Quarterly Securities Report

 

For the three months ended December 31, 2014

 

(TRANSLATION)

 

Sony Corporation

  

 

CONTENTS

 

				Page
Note for readers of this English translation				1
Cautionary Statement				1
I	Corporate Information			2
	(1)	Selected Consolidated Financial Data		2
	(2)	Business Overview		2
II	State of Business			3
	(1)	Risk Factors		3
	(2)	Material Contracts		5
	(3)	Management’s Discussion and Analysis of Financial Condition, Results of Operations and Status of Cash Flows		6
III	Company Information			11
	(1)	Information on the Company’s Shares		11
	(2)	Directors and Corporate Executive Officers		14
IV	Financial Statements			18
	(1)	Consolidated Financial Statements		18
	(2)	Other Information		49

  

  

  

 

  I    Corporate Information

 (1) Selected Consolidated Financial Data

 

		Yen in millions, Yen per share amounts
		Nine months ended December 31, 2013				Nine months ended December 31, 2014				Fiscal year ended March 31, 2014
Sales and operating revenue			5,896,343				6,278,168				7,767,266
Operating income			138,296				166,321				26,495
Income before income taxes			138,829				146,250				25,741
Net income (loss) attributable to Sony Corporation’s stockholders			9,878				(19,190	)			(128,369	)
Comprehensive income			256,886				189,120				121,978
Total equity			2,930,324				3,074,156				2,783,141
Total assets			15,658,674				16,277,347				15,333,720
Net income (loss) attributable to Sony Corporation’s stockholders per share of common stock, basic (yen)			9.66				(17.50	)			(124.99	)
Net income (loss) attributable to Sony Corporation’s stockholders per share of common stock, diluted (yen)			8.45				(17.50	)			(124.99	)
Ratio of stockholders’ equity to total assets (%)			15.4				15.2				14.7
Net cash provided by operating activities			243,508				382,932				664,116
Net cash used in investing activities			(436,808	)			(363,790	)			(710,502	)
Net cash provided by (used in) financing activities			151,038				(184,575	)			207,877
Cash and cash equivalents at end of the period			849,248				933,498				1,046,466

 

		Yen in millions, Yen per share amounts
		Three months ended December 31, 2013				Three months ended December 31, 2014
Sales and operating revenue			2,410,689				2,566,749
Net income attributable to Sony Corporation’s stockholders			26,382				89,971
Net income attributable to Sony Corporation’s stockholders per share of common stock, basic (yen)			25.43				78.12
Net income attributable to Sony Corporation’s stockholders per share of common stock, diluted (yen)			22.58				76.96

 

  

   Notes:

1.	The Company’s consolidated financial statements are prepared in conformity with U.S. GAAP.
2.	The Company reports equity in net income (loss) of affiliated companies as a component of operating income.
3.	Consumption taxes are not included in sales and operating revenue.
4.	Total equity is presented based on U.S. GAAP.
5.	Ratio of stockholders’ equity to total assets is calculated by using total equity attributable to the stockholders of the Company.
6.	Certain figures presented in the table above have been revised from the versions previously disclosed.  For further details, please refer to (4) Revisions of Note 1 of the consolidated financial statements.
7.	The Company prepares consolidated financial statements.  Therefore parent-only selected financial data is not presented.

  

  (2) Business Overview

 

There was no significant change in the business of Sony during the nine months ended December 31, 2014.

 

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

 

As of December 31, 2014, the Company had 1,272 subsidiaries and 112 affiliated companies, of which 1,247 companies are consolidated subsidiaries (including variable interest entities) of the Company. The Company has applied the equity accounting method for 100 affiliated companies.

 

 

  II    State of Business

 

  (1) Risk Factors

 

 

 

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

 

Sony continues to implement restructuring initiatives that focus on a review of the Sony group’s business strategy investment plan, the realignment of its manufacturing sites, the reallocation of its workforce and headcount reductions. As a result of these restructuring initiatives, a total of 80.6 billion yen in restructuring charges was recorded in the fiscal year ended March 31, 2014. While Sony anticipates recording approximately 110 billion yen of restructuring charges in the fiscal year ending March 31, 2015, significant additional or future restructuring charges may be recorded due to reasons such as the impact of economic downturns or exiting from unprofitable businesses. Restructuring charges are recorded primarily in cost of sales, selling, general and administrative (“SGA”) expenses and other operating (income) expense, net and thus adversely affect Sony’s operating income (loss) and net income (loss) attributable to Sony’s stockholders (Refer to Note 19 of the consolidated financial statements). Sony continues to rationalize its manufacturing operations, shift and consolidate manufacturing to lower-cost countries, and utilize outsourced manufacturing. In addition, Sony is focused on reducing SGA expenses across the group, including outsourcing its support functions and information processing operations to external partners and implementing business process optimization across functions including sales and marketing, manufacturing, logistics, procurement, quality and R&D.

 

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

 

Sony’s physical facilities and information systems are subject to damage as a result of catastrophic disasters, outages, malfeasance or similar events. Such an unexpected catastrophic event may also lead to supply chain and production disruptions as well as lower demand from commercial customers, resulting in an adverse impact on Sony’s operating results.

 

Sony’s headquarters and many of Sony’s most advanced device manufacturing facilities, including those for semiconductors, are located in Japan, where the risk of earthquakes is relatively high compared to other parts of the world. A major earthquake in Japan, especially in Tokyo where Sony headquarters are located, the Tokai area where certain product manufacturing sites are located, or the Kyushu area, where Sony’s semiconductor manufacturing sites are located, could cause greater damage to Sony’s business operations than the Great East Japan Earthquake, including damage to buildings, machinery, equipment and inventories and interruption to production at manufacturing facilities. In addition, offices and facilities used by Sony, its service providers and business partners, including those used for network, telecommunications and information systems infrastructure, research and development, material procurement, manufacturing, motion picture and television program production, logistics, sales and services are located throughout the world and are subject to possible destruction, temporary stoppage or disruption as a result of unexpected catastrophic events such as natural disasters, pandemic diseases, terrorist attacks, large-scale power outages and large-scale fires. If any of these facilities or offices were to experience a significant loss as a result of any of the above events, it may disrupt Sony’s operations, delay production, interrupt shipments and postpone the recording of sales, and result in large expenses to repair or replace these facilities or offices. In addition, if Sony’s suppliers are damaged by such catastrophic events, Sony may be exposed to supply shortages of raw materials, parts or components, which may result in a reduction or suspension of production, interruption of shipment and delays in product launches. Sony may also be exposed to price increases for raw materials, parts and components, and lower demand from commercial customers. These situations may have an adverse impact on Sony’s operating results and financial condition.

 

 

Moreover, as network and information systems have become increasingly important to Sony’s operating activities, the impact that network and information system shutdowns may have on Sony’s operating activities has increased. Shutdowns may be caused by events similar to those described above or other unforeseen events, such as software or hardware defects or cyber-attacks by groups or individuals. For example, in the third quarter ended December 31, 2014, Sony Pictures Entertainment Inc. (“SPE”) had a serious disruption of its network and IT infrastructure as a result of a cyber-attack. As a result, SPE was unable to close its financial statements for the third quarter within the customary timeframe for reporting consolidated quarterly results.

 

Similar events in the future may result in the disruption of Sony’s major business operations, delays in financial reporting, production, shipments and recognition of sales, and large expenditures necessary to enhance, repair or replace such facilities and network and information systems. Furthermore, Sony may not be able to obtain sufficient insurance in the future to cover the resulting expenditures and losses, and insurance premiums may increase. These situations may have an adverse impact on Sony’s operating results and financial condition.

 

Sony’s brand image, reputation and business may be harmed and Sony may be subject to legal claims if there is loss, disclosure, misappropriation or alteration of or unauthorized access to its customers’, suppliers’, business partners’ or own information, or other breaches of its information security.

 

Sony makes extensive use of information technology, online services and centralized data processing, including through third-party service providers. The secure maintenance and transmission of customer information is a critical element of Sony’s operations. Sony’s information technology and other systems that maintain and transmit such information, or those of service providers or business partners, and the security of such information possessed by Sony or its business partners may be compromised by a malicious third-party or a man-made or natural event, or impacted by intentional or inadvertent actions or inactions by Sony employees, or those of a third-party service provider or business partner. As a result, customer information may be lost, disclosed, misappropriated, altered or accessed without consent. For example, Sony’s network services, online game business and websites of certain subsidiaries have been subject to cyber-attacks by groups and individuals with a wide range of motives and expertise, resulting, in some instances, in unauthorized access to, disclosure of and the potential or actual theft of customer information.

 

In addition, Sony, third-party service providers and other business partners process and maintain proprietary Sony business information and data related to Sony’s business, commercial customers, suppliers and other business partners. Sony’s information technology and other systems that maintain and transmit this information, or those of service providers or business partners, and the security of such information possessed by Sony, third-party service providers or other business partners may also be compromised by a malicious third-party or a man-made or natural event, or impacted by intentional or inadvertent actions or inactions by Sony employees, or those of a third-party service provider or business partner. As a result, Sony’s business information and customer, supplier and other business partner data may be lost, disclosed, misappropriated, altered, or accessed without consent. For example, Sony’s Pictures segment has been subject to cyber-attacks resulting in unauthorized access to, and theft and disclosure of Sony business information, including employee information, and other information.

