 80,976 million yen under such contracts.

A subsidiary in the Game & Network Services segment has entered into contracts for programming content. These contracts cover various periods mainly within two years. As of September 30, 2018, this subsidiary was committed to make payments of 21,714 million yen under such contracts.

Sony has entered into sponsorship contracts related to advertising and promotional rights. These contracts cover various periods mainly within three years. As of September 30, 2018, Sony has committed to make payments of 14,464 million yen under such contracts.

For the Acquisition of EMI Music Publishing, refer to Note 7.

 

(3)

Litigation

Beginning in 2009, the U.S. Department of Justice (“DOJ”), the European Commission and certain other governmental agencies outside the United States have conducted investigations relating to competition in the optical disk drives market. Sony Corporation and/or certain of its subsidiaries have been subject to these investigations. Sony understands that the investigations of several governmental agencies, including the DOJ, have ended, and the only remaining investigation has reached a settlement, which is subject to a final ruling from the relevant agency. However, proceedings initiated by the European Commission as a result of its investigation continue. In October 2015, the European Commission adopted a decision in which it fined Sony Corporation and certain of its subsidiaries 31 million euros; however, Sony filed an appeal against the decision with the European Union’s General Court. In addition, a number of direct and indirect purchaser lawsuits, including class actions, have been filed in certain jurisdictions in which the plaintiffs allege that Sony Corporation and certain of its subsidiaries violated antitrust laws and seek recovery of damages and other remedies. Certain of these lawsuits have been settled, including the class actions brought by the direct and indirect purchasers in the United States; however, certain other lawsuits continue. Based on the stage of the pending proceedings, it is not possible to estimate the amount of losses or range of possible losses, if any, that might ultimately result from adverse judgments, settlements or other resolution of all of these matters.

Since 2011, in relation to the secondary batteries business that was operated by Sony and certain of its subsidiaries, a number of direct and indirect purchaser lawsuits, including class actions, have been filed in certain jurisdictions in which the plaintiffs allege that Sony Corporation and certain of its subsidiaries violated antitrust laws and seek recovery of damages and other remedies. Certain of these lawsuits have been settled, including the class actions brought by the direct and indirect purchasers in the United States; however, certain other lawsuits are still pending. Based on the stage of the pending proceedings, it is not possible to estimate the amount of losses or range of possible losses, if any, that might ultimately result from adverse judgments, settlements or other resolution of all of these matters.

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

 

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(4)

Guarantees

Sony has issued guarantees that contingently require payments to guaranteed parties if certain specified events or conditions occur. The maximum potential amount of future payments under these guarantees as of September 30, 2018 amounted to 2,611 million yen.

 

9.

Business segment information

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

The Game & Network Services (“G&NS”) segment includes network services businesses, the manufacture and sales of home gaming products and production and sales of software. The Music segment includes the Recorded Music, Music Publishing and Visual Media and Platform businesses. The Pictures segment includes the Motion Pictures, Television Productions and Media Networks businesses. The Home Entertainment & Sound (“HE&S”) segment includes Televisions as well as Audio and Video businesses. The Imaging Products & Solutions (“IP&S”) segment includes the Still and Video Cameras business. The MC segment includes the manufacture and sales of mobile phones and Internet-related service businesses. The Semiconductors segment includes the image sensors business. The Financial Services segment primarily represents individual life insurance and non-life insurance businesses in the Japanese market and a bank business in Japan. All Other consists of various operating activities, including the overseas disc manufacturing and recording media businesses. Sony’s products and services are generally unique to a single operating segment.

