Shuzo Sumi | | | | | | | | | | | | Director | | | | | Director | | | | | | | | | | | | | | | | | Vice Chairman of the Board
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Outside Director | | | | | Outside Director | | | | | Outside Director | | | | | Outside Director | | | | | Outside Director | | | | | Outside Director | | | | | Outside Director |
Under the Companies Act, the term of office of Directors expires at the conclusion of the Ordinary General Meeting of Shareholders held with respect to the last business year ending within one year after their election. The primary roles of the Board are to: (a) determine Sony’s fundamental management policies; (b) oversee the management of Sony’s business operations as an entity independent from Sony’s management; (c) appoint and dismiss the statutory committee members; (d) appoint and dismiss Corporate Executive Officers and oversee the status of appointment/dismissal of Senior Executives other than Corporate Executive Officers; and (e) appoint and dismiss Representative Corporate Executive Officers. For the matters to be decided by the Board and the matters to be reported to the Board, refer to Appendices 1 and 2 of the Charter of the Board of Directors (the “Board Charter”) attached as Exhibit 1.3 hereto.
(3) Policy Regarding Composition of the Board With a view toward securing effective input and oversight by the Board, the Nominating Committee reviews and selects candidates for the Board with the aim of assuring that a substantial part of the Board is comprised of qualified outside Directors that satisfy the independence requirements established by Sony and by law. The Nominating Committee selects candidates that it views as well-suited to be Directors in light of the Board’s purpose of enhancing Sony’s corporate value. The Nominating Committee broadly considers various relevant factors, including a candidate’s capabilities (such as the candidate’s work and other experience, achievements and expertise), availability, and independence, as well as diversity, including gender and internationality, in the boardroom, the appropriate size of the Board, and the knowledge, experience and talent needed for the role. Under the Board Charter, Sony Group Corporation also requires that the Board consist of not fewer than 8 Directors and not more than 14 Directors. In addition, since 2005 the majority of the members of the Board have been outside Directors. (4) Qualifications for Directors and Limitation ofRe-election The qualifications for Directors of Sony Group Corporation under the Board Charter are generally as summarized below. As of the date of this report, all Directors satisfy the qualifications for Directors as set forth below, and all outside Directors satisfy the additional qualifications for outside Directors and are also qualified and designated as Independent Directors under the Securities Listing Regulations of the TSE. All Directors must meet the qualifications below: | (a) | He/she shall not be a director, a statutory auditor, a corporate executive officer, a general manager or other employee of any company in competition with Sony in any of Sony’s principal businesses (a “Competing Company”) or own 3% or more of the shares of any Competing Company. |
| (b) | He/she shall not be or have been a representative partner or partner of Sony’s independent auditor the past three years before being nominated as a Director. |
| (c) | He/she shall not have any connection with any matter that may cause a material conflict of interest in performing the duties of a Director. |
Outside Directors must meet the additional qualifications below: | (a) | He/she shall not have received directly from Sony, during any consecutive twelve-month period within the last three years, more than an amount equivalent to U.S. $120,000, other than Director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service). |
| (b) | He/she shall not be an executive director, corporate executive officer, general manager or other employee of any company whose aggregate amount of transactions with Sony, in any of the last three fiscal years, exceeds the greater of an amount equivalent to U.S. $1,000,000, or 2% of the annual consolidated sales of such company. |
For additional requirements for outside Directors under the Companies Act, refer to “Item 16G.”. Also, each outside Director may be nominated as a Director candidate forre-election up to five times (six years, in total), and thereafter by resolution of the Nominating Committee and by consent of all of the Directors. Even with the consent of all of the Directors, in no event may any outside Director bere-elected more than eight times (nine years, in total). (5) Matters related to Outside Directors Sony Group Corporation expects that each outside Director plays an important role in ensuring proper business decisions by Sony and effective input and oversight by the Board through actively exchanging opinions and having discussions about Sony’s business based on his or her various and broad experience, knowledge and expertise. Considering these expectations, the policy and procedures on the election of Director candidates, including independent outside Director candidates, are set forth as described above. As of the date of this report, the Board has 10 Directors, eight of whom are outside Directors. The Chairman of the Board is an outside Director; all members of the Nominating Committee, the Compensation Committee and the Audit Committee are outside Directors.
Pursuant to the Articles of Incorporation, Sony Group Corporation has entered into a liability limitation agreement with all outside Directors. A summary of such liability limitation agreement is as follows: | (i) | In a case where an outside Director is liable to the company after the execution of the liability limitation agreement for damages pursuant to Article 423, Paragraph 1 of the Companies Act, such liabilities shall be limited to the greater of either 30 million yen or an amount equal to the aggregate sum of the amounts prescribed in each item of Article 425, Paragraph 1 of the Companies Act, only where the outside Director acted in good faith without any gross negligence in performing his/her duties as a Director of the company. |
| (ii) | In a case where an outside Director is reelected as an outside Director of the company and reassumes his/her office as such on the expiration of the term of his/her office of Directors expires at the conclusionas an outside Director of the Ordinary General Meeting of Shareholders held with respect tocompany, the last business year ending within one year after their election. The primary roles of the Board are to: (a) determine Sony’s fundamental management policies; (b) oversee the management of Sony’s business operations as an entity independent from Sony’s management; (c) appoint and dismiss the statutory committee members; (d) appoint and dismiss Senior Executives including Corporate Executive Officers; and (e) appoint and dismiss Representative Corporate Executive Officers.