 

Further, the confidentiality, integrity and availability of products and services provided by Sony or its service providers or business partners may be compromised by malicious third parties or man-made or natural events, or impacted by intentional or inadvertent actions or inactions by Sony employees, or those of a third-party service provider or business partner. For example, Sony’s websites have been subjected to denial-of-service and other attacks.

 

Any such loss, disclosure, misappropriation or alteration of or access to customers’, business partners’ or other information, or other breach of Sony’s information security including that of its products and services can result in legal claims or legal proceedings, including regulatory investigations and actions, and may have a serious impact on Sony’s brand image and reputation and adversely affect Sony’s businesses, operating results and financial condition. Furthermore, the loss, disclosure, misappropriation or alteration of or access to Sony’s business information, or adverse effects on the confidentiality, integrity, or availability of its products or services, may adversely affect Sony’s businesses, operating results and financial condition.

 

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

 

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

 

 

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

 

(2) Material Contracts

 

There were no material contracts executed or determined to be executed during the three months ended December 31, 2014.

 

 

 

 

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

 

i) Results of Operations

 

 

 

Foreign Exchange Fluctuations and Risk Hedging

 

 

 

 

During the three months ended December 31, 2014, the average rates of the yen were 114.5 yen against the U.S. dollar and 143.0 yen against the euro, which were 12.3 percent and 4.4 percent lower, respectively, than the same quarter of the previous fiscal year (“year-on-year”).

 

For the three months ended December 31, 2014, sales were 2,566.7 billion yen, an increase of 6.5 percent year-on-year, while on a constant currency basis, sales decreased approximately 0.3 percent year-on-year. For references to information on a constant currency basis, see Note at the bottom of this section.

 

Consolidated operating income of 182.1 billion yen (1,505 million U.S. dollars) was recorded for the three months ended December 31, 2014, a increase of 93.2 billion yen year-on-year compared to operating income of 88.9 billion yen in the same quarter of the previous fiscal year (a deterioration of approximately 89.9 billion yen year-on-year on a constant currency basis). Most of the foreign exchange rate impact was attributable to the MC, Game & Network Services (“G&NS”), Imaging Products & Solutions (“IP&S”), Home Entertainment & Sound (“HE&S”) and Devices segments.

 

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

 

(Billions of yen)

Three months ended December 31

Change

Change on constant currency

Impact of changes in  foreign exchange

2013

2014

in yen

basis

rates

MC

Sales

333.2

429.0

+28.7%

+23%

+18.3

Operating income

6.3

9.3

+2.9

+2.8

+0.1

G&NS

Sales

454.9

531.5

+16.8%

+8%

+41.9

Operating income

12.4

27.6

+15.2

+28.2

-13.0

IP&S

Sales

198.1

201.0

+1.5%

-5

%

+13.4

Operating income

12.1

23.0

+10.9

+6.1

+4.9

HE&S

Sales

404.0

413.3

+2.3%

-5

%

+29.5

Operating income

6.4

25.3

+18.9

+28.0

-9.1

Devices

Sales

211.3

292.9

+38.6%

+26%

+26.2

Operating income (loss)

(23.5

)

54.5

+78.1

+60.0

+18.1

 

  

In addition, sales for the Pictures segment decreased 7.7 percent year-on-year to 206.6 billion yen, an approximately 20 percent decrease on a constant currency (U.S. dollar) basis. In the Music segment, sales increased 13.1 percent year-on-year to 163.6 billion yen, an approximately 3 percent increase on a constant currency basis. As most of the operations in Sony’s Financial Services segment are based in Japan, Sony’s management analyzes the performance of the Financial Services segment on a yen basis only.

 

Note: In this section, the descriptions of sales on a constant currency basis reflect sales obtained by applying the yen’s monthly average exchange rates from the same quarter of the previous fiscal year to local currency-denominated monthly sales in the three months ended December 31, 2014. The impact of foreign exchange rate fluctuations on operating income (loss) described herein is estimated by deducting cost of sales and selling, general and administrative (“SGA”) expenses on a constant currency basis from sales on a constant currency basis. Cost of sales and SGA expenses on a constant currency basis are obtained by applying the yen’s monthly average exchange rates from the same quarter of the previous fiscal year to the corresponding local currency-denominated monthly cost of sales and SGA expenses for the three months ended December 31, 2014. In certain cases, most significantly in the Pictures segment, and Sony Music Entertainment and Sony/ATV Music Publishing LLC in the Music segment, the constant currency amounts are after aggregation on a U.S. dollar basis. Sales and operating income (loss) on a constant currency basis are not reflected in Sony’s consolidated financial statements and are not measures in accordance with U.S. GAAP. Sony does not believe that these measures are a substitute for U.S. GAAP measures. However, Sony believes that disclosing sales and operating income information on a constant currency basis provides additional useful analytical information to investors regarding the operating performance of Sony.

 

Status of Cash Flows

 

 

 

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

 

 

 

Issues Facing Sony and Management’s Response to those Issues

 

The American economy is expected to undergo strong growth due to the decrease in the price of oil, and the Japanese economy is expected to gradually expand due to monetary easing and the delay of an increase in the consumption tax rate. However, the overall global economic outlook is uncertain due to the geopolitical tension in Russia accompanying the decrease in the price of oil, the slowdown of growth in the Chinese economy, and the weakening of external demand in Asian emerging market countries.

 

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

 

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

  

 

Key strategies for business operations 

l Business management that emphasizes profitability, without necessarily pursuing volume

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

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

 

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

 

1. Growth drivers: 

Sony is positioning Devices, Game & Network Services, Pictures, and Music as the segments that will drive its profit growth over the next three years. It will implement growth measures and engage in aggressive capital investment in these areas with the aim of achieving both sales growth and profit expansion.

 

In Devices, Sony aims to further bolster its competitive edge in the area of CMOS image sensors by investing to increase production capacity and enhance R&D. In Games & Network Services, the Company will strive to further expand the installed user base of the PlayStation® platform and PlayStation®Network (“PSN”). In Pictures, Sony will focus on expanding the audience for its Media Networks business by growing ratings and increasing its channel offering, strengthening its Television Production business, and improving margins in its Motion Picture business. In Music, the Company will increase its focus on growth areas such as the streaming music market.

 

2. Stable profit generators:

As businesses capable of contributing stable profit, Sony will prioritize the generation of steady profit and positive cash flow for Imaging Products & Solutions and Video & Sound. While Sony does not anticipate overall market growth in these areas, the Company will target certain areas within each market that are unlikely to experience commoditization by continuing to offer new, high value-added products such as its advanced mirrorless single-lens reflex cameras and high-resolution audio products. By capitalizing on its existing technological expertise in these areas rather than engaging in large-scale investments, and by optimizing fixed costs and enhancing inventory control, Sony will aim to maximize profits and return on investment.

 

3. Areas focusing on volatility management: 

The TV and Mobile Communications businesses operate in markets characterized by high volatility and challenging competitive landscapes. In view of this business environment, Sony will place the highest priority on curtailing risk and securing profits in its operation of these businesses. Since both markets are experiencing intense cost competition and commoditization, Sony will strive to further increase the added value of its products by leveraging its in-house technologies and component devices. By carefully selecting the territories and product areas it targets, Sony will seek to limit its capital investment and establish a business structure capable of securing stable profits. The Company will also continue to explore potential alliances with other companies in these areas, in response to changes in the business landscape.

 

In the Financial Services segment, each of the life insurance, non-life insurance, banking and nursing care businesses will target further stable business expansion and profit growth by continuing to provide high quality services that our customers trust and are satisfied with.

 

Furthermore, with the aim of delivering sustained, high profit levels from the fiscal year ending March 31, 2019 onwards, Sony will seek to reinforce its deployment of “recurring-revenue business models,” built on solid customer foundations and business platforms. Already successfully implemented in the areas of Game and Financial Services, Sony will seek to further leverage this approach within its Network Services business, the Media Networks business operated by the Pictures segment, and also for interchangeable lenses and accessories within the Digital Imaging business.

 

In the medical field, one of Sony’s new business areas, Sony Olympus Medical Solutions Inc. is proceeding as planned with the development of surgical endoscopy systems and other medical solutions.

 

 

New organizational and management structure

 

In order to realize its transformation into a highly profitable enterprise, Sony will realign its organizational structure and management team.

 

In each of its business units, Sony will ensure the implementation of 1) clearly attributable accountability and responsibility, 2) management policies with an emphasis on sustainable profit generation and 3) the acceleration of decision-making processes and reinforcement of business competitiveness. To achieve this, Sony plans to sequentially split out the business units currently within Sony Corporation.

 

Global Environmental Plan “Road to Zero”

 

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

 

•

Climate change: Reduction of energy consumption in pursuit of zero greenhouse gas emissions.

 

•

Resource conservation: Reduction in the use of virgin materials of priority resources by minimizing waste generation, appropriate water consumption, and continuous increase of waste recycling.

 

•

Control of chemical substances: Minimization of the risks that certain chemical substances pose to the environment through preventative measures, reduction in the use of specific chemicals defined by Sony, and promotion of the use of alternative materials.