 

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Business segments -

Sales and operating revenue:

 

     Yen in millions  
             Six months ended September 30          

 

       2017             2018      

Sales and operating revenue:

    

Game & Network Services -

    

Customers

             737,306               985,734  

Intersegment

     43,960       36,432  
  

 

 

   

 

 

 

Total

     781,266       1,022,166  

Music -

    

Customers

     367,913       378,002  

Intersegment

     7,225       7,325  
  

 

 

   

 

 

 

Total

     375,138       385,327  

Pictures -

    

Customers

     449,408       415,248  

Intersegment

     406       704  
  

 

 

   

 

 

 

Total

     449,814       415,952  

Home Entertainment & Sound -

    

Customers

     557,235       546,453  

Intersegment

     565       572  
  

 

 

   

 

 

 

Total

     557,800       547,025  

Imaging Products & Solutions -

    

Customers

     309,287       324,106  

Intersegment

     3,068       3,987  
  

 

 

   

 

 

 

Total

     312,355       328,093  

Mobile Communications -

    

Customers

     348,884       245,240  

Intersegment

     4,344       5,088  
  

 

 

   

 

 

 

Total

     353,228       250,328  

Semiconductors -

    

Customers

     366,086       399,597  

Intersegment

     66,538       57,088  
  

 

 

   

 

 

 

Total

     432,624       456,685  

Financial Services -

    

Customers

     578,794       684,733  

Intersegment

     3,590       3,925  
  

 

 

   

 

 

 

Total

     582,384       688,658  

All Other -

    

Customers

     189,696       151,673  

Intersegment

     32,364       20,369  
  

 

 

   

 

 

 

Total

     222,060       172,042  

Corporate and elimination

     (146,025     (129,892
  

 

 

   

 

 

 
Consolidated total      3,920,644       4,136,384  
  

 

 

   

 

 

 

 

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Table of Contents
     Yen in millions  
             Three months ended September 30          

 

       2017             2018      

Sales and operating revenue:

    

Game & Network Services -

    

Customers

             414,255               535,754  

Intersegment

     18,949       14,311  
  

 

 

   

 

 

 

Total

     433,204       550,065  

Music -

    

Customers

     202,837       200,294  

Intersegment

     3,729       3,562  
  

 

 

   

 

 

 

Total

     206,566       203,856  

Pictures -

    

Customers

     243,738       242,021  

Intersegment

     265       (1,150
  

 

 

   

 

 

 

Total

     244,003       240,871  

Home Entertainment & Sound -

    

Customers

     300,770       274,496  

Intersegment

     163       442  
  

 

 

   

 

 

 

Total

     300,933       274,938  

Imaging Products & Solutions -

    

Customers

     155,170       161,623  

Intersegment

     1,550       2,268  
  

 

 

   

 

 

 

Total

     156,720       163,891  

Mobile Communications -

    

Customers

     169,818       114,886  

Intersegment

     2,223       2,935  
  

 

 

   

 

 

 

Total

     172,041       117,821  

Semiconductors -

    

Customers

     193,407       222,924  

Intersegment

     34,956       31,522  
  

 

 

   

 

 

 

Total

     228,363       254,446  

Financial Services -

    

Customers

     277,434       351,493  

Intersegment

     1,790       1,960  
  

 

 

   

 

 

 

Total

     279,224       353,453  

All Other -

    

Customers

     95,592       77,226  

Intersegment

     17,228       11,892  
  

 

 

   

 

 

 

Total

     112,820       89,118  

Corporate and elimination

     (71,343     (65,699
  

 

 

   

 

 

 
Consolidated total      2,062,531       2,182,760  
  

 

 

   

 

 

 

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

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

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

Corporate and elimination includes certain brand and patent royalty income.

 

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Segment profit or loss:

 

     Yen in millions  
             Six months ended September 30          

 

   2017     2018  

Operating income (loss):

    

Game & Network Services

                     72,483                     174,072  

Music

     57,536       63,605  

Pictures

     (1,801     15,934  

Home Entertainment & Sound

     46,970       41,848  

Imaging Products & Solutions

     42,074       47,890  

Mobile Communications

     1,163       (40,572

Semiconductors

     104,812       77,065  

Financial Services

     82,822       79,741  

All Other

     (8,259     5,336  
  

 

 

   

 

 

 

Total

     397,800       464,919  

Corporate and elimination

     (35,961     (30,402
  

 

 

   

 

 

 

Consolidated operating income

     361,839       434,517  
  

 

 

   

 

 

 
     Yen in millions  
             Three months ended September 30          

 

   2017     2018  

Operating income (loss):

    