 

•

Biodiversity: Conservation and recovery of biodiversity through Sony’s own business operations and local social contribution programs.

 

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

 

•

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

 

•

Target a reduction in power consumption per product of 30 percent by the end of the fiscal year ending March 31, 2016, compared to the level of the fiscal year ended March 31, 2009.

 

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

 

 

iii) Research and Development

 

 

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

 

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

 

Research and development costs for the nine months ended December 31, 2014 totaled 340.3 billion yen.

 

iv) Employees

 

 

 

As of December 31, 2014, Sony Corporation had 12,445 employees, a decrease of 2,197 employees from 14,642 employees as of March 31, 2014.

 

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

 

v) Liquidity and Capital Resources

 

 

 

Sony typically raises funds through straight bonds, CP programs and bank loans (including syndicated loans). If market disruption and volatility occur and if Sony could not raise sufficient funds from these sources, Sony may also draw down funds from contractually committed lines of credit from various financial institutions. Sony has a total, translated into yen, of 775.0 billion yen in unused committed lines of credit, as of December 31, 2014. Details of those committed lines of credit are: a 475.0 billion yen committed line of credit contracted with a syndicate of Japanese banks, effective until November 2016, a 1.5 billion U.S. dollar multi-currency committed line of credit also with a syndicate of Japanese banks, effective until December 2018, and a 1.01 billion U.S. dollar multi-currency committed line of credit contracted with a syndicate of foreign banks, effective until April 2015, in all of which Sony Corporation and its consolidated subsidiary, Sony Global Treasury Services Plc, are defined as borrowers. These contracts are aimed at securing sufficient liquidity in a quick and stable manner even in the event of turmoil within the financial and capital markets.

 

 

Ⅲ  Company Information 

(1) Information on the Company’s Shares

 

i) Total Number of Shares

 

1) Total Number of Shares

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

 

2) Number of Shares Issued

Class	Number of shares issued		Name of Securities Exchanges where the shares are listed or authorized Financial Instruments Firms Association where the shares are registered	Description
	As of the end of the third quarterly period  (December 31, 2014)	As of the filing date of the Quarterly Securities Report (March 17, 2015)
Common stock	1,157,668,727	1,169,547,760	Tokyo Stock Exchange  New York Stock Exchange *3	The number of shares constituting one full unit is one hundred (100).
Total	1,157,668,727	1,169,547,760	—	—

Notes:

1.

The Company’s shares of common stock are listed on the First Section of the Tokyo Stock Exchange in Japan.

2.

The number of shares issued as of the filing date of this Quarterly Securities Report does not include shares issued upon the exercise of stock acquisition rights (“SARs”) during March 2015, the month in which this Quarterly Securities Report (Shihanki Houkokusho) was filed.

*

3.

The Company cancelled the listing of the Company’s shares of common stock on the London Stock Exchange on August 29, 2014.

 

ii) Stock Acquisition Rights

 

 

 

Stock acquisition rights (outstanding as of December 31, 2014)

Name (Date of resolution of the Board of Directors)	Number of  SARs issued	Number of shares of common stock to be issued or transferred
The twenty-eighth series of Common Stock Acquisition Rights (October 30, 2014)	8,804	880,400
The twenty-ninth series of Common Stock Acquisition Rights (October 30, 2014)	10,120	1,012,000

 

 

iii) Status of the Exercise of Moving Strike Convertible Bonds

Not applicable.

 

iv) Description of Rights Plan 

Not applicable.

 

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

Period	Change in the total number of shares issued	Balance of the total number of shares issued	Change in the amount of common stock	Balance of the amount of common stock	Change in the legal capital surplus	Balance of the legal capital surplus
	(Thousands)	(Thousands)	(Yen in Millions)	(Yen in Millions)	(Yen in Millions)	(Yen in Millions)
From October 1 to December 31, 2014	7,980	1,157,669	3,998	700,906	3,998	914,599

Notes:

1.

The increase is due to the exercise of SARs (including the exercise of stock acquisition rights of the Zero Coupon Convertible Bonds).

2.

Upon the exercise of SARs during the period from January 1, 2015 to February 28, 2015, the total number of shares issued increased by 11,879 thousand shares, the amount of common stock and the legal capital surplus increased by 5,849 million yen, respectively.

 

 

vi) Status of Major Shareholders

(As of December 31, 2014)

Name	Address	Number of shares held (Thousands)	Percentage of shares held to total shares issued (%)
Citibank As Depositary Bank For Depositary Receipt Holders *1 (Local Custodian: The Bank of Tokyo-Mitsubishi UFJ, Ltd.)	New York, U.S.A. (2-7-1, Marunouchi, Chiyoda-ku, Tokyo)	129,834	11.22
The Master Trust Bank of Japan, Ltd. (Trust account) *2	2-11-3, Hamamatsu-cho, Minato-ku, Tokyo	51,290	4.43
Japan Trustee Services Bank, Ltd. (Trust account) *2	1-8-11, Harumi, Chuo-ku, Tokyo	50,856	4.39
Goldman, Sachs & Co. Reg *3 (Local Custodian: Goldman Sachs Japan Co., Ltd.)	New York, U.S.A. (Roppongi Hills Mori Tower, 6-10-1, Roppongi, Minato-ku, Tokyo)	23,149	2.00
State Street Bank and Trust Company *3 (Local Custodian: The Hongkong and Shanghai Banking Corporation Limited)	Boston, U.S.A. (3-11-1, Nihonbashi, Chuo-ku, Tokyo)	22,781	1.97
The Bank of New York Mellon SA/NV 10 *3 (Local Custodian: The Bank of Tokyo-Mitsubishi UFJ, Ltd.)	Brussels, Belgium (2-7-1, Marunouchi, Chiyoda-ku, Tokyo)	13,851	1.20
Japan Trustee Services Bank, Ltd. (Trust account 1) *2	1-8-11, Harumi, Chuo-ku, Tokyo	13,373	1.16
Japan Trustee Services Bank, Ltd. (Trust account 5) *2	1-8-11, Harumi, Chuo-ku, Tokyo	13,373	1.16
State Street Bank West Client - Treaty *3 (Local Custodian: Mizuho Bank, Ltd.)	North Quincy, U.S.A. (4-16-13, Tsukishima, Chuo-ku, Tokyo)	13,323	1.15
Japan Trustee Services Bank, Ltd. (Trust account 6) *2	1-8-11, Harumi, Chuo-ku, Tokyo	13,291	1.15
Total		345,120	29.81

Notes:

*1.

Citibank as Depositary Bank for Depositary Receipt Holders is the nominee of Citibank. On October 16, 2014, the Depositary for holders of the Company’s American depositary receipts was changed from JPMorgan Chase Bank, N.A. to Citibank, N.A.

*2.

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

*3.

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

4.

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

 

Name	Number of shares held (Thousands)	Percentage of shares held to total shares issued (%)
BlackRock Japan Co., Ltd.	52,314	5.01

 

 

vii) Status of Voting Rights 

1) Shares Issued

(As of December 31, 2014)

Classification	Number of shares of common stock	Number of voting rights  (Units)	Description
Shares without voting rights	—	—	—
Shares with restricted voting rights (Treasury stock, etc.)	—	—	—
Shares with restricted voting rights (Others)	—	—	—
Shares with full voting rights (Treasury stock, etc.)	1,019,400	—	—
Shares with full voting rights (Others)	1,154,333,600	11,543,336	—
Shares constituting less than one full unit	2,315,727	—	Shares constituting less than one full unit (100 shares)
Total number of shares issued	1,157,668,727	—	—
Total voting rights held by all shareholders	—	11,543,336	—

Note:

Included in “Shares with full voting rights (Others)” under “Number of shares of common stock” are 19,500 shares of common stock held under the name of Japan Securities Depository Center, Incorporated. Also included in “Shares with full voting rights (Others)” under “Number of voting rights (Units)” are 195 units of voting rights relating to the shares of common stock with full voting rights held under the name of Japan Securities Depository Center, Incorporated.

 

2) Treasury Stock, Etc.

(As of December 31, 2014)

Name of shareholder	Address of shareholder	Number of shares held under own name	Number of shares held under the names of others	Total number of shares held	Percentage of shares held to total shares issued (%)
Sony Corporation (Treasury stock)	1-7-1, Konan, Minato-ku, Tokyo	1,019,400	—	1,019,400	0.09
Total	—	1,019,400	—	1,019,400	0.09

Note:

In addition to the 1,019,400 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, 2014 to the filing date of this Quarterly Securities Report (Shihanki Houkokusho) is as follows:

 

Retired Corporate Executive Officer

  

Title	Position	Name	Date of Retirement
Corporate Executive Officer	Executive Vice President  (Officer in charge of Mobile Business)	Kunimasa Suzuki	November 16, 2014

 

 

It is planned that the following persons will be appointed as follows as of April 1, 2015 and re-appointed as of the date of the Ordinary General Meeting of Shareholders which is scheduled to be held in June 2015. 

 

Newly Appointed Corporate Executive Officers (Planned)

 

Title	Position	Name	Date of Birth	Prior and Current Position		Term	Number of shares held	Appointment Date (Planned)
Corporate Executive Officer	Executive Vice President (Officer in charge of Manufacturing, Logistics, Procurement, Quality and Environmental Platform)	Masashi Imamura	January 8, 1957	1979.4	Joined Sony Corporation	*	—	April 1, 2015
				2009.6	SVP, Corporate Executive,
					Sony Corporation
					President, Personal Imaging & Sound Business Group, Sony Corporation
				2011.8	President, Home Entertainment Business Group, Sony Corporation
				2012.4	President, Home Entertainment & Sound Business Group, Sony Corporation
				2014.7	Group Executive, Sony Corporation (Present)
					Representative Director and President, Sony Visual Products Inc. (Present)
				2015.4	Executive Vice President,
					Corporate Executive Officer, Sony Corporation (Planned)
					Officer in charge of Manufacturing, Logistics, Procurement, Quality and Environmental Platform
					(Planned)

 

 

 

 

Corporate Executive Officer	Executive Vice President (Officer in charge of Imaging Products & Solutions Business)	Shigeki Ishizuka	November 14, 1958	1981.4	Joined Sony Corporation	*	—	April 1, 2015
				2004.8	Managing Director, Corporate Executive, Sony EMCS Corporation
				2007.6	SVP, Corporate Executive, Sony Corporation (Present)
				2009.6	President, Device Solutions Business Group, Sony Corporation
				2012.4	President, Digital Imaging Business Group, Sony Corporation (Present)
				2013.7	Deputy President of Imaging Products and Solutions Sector, Sony Corporation (Present)
				2015.4	Executive Vice President,
					Corporate Executive Officer, Sony Corporation (Planned)
					Officer in charge of Imaging Products & Solutions Business (Planned)

 

Note: * The term of office will expire at the conclusion of the first meeting of the Board of Directors held immediately after the conclusion of the Ordinary General Meeting of Shareholders held for the fiscal year ending March 31, 2015.

 

Retiring Corporate Executive Officers (Planned)

 

Title	Position	Name	Date of Retirement  (Planned)
Corporate Executive Officer	Executive Vice President (Officer in charge of Imaging Products & Solutions Business and Disc Manufacturing Business)	Shoji Nemoto	April 1, 2015
Corporate Executive Officer	Executive Vice President (Officer in charge of Medical Business)	Tadashi Saito	The date of the Ordinary General Meeting of Shareholders which is scheduled to be held in June 2015
Corporate Executive Officer	Executive Vice President (Officer in charge of Human Resources and General Affairs)	Kunitaka Fujita	The date of the Ordinary General Meeting of Shareholders which is scheduled to be held in June 2015

 

 

Change in Position of Corporate Executive Officers (Planned)

 

New Title and Position		Former Title and Position		Name	Date of Change (Planned)
Representative Corporate Executive Officer	Executive Deputy President and CFO	Representative Corporate Executive Officer	EVP (CFO)	Kenichiro Yoshida	April 1, 2015
Corporate Executive Officer	Executive Deputy President (Officer in charge of Device Solutions Business and RDS Platform)	Corporate Executive Officer	Executive Vice President (Officer in charge of Device Solutions Business and RDS Platform)	Tomoyuki Suzuki	April 1, 2015

  

 

IV Financial Statements

			Page
(1) Consolidated Financial Statements			19
	(i)	Consolidated Balance Sheets	19
	(ii)	Consolidated Statements of Income	21
	(iii)	Consolidated Statements of Comprehensive Income	23
	(iv)	Consolidated Statements of Cash Flows	24
(2) Other Information			49

  

(1) Consolidated Financial Statements

 

(i) Consolidated Balance Sheets (Unaudited)

Sony Corporation and Consolidated Subsidiaries

		Yen in millions
		At March 31, 2014				At December 31, 2014
ASSETS
Current assets:
Cash and cash equivalents			1,046,466				933,498
Marketable securities			832,566				943,188
Notes and accounts receivable, trade			946,553				1,392,582
Allowance for doubtful accounts and sales returns			(75,513	)			(105,938	)
Inventories			733,943				781,504
Other receivables			224,630				263,847
Deferred income taxes			53,068				54,985
Prepaid expenses and other current assets			443,173				522,583
Total current assets			4,204,886				4,786,249
Film costs			275,799				338,354
Investments and advances:
Affiliated companies			181,263				181,988
Securities investments and other			7,737,748				8,127,555
			7,919,011				8,309,543
Property, plant and equipment:
Land			125,890				127,005
Buildings			674,841				705,432
Machinery and equipment			1,705,774				1,793,587
Construction in progress			39,771				36,114
			2,546,276				2,662,138
Less – Accumulated depreciation			1,796,266				1,900,517
			750,010				761,621
Other assets:
Intangibles, net			675,663				672,331
Goodwill			691,803				567,713
Deferred insurance acquisition costs			497,772				520,497
Deferred income taxes			105,442				86,621
Other			213,334				234,418
			2,184,014				2,081,580
Total assets			15,333,720				16,277,347

(Continued on following page.)

 

 

Consolidated Balance Sheets (Unaudited)

 

		Yen in millions
		At March 31, 2014				At December 31, 2014
LIABILITIES
Current liabilities:
Short-term borrowings			111,836				159,220
Current portion of long-term debt			265,918				174,748
Notes and accounts payable, trade			712,829				790,698
Accounts payable, other and accrued expenses			1,175,413				1,386,071
Accrued income and other taxes			81,842				174,246
Deposits from customers in the banking business			1,890,023				1,863,644
Other			545,753				623,670
Total current liabilities			4,783,614				5,172,297
Long-term debt			916,648				716,489
Accrued pension and severance costs			284,963				285,524
Deferred income taxes			410,896				446,132
Future insurance policy benefits and other			3,824,572				4,046,188
Policyholders’ account in the life insurance business			2,023,472				2,218,027
Other			302,299				313,237
Total liabilities			12,546,464				13,197,894
Redeemable noncontrolling interest			4,115				5,297
Commitments and contingent liabilities
EQUITY
Sony Corporation’s stockholders’ equity: Common stock, no par value – At March 31, 2014–Shares authorized: 3,600,000,000, shares issued: 1,044,707,767 At December 31, 2014–Shares authorized: 3,600,000,000, shares issued: 1,157,668,727			646,654				700,906
Additional paid-in capital			1,127,090				1,179,452
Retained earnings			940,262				920,615
Accumulated other comprehensive income –
Unrealized gains on securities, net			127,509				161,287
Pension liability adjustment			(180,039	)			(179,995	)
Foreign currency translation adjustments			(399,055	)			(296,703	)
			(451,585	)			(315,411	)
Treasury stock, at cost
Common stock At March 31, 2014–1,026,618 shares At December 31, 2014–1,019,408 shares			(4,284)				(4,184	)
			2,258,137				2,481,378
Noncontrolling interests			525,004				592,778
Total equity			2,783,141				3,074,156
Total liabilities and equity			15,333,720				16,277,347

The accompanying notes are an integral part of these statements.

 

(ii) Consolidated Statements of Income (Unaudited)

Sony Corporation and Consolidated Subsidiaries

		Yen in millions
		Nine months ended December 31
		2013				2014
Sales and operating revenue:
Net sales			5,048,906				5,385,450
Financial services revenue			773,498				817,153
Other operating revenue			73,939				75,565
			5,896,343				6,278,168
Costs and expenses:
Cost of sales			3,839,922				3,978,983
Selling, general and administrative			1,256,185				1,302,932
Financial services expenses			641,684				673,884
Other operating expense, net			19,475				159,750
			5,757,266				6,115,549
Equity in net income (loss) of affiliated companies			(781	)			3,702
Operating income			138,296				166,321
Other income:
Interest and dividends			11,081				9,160
Gain on sale of securities investments, net			8,044				8,628
Other			11,229				2,092
			30,354				19,880
Other expenses:
Interest			18,280				18,401
Foreign exchange loss, net			4,300				15,175
Other			7,241				6,375
			29,821				39,951
Income before income taxes			138,829				146,250
Income taxes			83,391				112,286
Net income			55,438				33,964
Less - Net income attributable to noncontrolling interests			45,560				53,154
Net income (loss) attributable to Sony Corporation’s stockholders			9,878				(19,190	)

 

		Yen
		Nine months ended December 31
		2013				2014
Per share data:		-				-
Net income (loss) attributable to Sony Corporation’s stockholders
– Basic			9.66				(17.50	)
– Diluted			8.45				(17.50	)

The accompanying notes are an integral part of these statements.

  

 

Consolidated Statements of Income (Unaudited)

Sony Corporation and Consolidated Subsidiaries

		Yen in millions
		Three months ended December 31
		2013				2014
Sales and operating revenue:
Net sales			2,098,930				2,239,485
Financial services revenue			280,833				303,211
Other operating revenue			30,926				24,053
			2,410,689				2,566,749
Costs and expenses:
Cost of sales			1,585,927				1,659,261
Selling, general and administrative			458,814				473,282
Financial services expenses			233,791				251,375
Other operating expense, net			44,956				608
			2,323,488				2,384,526
Equity in net income (loss) of affiliated companies			1,669				(128	)
Operating income			88,870				182,095
Other income:
Interest and dividends			1,637				3,408
Gain on sale of securities investments, net			7,428				1,042
Other			1,858				10
			10,923				4,460
Other expenses:
Interest			4,232				5,942
Foreign exchange loss, net			4,747				10,607
Other			2,507				2,178
			11,486				18,727
Income before income taxes			88,307				167,828
Income taxes			45,584				56,162
Net income			42,723				111,666
Less - Net income attributable to noncontrolling interests			16,341				21,695
Net income attributable to Sony Corporation’s stockholders			26,382				89,971

 

		Yen
		Three months ended December 31
		2013				2014
Per share data:		-				-
Net income attributable to Sony Corporation’s stockholders
– Basic			25.43				78.12
– Diluted			22.58				76.96

The accompanying notes are an integral part of these statements. 