Game & Network Services

     54,750       90,622  

Music

     32,514       31,501  

Pictures

     7,696       23,535  

Home Entertainment & Sound

     24,387       24,457  

Imaging Products & Solutions

     18,870       21,813  

Mobile Communications

     (2,453     (29,814

Semiconductors

     49,370       47,928  

Financial Services

     36,599       39,160  

All Other

     (28     5,042  
  

 

 

   

 

 

 

Total

     221,705       254,244  

Corporate and elimination

     (17,477     (14,733
  

 

 

   

 

 

 

Consolidated operating income

     204,228       239,511  
  

 

 

   

 

 

 

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

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

Beginning from the first quarter of the fiscal year ending March 31, 2019, a change has been made to the calculation method used for allocating indirect expenses incurred by sales companies to the segments every quarter. As a result of this change, a year-on-year increase in expenses, composed primarily of 3.0 billion yen for the six months and 0.6 billion yen for the three months ended September 30, 2018 is included in the HE&S segment. However, because a decrease in expenses totaling the same amount is included in Corporate and elimination, this change has no impact on consolidated operating income for the six and three months ended September 30, 2018. Additionally, because increases and decreases in expenses per quarter for each segment resulting from this change in the calculation method will be offset by the increases and decreases in expenses in other quarters for that segment throughout the current year, this change will also have no impact on operating income (loss) for each segment, or for Corporate and elimination, for the fiscal year ending March 31, 2019.

 

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Other Significant Items:

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

 

     Yen in millions  
              Six months ended September 30             
  Sales and operating revenue:            2017                      2018          

Game & Network Services

     

Network

     418,288           634,650     

Hardware and Others

     319,018           351,084     

 

  

 

 

    

 

 

 

Total

     737,306           985,734     

Music

     

Recorded Music

     208,999           205,202     

Music Publishing

     36,359           40,900     

Visual Media and Platform

     122,555           131,900     

 

  

 

 

    

 

 

 

Total

     367,913           378,002     

Pictures

     

Motion Pictures

     195,074           177,902     

Television Productions

     119,287           113,897     

Media Networks

     135,047           123,449     

 

  

 

 

    

 

 

 

Total

     449,408           415,248     

Home Entertainment & Sound

     

Televisions

     398,927           378,255     

Audio and Video

     157,361           166,790     

Other

     947           1,408     

 

  

 

 

    

 

 

 

Total

     557,235           546,453     

Imaging Products & Solutions

     

Still and Video Cameras

     205,206           216,290     

Other

     104,081           107,816     

 

  

 

 

    

 

 

 

Total

     309,287           324,106     

Mobile Communications

     348,884           245,240     

Semiconductors

     366,086           399,597     

Financial Services

     578,794           684,733     

All Other

     189,696           151,673     

Corporate

     16,035           5,598     

 

  

 

 

    

 

 

 

Consolidated total

     3,920,644           4,136,384     
  

 

 

    

 

 

 

 

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Table of Contents
     Yen in millions  
             Three months ended September 30          
Sales and operating revenue:            2017                      2018          

Game & Network Services

     

Network

     222,986           334,264     

Hardware and Others

     191,269           201,490     

 

  

 

 

    

 

 

 

Total

     414,255           535,754     

Music

     

Recorded Music

     109,177           105,463     

Music Publishing

     19,501           19,436     

Visual Media and Platform

     74,159           75,395     

 

  

 

 

    

 

 

 

Total

     202,837           200,294     

Pictures

     

Motion Pictures

     124,800           109,334     

Television Productions

     57,389           68,482     

Media Networks

     61,549           64,205     

 

  

 

 

    

 

 

 

Total

     243,738           242,021     

Home Entertainment & Sound

     

Televisions

     219,553           191,705     

Audio and Video

     80,639           81,861     

Other

     578           930     

 

  

 

 

    

 

 

 

Total

     300,770           274,496     

Imaging Products & Solutions

     

Still and Video Cameras

     99,343           103,034     

Other

     55,827           58,589     

 

  

 

 

    

 

 

 