 

  

 

(iii) Consolidated Statements of Comprehensive Income (Unaudited) 

Sony Corporation and Consolidated Subsidiaries

		Yen in millions
		Nine months ended December 31
		2013				2014
Net income			55,438				33,964
Other comprehensive income, net of tax ―
Unrealized gains on securities			12,672				49,390
Unrealized gains on derivative instruments			394				—
Pension liability adjustment			(6,711	)			(2	)
Foreign currency translation adjustments			195,093				105,768
Total comprehensive income			256,886				189,120
Less – Comprehensive income attributable to noncontrolling interests			45,162				72,136
Comprehensive income attributable to Sony Corporation’s stockholders			211,724				116,984

 

		Yen in millions
		Three months ended December 31
		2013				2014
Net income			42,723				111,666
Other comprehensive income, net of tax ―
Unrealized gains on securities			10,126				34,324
Unrealized losses on derivative instruments			(201	)			—
Pension liability adjustment			(3,527	)			(752	)
Foreign currency translation adjustments			131,298				75,051
Total comprehensive income			180,419				220,289
Less – Comprehensive income attributable to noncontrolling interests			19,563				33,754
Comprehensive income attributable to Sony Corporation’s stockholders			160,856				186,535

The accompanying notes are an integral part of these statements.

  

 

(iv) Consolidated Statements of Cash Flows (Unaudited)

Sony Corporation and Consolidated Subsidiaries

		Yen in millions
		Nine months ended December 31
		2013				2014
Cash flows from operating activities:
Net income			55,438				33,964
Adjustments to reconcile net income to net cash
provided by operating activities–
Depreciation and amortization, including amortization of deferred insurance acquisition costs			277,752				251,080
Amortization of film costs			191,773				190,892
Stock-based compensation expense			842				909
Accrual for pension and severance costs, less payments			(5,914	)			(7,694	)
Other operating expense, net			19,475				159,750
Gain on sale or devaluation of securities investments, net			(7,930	)			(8,193	)

Gain on revaluation of marketable securities held in the financial services business for trading purposes, net			(82,837	)			(88,299	)
Gain on revaluation or impairment of securities investments held in the financial services business, net			(5,606	)			(2,363	)
Deferred income taxes			(16,436	)			16,585
Equity in net loss of affiliated companies, net of dividends			2,647				1,633
Changes in assets and liabilities:
Increase in notes and accounts receivable, trade			(338,694	)			(318,401	)
(Increase) decrease in inventories			(77,988	)			20,366
Increase in film costs			(218,943	)			(205,190	)
Increase in notes and accounts payable, trade			263,032				34,943
Increase in accrued income and other taxes			54,887				46,113
Increase in future insurance policy benefits and other			323,244				355,114
Increase in deferred insurance acquisition costs			(58,240	)			(58,352	)
Increase in marketable securities held in the financial services business for trading purposes			(24,049	)			(40,051	)
Increase in other current assets			(123,873	)			(33,385	)
Increase in other current liabilities			86,985				124,037
Other			(72,057	)			(90,526	)
Net cash provided by operating activities			243,508				382,932

(Continued on following page.)

 

 

Consolidated Statements of Cash Flows (Unaudited)

		Yen in millions
		Nine months ended December 31
		2013				2014
Cash flows from investing activities:
Payments for purchases of fixed assets			(214,335	)			(145,813	)
Proceeds from sales of fixed assets			93,370				31,631
Payments for investments and advances by financial services business			(729,272	)			(678,116	)
Payments for investments and advances (other than financial services business)			(11,047	)			(13,951	)
Proceeds from sales or return of investments and collections of advances by financial services business			345,697				417,799
Proceeds from sales or return of investments and collections of advances (other than financial services business)			63,514				37,096
Other			15,265				(12,436	)
Net cash used in investing activities			(436,808	)			(363,790	)
Cash flows from financing activities:
Proceeds from issuance of long-term debt			179,225				15,203
Payments of long-term debt			(148,877	)			(243,652	)
Increase in short-term borrowings, net			19,917				43,353
Increase in deposits from customers in the financial services business, net			166,329				30,605
Dividends paid			(25,604	)			(13,106	)
Other			(39,952	)			(16,978	)
Net cash provided by (used in) financing activities			151,038				(184,575	)
Effect of exchange rate changes on cash and cash equivalents			65,149				52,465
Net increase (decrease) in cash and cash equivalents			22,887				(112,968	)
Cash and cash equivalents at beginning of the fiscal year			826,361				1,046,466
Cash and cash equivalents at end of the period			849,248				933,498

The accompanying notes are an integral part of these statements.

 

 

Index to Notes to Consolidated Financial Statements

Sony Corporation and Consolidated Subsidiaries

  

Notes to Consolidated Financial Statements			Page
	1.	Summary of significant accounting policies	27
	2.	Marketable securities and securities investments	29
	3.	Sale and leaseback transactions	29
	4.	Impairment of goodwill related to mobile communications business	30
	5.	Fair value measurements	31
	6.	Supplemental equity and comprehensive income information	33
	7.	Reconciliation of the differences between basic and diluted EPS	35
	8.	Acquisition of CSC Media Group	36
	9.	Commitments, contingent liabilities and other	37
	10.	Business segment information	39
	11.	Subsequent events	49

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

Sony Corporation and Consolidated Subsidiaries

 

1.

Summary of significant accounting policies

 

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

 

(1) Recently adopted accounting pronouncements:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Income Taxes -

 

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

 

 

(3) Reclassifications:

 

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

 

(4) Revisions:

 

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

  

		Yen in millions
		Nine months ended December 31, 2013
		As previously reported						As adjusted
Consolidated Statements of Income
Financial services revenue					778,172							773,498
Financial services expenses					643,201							641,684
Net income					57,595							55,438
Consolidated Statements of Comprehensive Income
Unrealized gains on securities					12,863							12,672
Comprehensive income attributable to Sony Corporation’s stockholders					213,132							211,724
Consolidated Statements of Cash Flows
Increase in future insurance policy benefits and other					323,906							323,244
Increase in deposits from customers in the financial services business, net					161,656							166,329

   

		Yen in millions
		Three months ended December 31, 2013
		As previously reported						As adjusted
Consolidated Statements of Income
Financial services revenue					282,963				280,833
Financial services expenses					234,459				233,791
Net income					43,719				42,723
Consolidated Statements of Comprehensive Income
Unrealized gains on securities					9,987				10,126
Comprehensive income attributable to Sony Corporation’s stockholders					161,370				160,856

 

 

(5) Out-of-period adjustment:

 

For the nine months ended December 31, 2014, Sony recorded an out-of-period adjustment to correct an error in the amounts of revenue and certain capitalizable assets being recorded at a subsidiary. The error began in 2012 and continued until it was identified by Sony during the nine months ended December 31, 2014. The adjustment, which related entirely to All Other, impacted net sales, cost of sales, and selling, general and administrative expenses, and, in the aggregate, decreased income before income taxes in the consolidated statements of income by 5,104 million yen for the nine months ended December 31, 2014. Sony determined that the adjustment was not material to the consolidated financial statements for the three and nine months ended December 31, 2014 or any prior annual or interim periods.

 

 

2. Marketable securities and securities investments

 

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

   

		Yen in millions
		March 31, 2014																December 31, 2014
		Cost				Gross unrealized gains				Gross unrealized losses				Fair value				Cost				Gross unrealized gains				Gross unrealized losses				Fair value
Available-for-sale:
Debt securities:
Japanese national government bonds			1,130,397				113,684				(28	)			1,244,053				1,059,091				159,662				(22	)			1,218,731
Japanese local government bonds			62,670				468				(7	)			63,131				65,225				682				(9	)			65,898
Japanese corporate bonds			168,275				984				(8	)			169,251				123,499				1,018				(2	)			124,515
Foreign government bonds			27,587				3,684				(17	)			31,254				35,081				7,480				(5	)			42,556
Foreign corporate bonds			434,570				16,547				(182	)			450,935				457,107				17,064				(330	)			473,841
			1,823,499				135,367				(242	)			1,958,624				1,740,003				185,906				(368	)			1,925,541
Equity securities			84,074				91,977				(34	)			176,017				72,650				114,943				(1,426	)			186,167
Held-to-maturity
securities:
Japanese national government bonds *			4,398,018				418,845				(3	)			4,816,860				4,703,019				928,516				—				5,631,535
Japanese local government bonds			6,222				373				—				6,595				5,474				474				—				5,948
Japanese corporate  　bonds			28,030				2,705				—				30,735				27,564				5,005				—				32,569
Foreign government bonds			16,359				847				(1	)			17,205				30,511				8,921				—				39,432
Foreign corporate bonds			56,284				19				—				56,303				58,721				26				—				58,747
			4,504,913				422,789				(4	)			4,927,698				4,825,289				942,942				—				5,768,231
Total			6,412,486				650,133				(280	)			7,062,339				6,637,942				1,243,791				(1,794	)			7,879,939

 

* Held-to-maturity securities include 63,674 million yen of pledged Japanese national government bonds as collateral for transactions with short-term repurchase agreement.