Total

     155,170           161,623     

Mobile Communications

     169,818           114,886     

Semiconductors

     193,407           222,924     

Financial Services

     277,434           351,493     

All Other

     95,592           77,226     

Corporate

     9,510           2,043     

 

  

 

 

    

 

 

 

Consolidated total

     2,062,531           2,182,760     
  

 

 

    

 

 

 

In the G&NS segment, Network includes network services relating to game, video and music content provided by Sony Interactive Entertainment; Hardware and Others includes home and portable game consoles, packaged software and peripheral devices. In the Music segment, Recorded Music includes the distribution of physical and digital recorded music and revenue derived from artists’ live performances; Music Publishing includes the management and licensing of the words and music of songs; Visual Media and Platform includes the production and distribution of animation titles, including game applications based on the animation titles, and various service offerings for music and visual products. In the Pictures segment, Motion Pictures includes the worldwide production, acquisition and distribution of motion pictures and direct-to-video content; Television Productions includes the production, acquisition and distribution of television programming; Media Networks includes the operation of television and digital networks worldwide. In the HE&S segment, Televisions includes LCD and OLED televisions; Audio and Video includes Blu-ray disc players and recorders, home audio, headphones and memory-based portable audio devices. In the IP&S segment, Still and Video Cameras includes interchangeable lens cameras, compact digital cameras, consumer video cameras and video cameras for broadcast; Other includes display products such as projectors and medical equipment.

 

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Table of Contents
     Yen in millions         
             Six months ended September 30                 
     2017      2018         

Depreciation and amortization:

        

Game & Network Services

     14,162           14,116        

Music

     8,389           8,867        

Pictures

     11,947           11,864        

Home Entertainment & Sound

     9,558           11,052        

Imaging Products & Solutions

     11,565           12,248        

Mobile Communications, including contract costs

     9,300           9,459        

Semiconductors

     48,439           52,998        

Financial Services, including deferred insurance acquisition costs

     32,381           33,438        

All Other

     3,570           2,356        
  

 

 

    

 

 

    

Total

     149,311           156,398        

Corporate

     20,651           15,428        
  

 

 

    

 

 

    

Consolidated total

     169,962           171,826        
  

 

 

    

 

 

    
     Yen in millions  
     Six months ended September 30, 2017  
     Total net
      restructuring      
charges
     Depreciation
associated with
  restructured assets  
                 Total              

Restructuring charges and associated depreciation:

        

Game & Network Services

     -           -           -     

Music

     222           -           222     

Pictures

     443           -           443     

Home Entertainment & Sound

     19           -           19     

Imaging Products & Solutions

     21           -           21     

Mobile Communications

     691           0           691     

Semiconductors

     -           -           -     

Financial Services

     -           -           -     

All Other and Corporate

     2,633           0           2,633     
  

 

 

    

 

 

    

 

 

 

Consolidated total

     4,029           0           4,029     
  

 

 

    

 

 

    

 

 

 
     Yen in millions  
     Six months ended September 30, 2018  
     Total net
      restructuring      
charges
     Depreciation
associated with
  restructured assets  
             Total          

Restructuring charges and associated depreciation:

        

Game & Network Services

     -           -           -     

Music

     781           -           781     

Pictures

     2,590           -           2,590    

Home Entertainment & Sound

     -           -           -     

Imaging Products & Solutions

     -           -           -     

Mobile Communications

     835           4           839     

Semiconductors

     -           -           -     

Financial Services

     -           -           -     

All Other and Corporate

     769           -           769     
  

 

 

    

 

 

    

 

 

 

Consolidated total

     4,975           4           4,979     
  

 

 

    

 

 

    

 

 

 

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

 

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Table of Contents
     Yen in millions         
             Three months ended September 30                 
     2017      2018         

Depreciation and amortization:

        

Game & Network Services

     7,258           7,092        

Music

     4,247           4,498        

Pictures

     5,975           5,994        

Home Entertainment & Sound

     4,569           5,513        

Imaging Products & Solutions

     5,704           6,177        

Mobile Communications, including contract costs

     4,715           4,777        

Semiconductors

     24,637           27,058        

Financial Services, including deferred insurance acquisition costs

     17,274           15,532        

All Other

     1,847           1,147        
  

 

 

    

 

 

    

Total

     76,226           77,788        

Corporate

     10,473           7,795        
  

 

 

    

 

 

    

Consolidated total

     86,699           85,583        
  

 

 

    

 

 

    
     Yen in millions  
     Three months ended September 30, 2017  
     Total net
        restructuring        
charges
     Depreciation
associated with
  restructured assets  
                 Total              

Restructuring charges and associated depreciation:

        

Game & Network Services

     -           -           -     

Music

     215           -           215     

Pictures

     (127)          -           (127)    

Home Entertainment & Sound

     4           -           4     

Imaging Products & Solutions

     9           -           9     

Mobile Communications

     42           -           42     

Semiconductors

     -           -           -     

Financial Services

     -           -           -     

All Other and Corporate

     1,448           -           1,448     
  

 

 

    

 

 

    

 

 

 

Consolidated total

     1,591           -           1,591     
  

 

 

    

 

 

    

 

 

 
     Yen in millions  
     Three months ended September 30, 2018  
     Total net
    restructuring    
charges
     Depreciation
associated with
restructured assets
             Total          

Restructuring charges and associated depreciation:

        

Game & Network Services

     -           -           -     

Music

     781           -           781     

Pictures

     1,988           -           1,988     

Home Entertainment & Sound

     -           -           -     

Imaging Products & Solutions

     -           -           -     

Mobile Communications

     571           4           575     

Semiconductors

     -           -           -     

Financial Services

     -           -           -     

All Other and Corporate

     326           -           326     
  

 

 

    

 

 

    

 

 

 

Consolidated total

     3,666           4           3,670     
  

 

 

    

 

 

    

 

 

 

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

 

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Geographic Information –

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

 

     Yen in millions  
     Six months ended September 30  

  Sales and operating revenue:

               2017                              2018              

Japan

     1,216,279            1,300,839      

United States

     798,121            874,767      

Europe

     781,633            843,798      

China

     339,136            383,410      

Asia-Pacific

     525,845            462,018      

Other Areas

     259,630            271,552      

 

  

 

 

    

 

 

 

Total

     3,920,644            4,136,384      
  

 

 

    

 

 

 
     Yen in millions  
     Three months ended September 30  

  Sales and operating revenue:

               2017                              2018              

Japan

     596,538            669,141      

United States

     437,185            475,900      

Europe

     429,883            449,147      

China

     176,920            199,240      

Asia-Pacific

     278,447            255,025      

Other Areas

     143,558            134,307      

 

  

 

 

    

 

 

 

Total

     2,062,531            2,182,760      
  

 

 

    

 

 

 

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

 

(1) Europe:

   United Kingdom, France, Germany, Russia, Spain and Sweden    

(2) Asia-Pacific:

   India, South Korea and Oceania

(3) Other Areas:

   The Middle East/Africa, Brazil, Mexico and Canada

There are no individually material countries with respect to sales and operating revenue included in Europe, Asia-Pacific and Other Areas.

Transfers between reportable business segments or geographic areas are made at individually negotiated prices that are intended to reflect a market-based transfer price.

There were no sales and operating revenue with any single major external customer for the six and three months ended September 30, 2017 and 2018.

 

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(2) Other Information

(i) Dividends declared

An interim cash dividend for Sony Corporation’s common stock was approved at the Board of Directors meeting held on October 30, 2018 as below:

1. Total amount of interim cash dividends:

19,034 million yen

2. Amount of interim cash dividends per share:

15.00 yen

3. Payment date:

December 3, 2018

Interim cash dividends for the fiscal year ending March 31, 2019 have been incorporated in the accompanying consolidated financial statements.

Note: Interim cash dividends are to be distributed to the shareholders recorded or registered as the holders or pledgees of shares in Sony Corporation’s register of shareholders at the end of September 30, 2018.

(ii) Litigation

For the legal proceedings, please refer to “IV Financial Statements – Notes to Consolidated Financial Statements – 8. Commitments, contingent liabilities and other”.

 

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