 

3. Sale and leaseback transactions

 

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

 

 

4. Impairment of goodwill related to mobile communications business

 

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

 

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

 

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

 

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

 

 

5. Fair value measurements

 

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

 

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

 

 

 

		Yen in millions
		December 31, 2014
																		Presentation in the consolidated balance sheets
		Level 1				Level 2				Level 3				Total				Marketable securities		Securities investments and other				Other current assets/ liabilities				Other noncurrent assets/ liabilities
Assets:
Trading securities			429,427				314,282				—				743,709			743,709			—				—				—
Available-for-sale securities
Debt securities
Japanese national government bonds			—				1,218,731				—				1,218,731			5,782			1,212,949				—				—
Japanese local government bonds			—				65,898				—				65,898			1,256			64,642				—				—
Japanese corporate bonds			—				121,501				3,014				124,515			41,537			82,978				—				—
Foreign corporate bonds			—				462,810				11,031				473,841			147,064			326,777				—				—
Other			—				42,556				—				42,556			56			42,500				—				—
Equity securities			186,050				117				—				186,167			—			186,167				—				—
Other investments *1			9,579				4,250				77,376				91,205			—			91,205				—				—
Derivative assets *2, *3			—				39,225				—				39,225			—			—				38,246				979
Total assets			625,056				2,269,370				91,421				2,985,847			939,404			2,007,218				38,246				979
Liabilities:
Derivative liabilities*2,*3			—				46,486				—				46,486			—			—				22,910				23,576
Total liabilities			—				46,486				—				46,486			—			—				22,910				23,576

 

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

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

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

 

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

 

 

6. Supplemental equity and comprehensive income information

 

(1) Stockholders’ Equity

 

A reconciliation of the beginning and ending carrying amounts of Sony Corporation’s stockholders’ equity, noncontrolling interests and the total equity for the nine months ended December 31, 2013 and 2014 are as follows:

 

						Yen in millions
		Sony Corporation’s stockholders’ equity				Noncontrolling interests				Total equity
Balance at March 31, 2013			2,192,262				479,742				2,672,004
Exercise of stock acquisition rights			100								100
Conversion of zero coupon convertible bonds			25,520								25,520
Stock-based compensation			689								689
Comprehensive income:
Net income			9,878				45,560				55,438
Other comprehensive income, net of tax ―
Unrealized gains (losses) on securities			14,122				(1,450	)			12,672
Unrealized gains on derivative instruments			394								394
Pension liability adjustment			(6,723	)			12				(6,711	)
Foreign currency translation adjustments			194,053				1,040				195,093
Total comprehensive income			211,724				45,162				256,886
Dividends declared			(12,970	)			(11,837	)			(24,807	)
Transactions with noncontrolling interests shareholders and other			713				(781	)			(68	)
Balance at December 31, 2013			2,418,038				512,286				2,930,324

 

						Yen in millions
		Sony Corporation’s stockholders’ equity				Noncontrolling interests				Total equity
Balance at March 31,2014			2,258,137				525,004				2,783,141
Exercise of stock acquisition rights			703								703
Conversion of zero coupon convertible bonds			107,660								107,660
Stock-based compensation			845								845
Comprehensive income:
Net income (loss)			(19,190	)			53,154				33,964
Other comprehensive income, net of tax ―
Unrealized gains on securities			33,778				15,612				49,390
Pension liability adjustment			44				(46	)			(2	)
Foreign currency translation adjustments			102,352				3,416				105,768
Total comprehensive income			116,984				72,136				189,120
Dividends declared							(13,075	)			(13,075	)
Transactions with noncontrolling interests shareholders and other			(2,951	)			8,713				5,762
Balance at December 31, 2014			2,481,378				592,778				3,074,156

  

There was no material effect of changes in Sony Corporation’s ownership interest in its subsidiaries on Sony Corporation’s stockholders’ equity for the nine months ended December 31, 2013 and 2014.

 

 

(2) Other Comprehensive Income

 

Changes in accumulated other comprehensive income, net of tax by component for the nine months ended December 31, 2013 and 2014 are as follows:

 

		Yen in millions
		Unrealized gains (losses) on securities				Unrealized gains (losses) on derivative instruments				Pension liability adjustment				Foreign currency translation adjustments				Total
Balance at March 31, 2013			109,079				(742	)			(191,816	)			(556,016	)			(639,495	)
Other comprehensive income (loss) before reclassifications			17,894				103				(8,670	)			195,093				204,420
Amounts reclassified out of accumulated other comprehensive income			(5,222	)			291				1,959								(2,972	)
Net current-period other comprehensive income (loss)			12,672				394				(6,711	)			195,093				201,448
Less: Other comprehensive income (loss) attributable to noncontrolling interests			(1,450	)							12				1,040				(398	)
Balance at December 31, 2013			123,201				(348	)			(198,539	)			(361,963	)			(437,649	)

 

		Yen in millions
		Unrealized gains (losses) on securities				Pension liability adjustment				Foreign currency translation adjustments				Total
Balance at March 31, 2014			127,509				(180,039	)			(399,055	)			(451,585	)
Other comprehensive income (loss) before reclassifications			63,184				(1,058	)			105,768				167,894
Amounts reclassified out of accumulated other comprehensive income			(13,794	)			1,056								(12,738	)
Net current-period other comprehensive income (loss)			49,390				(2	)			105,768				155,156
Less: Other comprehensive income (loss) attributable to noncontrolling interests			15,612				(46	)			3,416				18,982
Balance at December 31, 2014			161,287				(179,995	)			(296,703	)			(315,411	)

  

 

 

 

  

 

7. Reconciliation of the differences between basic and diluted EPS

 

Reconciliation of the differences between basic and diluted net income (loss) attributable to Sony Corporation’s stockholders per share (“EPS”) for the nine and three months ended December 31, 2013 and 2014 is as follows:

  

		Yen in millions
		Nine months ended December 31
		2013				2014
Net income (loss) attributable to Sony Corporation’s stockholders for basic and diluted EPS computation			9,878				(19,190	)

  

		Thousands of shares
Weighted-average shares outstanding			1,022,810				1,096,392
Effect of dilutive securities:
Stock acquisition rights			862				—
Convertible bonds			144,877				—
Weighted-average shares for diluted EPS computation			1,168,549				1,096,392

 

		Yen
Basic EPS			9.66				(17.50	)
Diluted EPS			8.45				(17.50	)

  

Potential shares of common stock which were excluded from the computation of diluted EPS for the nine months ended December 31, 2013 and 2014 were 16,727 thousand shares and 29,815 thousand shares, respectively. The potential shares related to stock acquisition rights were excluded as anti-dilutive for the fiscal year ended December 31, 2013 as the exercise price for those shares was in excess of the average market value of Sony’s common stock for the fiscal year. All potential shares were excluded as anti-dilutive for the nine months ended December 31, 2014 due to Sony incurring a net loss attributable to Sony Corporation’s stockholders for the period.

  

		Yen in millions
		Three months ended December 31
		2013				2014
Net income attributable to Sony Corporation’s stockholders for basic and diluted EPS computation			26,382				89,971

 

  

		Thousands of shares
Weighted-average shares outstanding			1,037,640				1,151,770
Effect of dilutive securities:
Stock acquisition rights			810				961
Convertible bonds			130,073				16,259
Weighted-average shares for diluted EPS computation			1,168,523				1,168,990

 

		Yen
Basic EPS			25.43				78.12
Diluted EPS			22.58				76.96

 

Potential shares of common stock which were excluded from the computation of diluted EPS for the three months ended December 31, 2013 and 2014 were 16,727 thousand shares and 14,902 thousand shares, respectively. The potential shares related to stock acquisition rights were excluded as anti-dilutive for the three months ended December 31, 2013 and 2014 when the exercise price for those shares were in excess of the average market value of Sony’s common stock for these periods.

 

8. Acquisition of CSC Media Group

 

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

 

 

9.   Commitments, contingent liabilities and other

 

(1) Loan commitments

 

Subsidiaries in the Financial Services segment have entered into loan agreements with their customers in accordance with the condition of the contracts. As of December 31, 2014, the total unused portion of the lines of credit extended under these contracts was 26,107 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 December 31, 2014 amounted to 336,731 million yen. The major components of these commitments are as follows:

 

Certain subsidiaries in the Pictures segment have entered into agreements with creative talent for the development and production of motion pictures and television programming as well as agreements with third parties to acquire completed motion pictures, or certain rights therein, and to acquire the rights to broadcast certain live action sporting events. These agreements cover various periods mainly within five years. As of December 31, 2014, these subsidiaries were committed to make payments under such contracts of 131,546 million yen.

 

Certain subsidiaries in the Music segment have entered into long-term contracts with recording artists, songwriters and companies for the future production, distribution and/or licensing of music product. These contracts cover various periods mainly within five years. As of December 31, 2014, these subsidiaries were committed to make payments of 69,408 million yen under such long-term contracts.

 

Sony has entered into long-term sponsorship contracts related to advertising and promotional rights. These contracts cover various periods mainly within five years. As of December 31, 2014, Sony has committed to make payments of 6,725 million yen under such long-term contracts.

 

  (3) Litigation

 

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

 

Beginning in early 2011, the network services of PlayStation®Network, Qriocity™, Sony Online Entertainment LLC and websites of other subsidiaries came under cyber-attack. As of March 17, 2015, Sony has not received any confirmed reports of customer identity theft issues or misuse of credit cards from such cyber-attacks. However, in connection with certain of these matters, Sony has received inquiries from authorities in a number of jurisdictions, including formal and/or informal requests for information from Attorneys General from a number of states in the United States. Additionally, Sony Corporation and/or certain of its subsidiaries have been named in a number of purported class actions in certain jurisdictions, including the United States. A proposed settlement of the U.S. class action suits has received preliminary court approval, and is subject to final approval by the court. A non-U.S. class action suit remains pending. Based on the stage of these inquiries and proceedings, it is not possible to estimate the amount of loss or range of possible loss, if any, that might result from adverse judgments, settlements or other resolution of all of these matters.

 

In October 2009, Sony Corporation’s U.S. subsidiary, Sony Optiarc America Inc., received a subpoena from the DOJ seeking information about its optical disk drive business. Sony understands that the European Commission and certain other governmental agencies outside the United States also opened investigations of competition in the optical disk drives market. The DOJ has notified Sony that it has closed its investigation, and Sony understands that the investigations by several other agencies have now ended, but the European Commission and one other agency continue to investigate. A number of direct and indirect purchaser lawsuits, including class actions, were filed in certain jurisdictions, including the United States, in which the plaintiffs alleged that Sony Corporation and certain of its subsidiaries violated antitrust laws and sought recovery of damages and other remedies. In October 2014, the United States District Court hearing the U.S. class actions denied motions for class certification in both the direct and indirect purchaser class actions. The class plaintiffs have filed petitions to appeal these rulings, and in January 2015, the appellate court denied the petitions to appeal. The civil actions continue. Based on the investigations and cases, it is not possible to estimate the amount of loss or range of possible loss, if any, that might ultimately result from adverse judgments, settlements or other resolution of the investigations and cases.

 

 

In November 2014, Sony Corporation’s U.S. subsidiary, Sony Pictures Entertainment Inc. (“SPE”), identified a cyberattack on SPE’s network and IT infrastructure. As a result of the cyberattack, Sony understands that certain confidential information of SPE was stolen and posted on the Internet. In connection with such stolen information posted on the Internet, SPE has been named in several purported class action suits in the United States brought by former employees of SPE. Based on the stage of these proceedings, it is not possible to estimate the amount of loss or range of possible loss, if any, that might result from adverse judgments, settlements or other resolution of these proceedings.

 

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

 

(4) Guarantees

 

Sony has issued guarantees that contingently require payments to guaranteed parties if certain specified events or conditions occur. The maximum potential amount of future payments under these guarantees as of December 31, 2014 amounted to 45,171 million yen.

 

Sony has agreed to repay the outstanding principal plus accrued interest up to a maximum of 280 million U.S. dollars to the creditor of the third-party investor of Sony’s U.S. based music publishing subsidiary should the third-party investor default on its obligation. The obligation of the third-party investor is collateralized by its 50% interest in Sony’s music publishing subsidiary. Should Sony have to make a payment under the terms of the guarantee, Sony would assume the creditor’s rights to the underlying collateral. As of December 31, 2014, the fair value of the collateral exceeded 280 million U.S. dollars.

 

 

10. Business segment information

 

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

 

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

 

 
Business segments -

Sales and operating revenue:

		Yen in millions
		Nine months ended December 31
		2013				2014
Sales and operating revenue:
Mobile Communications -
Customers			923,270				1,051,605
Intersegment			22				57
Total			923,292				1,051,662
Game & Network Services -
Customers			677,210				1,016,364
Intersegment			78,268				82,182
Total			755,478				1,098,546
Imaging Products & Solutions -
Customers			551,645				541,717
Intersegment			2,812				2,534
Total			554,457				544,251
Home Entertainment & Sound -
Customers			941,238				979,356
Intersegment			1,746				2,052
Total			942,984				981,408
Devices -
Customers			447,828				557,577
Intersegment			155,094				167,107
Total			602,922				724,684
Pictures -
Customers			559,972				583,043
Intersegment			505				490
Total			560,477				583,533
Music -
Customers			363,807				388,904
Intersegment			7,788				8,321
Total			371,595				397,225
Financial Services -
Customers			773,498				817,153
Intersegment			3,671				4,316
Total			777,169				821,469
All Other -
Customers			616,736				308,614
Intersegment			60,389				73,114
Total			677,125				381,728
Corporate and elimination			(269,156	)			(306,338	)
Consolidated total			5,896,343				6,278,168

  

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

 

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

 

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

 

Corporate and elimination includes certain brand and patent royalty income.

 

 

		Yen in millions
		Three months ended December 31
		2013				2014
Sales and operating revenue:
Mobile Communications -
Customers			333,277				428,956
Intersegment			(39	)			25
Total			333,238				428,981
Game & Network Services -
Customers			417,043				499,242
Intersegment			37,894				32,295
Total			454,937				531,537
Imaging Products & Solutions -
Customers			197,196				200,429
Intersegment			867				612
Total			198,063				201,041
Home Entertainment & Sound -
Customers			403,741				412,744
Intersegment			287				562
Total			404,028				413,306
Devices -
Customers			157,399				231,696
Intersegment			53,858				61,188
Total			211,257				292,884
Pictures -
Customers			223,450				206,470
Intersegment			272				110
Total			223,722				206,580
Music -
Customers			141,901				160,757
Intersegment			2,764				2,853
Total			144,665				163,610
Financial Services -
Customers			280,833				303,211
Intersegment			1,217				1,715
Total			282,050				304,926
All Other -
Customers			245,746				116,185
Intersegment			24,877				28,127
Total			270,623				144,312
Corporate and elimination			(111,894	)			(120,428	)
Consolidated total			2,410,689				2,566,749

 

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

 

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

 

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

 

Corporate and elimination includes certain brand and patent royalty income.

 

 

Segment profit or loss:

 

		Yen in millions
		Nine months ended December 31
		2013				2014
Operating income (loss):
Mobile Communications			27,699				(165,485	)
Game & Network Services			(8,140	)			53,717
Imaging Products & Solutions			18,860				60,493
Home Entertainment & Sound			(2,319	)			40,913
Devices			(791	)			96,646
Pictures			10,244				13,009
Music			42,184				48,612
Financial Services			129,850				142,308
All Other			(34,212	)			(50,875	)
Total			183,375				239,338
Corporate and elimination			(45,079	)			(73,017	)
Consolidated operating income			138,296				166,321
Other income			30,354				19,880
Other expenses			(29,821	)			(39,951	)
Consolidated income before income taxes			138,829				146,250

 

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

 

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

 

Within the Home Entertainment & Sound (“HE&S”) segment, the operating income (loss) of Televisions, which primarily consists of LCD televisions, for the nine months ended December 31, 2013 and 2014 was (9,046) million yen and 22,094 million yen, respectively. The operating income (loss) of Televisions excludes restructuring charges which are included in the overall segment results and not allocated to product categories.

 

 

		Yen in millions
		Three months ended December 31
		2013				2014
Operating income (loss):
Mobile Communications			6,331				9,253
Game & Network Services			12,394				27,608
Imaging Products & Solutions			12,071				22,986
Home Entertainment & Sound			6,408				25,286
Devices			(23,515	)			54,537
Pictures			24,258				6,219
Music			21,717				25,411
Financial Services			46,353				50,850
All Other			(14,818	)			(14,280	)
Total			91,199				207,870
Corporate and elimination			(2,329	)			(25,775	)
Consolidated operating income			88,870				182,095
Other income			10,923				4,460
Other expenses			(11,486	)			(18,727	)
Consolidated income before income taxes			88,307				167,828

 

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

 

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

 

Within the HE&S segment, the operating income (loss) of Televisions, which primarily consists of LCD televisions, for the three months ended December 31, 2013 and 2014 was (4,992) million yen and 9,256 million yen, respectively. The operating income (loss) of Televisions excludes restructuring charges which are included in the overall segment results and not allocated to product categories.

 

 

Other Significant Items:

 

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

 

		Yen in millions
		Nine months ended December 31
Sales and operating revenue:		2013				2014
Mobile Communications			923,270				1,051,605
Game & Network Services			677,210				1,016,364
Imaging Products & Solutions
Digital Imaging Products			346,347				342,061
Professional Solutions			193,268				191,196
Other			12,030				8,460
Total			551,645				541,717
Home Entertainment & Sound
Televisions			614,585				685,303
Audio and Video			318,813				292,210
Other			7,840				1,843
Total			941,238				979,356
Devices
Semiconductors			263,471				362,587
Components			182,322				189,320
Other			2,035				5,670
Total			447,828				557,577
Pictures
Motion Pictures			288,736				302,688
Television Productions			149,581				138,452
Media Networks			121,655				141,903
Total			559,972				583,043
Music
Recorded Music			266,110				282,035
Music Publishing			45,109				49,329
Visual Media and Platform			52,588				57,540
Total			363,807				388,904
Financial Services			773,498				817,153
All Other			616,736				308,614
Corporate			41,139				33,835
Consolidated total			5,896,343				6,278,168

  

 

		Yen in millions
		Three months ended December 31
Sales and operating revenue:		2013				2014
Mobile Communications			333,277				428,956
Game & Network Services			417,043				499,242
Imaging Products & Solutions
Digital Imaging Products			126,212				126,361
Professional Solutions			66,070				70,658
Other			4,914				3,410
Total			197,196				200,429
Home Entertainment & Sound
Televisions			254,893				280,572
Audio and Video			143,865				131,073
Other			4,983				1,099
Total			403,741				412,744
Devices
Semiconductors			94,872				161,713
Components			61,658				67,525
Other			869				2,458
Total			157,399				231,696
Pictures
Motion Pictures			119,946				100,723
Television Productions			64,263				51,831
Media Networks			39,241				53,916
Total			223,450				206,470
Music
Recorded Music			107,379				122,211
Music Publishing			14,255				16,675
Visual Media and Platform			20,267				21,871
Total			141,901				160,757
Financial Services			280,833				303,211
All Other			245,746				116,185
Corporate			10,103				7,059
Consolidated total			2,410,689				2,566,749

 

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

 

 

		Yen in millions
		Nine months ended December 31
		2013				2014
Depreciation and amortization:
Mobile Communications			16,440				16,450
Game & Network Services			12,262				13,166
Imaging Products & Solutions			28,542				22,503
Home Entertainment & Sound			19,281				18,599
Devices			77,436				64,569
Pictures			13,406				14,497
Music			10,802				10,158
Financial Services, including deferred insurance acquisition costs			40,614				42,991
All Other			21,715				10,074
Total			240,498				213,007
Corporate			37,254				38,073
Consolidated total			277,752				251,080

 

		Yen in millions
		Nine months ended December 31, 2013
		Total net restructuring charges				Depreciation associated with restructured assets				Total
Restructuring charges and associated depreciation:
Mobile Communications			3,567				—				3,567
Game & Network Services			392				—				392
Imaging Products & Solutions			1,991				—				1,991
Home Entertainment & Sound			941				19				960
Devices			3,531				—				3,531
Pictures			1,149				—				1,149
Music			148				—				148
Financial Services			—				—				—
All Other and Corporate			13,927				458				14,385
Consolidated total			25,646				477				26,123

 

 

		Yen in millions
		Nine months ended December 31, 2014
		Total net restructuring charges				Depreciation associated with restructured assets				Total
Restructuring charges and associated depreciation:
Mobile Communications			1,825				22				1,847
Game & Network Services			76				—				76
Imaging Products & Solutions			513				—				513
Home Entertainment & Sound			580				—				580
Devices			3,565				16				3,581
Pictures			182				—				182
Music			1,377				—				1,377
Financial Services			—				—				—
All Other and Corporate			24,922				656				25,578
Consolidated total			33,040				694				33,734

 

		Yen in millions
		Three months ended December 31
		2013				2014
Depreciation and amortization:
Mobile Communications			5,519				5,571
Game & Network Services			4,395				4,740
Imaging Products & Solutions			9,220				7,243
Home Entertainment & Sound			6,053				6,356
Devices			25,576				21,967
Pictures			4,420				5,241
Music			3,611				3,391
Financial Services, including deferred insurance acquisition costs			11,111				13,770
All Other			7,139				3,382
Total			77,044				71,661
Corporate			11,752				12,672
Consolidated total			88,796				84,333

 

 

		Yen in millions
		Three months ended December 31, 2013
		Total net restructuring charges				Depreciation associated with restructured assets				Total
Restructuring charges and associated depreciation:
Mobile Communications			421				—				421
Game & Network Services			10				—				10
Imaging Products & Solutions			(169	)			—				(169	)
Home Entertainment & Sound			9				—				9
Devices			1,102				—				1,102
Pictures			278				—				278
Music			44				—				44
Financial Services			—				—				—
All Other and Corporate			11,853				115				11,968
Consolidated total			13,548				115				13,663

 

		Yen in millions
		Three months ended December 31, 2014
		Total net restructuring charges				Depreciation associated with restructured assets				Total
Restructuring charges and associated depreciation:
Mobile Communications			1,768				22				1,790
Game & Network Services			12				—				12
Imaging Products & Solutions			314				—				314
Home Entertainment & Sound			2				—				2
Devices			208				12				220
Pictures			166				—				166
Music			1,317				—				1,317
Financial Services			—				—				—
All Other and Corporate			5,223				4				5,227
Consolidated total			9,010				38				9,048

 

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

 

 

Geographic Information –

 

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

 

		Yen in millions
		Nine months ended December 31
Sales and operating revenue:		2013				2014
Japan			1,671,446				1,665,860
United States			943,047				1,129,151
Europe			1,327,137				1,521,924
China			401,262				433,420
Asia-Pacific			790,928				812,768
Other Areas			762,523				715,045
Total			5,896,343				6,278,168

 

		Yen in millions
		Three months ended December 31
Sales and operating revenue:		2013				2014
Japan			628,859				654,936
United States			423,633				496,027
Europe			619,082				668,333
China			132,148				155,839
Asia-Pacific			288,141				308,499
Other Areas			318,826				283,115
Total			2,410,689				2,566,749

 

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

 

　 (1) Europe: United Kingdom, France, Germany, Russia, Spain and Sweden

　 (2) Asia-Pacific: India, South Korea and Oceania

　 (3) Other Areas: The Middle East/Africa, Brazil, Mexico and Canada

 

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

 

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

 

There were no sales and operating revenue with any single major external customer for the nine and three months ended December 31, 2013 and 2014.

 

11. Subsequent events

 

Sony Music Entertainment, a wholly owned subsidiary of Sony (“SME”), has entered into an agreement to increase its shareholding in an equity method investment, Orchard Media, Inc. (“The Orchard”), to 100% by acquiring shares from the current holder, Orchard Asset Holdings, LLC, for approximately 200 million U.S. dollars. Sony expects to record a non-cash gain related to the acquisition in connection with obtaining control of The Orchard, primarily due to the appreciation in value of SME’s current equity interest in The Orchard that SME owned prior to the acquisition. The amount of expected gain is under evaluation and subject to transaction costs and other adjustments. Sony expects this acquisition to close after March 31, 2015 subject to necessary regulatory approvals.

 

 

(2) Other Information

 

Litigation

 

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

 

Beginning in early 2011, the network services of PlayStation®Network, Qriocity™, Sony Online Entertainment LLC and websites of other subsidiaries came under cyber-attack. As of March 17, 2015, Sony has not received any confirmed reports of customer identity theft issues or misuse of credit cards from such cyber-attacks. However, in connection with certain of these matters, Sony has received inquiries from authorities in a number of jurisdictions, including formal and/or informal requests for information from Attorneys General from a number of states in the United States. Additionally, Sony Corporation and/or certain of its subsidiaries have been named in a number of purported class actions in certain jurisdictions, including the United States. A proposed settlement of the U.S. class action suits has received preliminary court approval, and is subject to final approval by the court. A non-U.S. class action suit remains pending. Based on the stage of these inquiries and proceedings, it is not possible to estimate the amount of loss or range of possible loss, if any, that might result from adverse judgments, settlements or other resolution of all of these matters.

 

In October 2009, Sony Corporation’s U.S. subsidiary, Sony Optiarc America Inc., received a subpoena from the DOJ seeking information about its optical disk drive business. Sony understands that the European Commission and certain other governmental agencies outside the United States also opened investigations of competition in the optical disk drives market. The DOJ has notified Sony that it has closed its investigation, and Sony understands that the investigations by several other agencies have now ended, but the European Commission and one other agency continue to investigate. A number of direct and indirect purchaser lawsuits, including class actions, were filed in certain jurisdictions, including the United States, in which the plaintiffs alleged that Sony Corporation and certain of its subsidiaries violated antitrust laws and sought recovery of damages and other remedies. In October 2014, the United States District Court hearing the U.S. class actions denied motions for class certification in both the direct and indirect purchaser class actions. The class plaintiffs have filed petitions to appeal these rulings, and in January 2015, the appellate court denied the petitions to appeal. The civil actions continue. Based on the investigations and cases, it is not possible to estimate the amount of loss or range of possible loss, if any, that might ultimately result from adverse judgments, settlements or other resolution of the investigations and cases.

 

In November 2014, Sony Corporation’s U.S. subsidiary, SPE, identified a cyberattack on SPE’s network and IT infrastructure. As a result of the cyberattack, Sony understands that certain confidential information of SPE was stolen and posted on the Internet. In connection with such stolen information posted on the Internet, SPE has been named in several purported class action suits in the United States brought by former employees of SPE. Based on the stage of these proceedings, it is not possible to estimate the amount of loss or range of possible loss, if any, that might result from adverse judgments, settlements or other resolution of these proceedings.

 

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.

 

50

SIGNATURE

 

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

 

 

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

March 17, 2015