For the matters to be decided by the Board and the matters to be reported to the Board, refer to Appendices 1 and 2 of the Charter of the Board of Directors (the “Board Charter”) attached as Exhibit 1.3 hereto.
(3) Policy Regarding Composition of the Board
With a view toward securing effective input and oversight by the Board, the Nominating Committee reviews and selects candidates for the Board with the aim of assuring that a substantial part of the Board is comprised of qualified outside Directors that satisfy the independence requirements established by Sony and by law. The Nominating Committee selects candidates that it views as well-suited to be Directors in light of the Board’s purpose of enhancing Sony’s corporate value. The Nominating Committee broadly considers various relevant factors, including a candidate’s capabilities (such as the candidate’s experience, achievements, expertise and international fluency), availability, and independence, as well as diversity in the boardroom, the appropriate size of the Board, and the knowledge, experiences and talent needed for the role. Under the Board Charter, Sony Corporation also requires that the Board consist of not fewer than 10 Directors and not more than 20 Directors. In addition, since 2005 the majority of the members of the Board have been outside Directors.
(4) Qualifications for Directors and Limitation ofRe-election
The qualifications for Directors of Sony Corporation under the Board Charter are generally as summarized below. As of June 26, 2020, all Directors satisfy the qualifications for Directors as set forth below, and all outside Directors satisfy the additional qualifications for outside Directors and are also qualified and designated as Independent Directors under the Securities Listing Regulations of the Tokyo Stock Exchange.
All Directors must meet the qualifications below:
| (a) | He/she shall not be a director, a statutory auditor, a corporate executive officer, a general manager or other employee of any company in competition with Sony in any of Sony’s principal businesses (a “Competing Company”) or own 3% or more of the shares of any Competing Company. |
| (b) | He/she shall not be or have been a representative partner or partner of Sony’s independent auditor the past three years before being nominated as a Director. |
| (c) | He/she shall not have any connection with any matter that may cause a material conflict of interest in performing the duties of a Director. |
Outside Directors must meet the additional qualifications below:
| (a) | He/she shall not have received directly from Sony, during any consecutive twelve-month period within the last three years, more than an amount equivalent to U.S. $120,000, other than Director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service). |
| (b) | He/she shall not be an executive director, corporate executive officer, general manager or other employee of any company whose aggregate amount of transactions with Sony, in any of the last three fiscal years, exceeds the greater of an amount equivalent to U.S. $1,000,000, or 2% of the annual consolidated sales of such company. |
For additional requirements for outside Directors under the Companies Act, refer to “Item 16G.Disclosure About Differences in Corporate Governance
”.Also, each outside Director may, by resolution of the Nominating Committee, be nominated as a Director candidate forre-election
up to five times, and thereafter by resolution of the Nominating Committee and by consent of all of the Directors. Even with the consent of all of the Directors, in no event may any outside Director bere-elected
more than eight times.(5) Matters related to Outside Directors
Sony Corporation expects that each outside Director play an important role in ensuring proper business decisions by Sony and effective input and oversight by the Board through actively exchanging opinions and having discussions about Sony’s business based on his or her various and broad experience, knowledge and expertise. Considering these expectations, the policy and procedures on the election of Director candidates, including independent outside Director candidates, are set forth as described above. As of June 26, 2020, the Board has 12 Directors, nine of whom are outside Directors. The Chairman of the Board is an outside Director; the Nominating Committee has four Directors, three of whom are outside Directors; the Compensation Committee has three Directors, all of whom are outside Directors; and the Audit Committee has three Directors, all of whom are outside Directors.
Pursuant to the Articles of Incorporation, Sony Corporation has entered into a liability limitation agreement with allshall continue to be effective after the reelection andnon-executivere-assumption
Directors including outside Directors. A summary of such liability limitation agreement is as follows:without any action or formality. | (i) | In a case where anon-executive
Director is liable to the company after the execution of the liability limitation agreement for damages pursuant to Article 423, Paragraph 1 of the Companies Act, such liabilities shall be limited to the greater of either 30 million yen or an amount equal to the aggregate sum of the amounts prescribed in each item of Article 425, Paragraph 1 of the Companies Act, only where thenon-executive
Director acted in good faith without any gross negligence in performing his/her duties as a Director of the company. |
| (ii) | In a case where anon-executive
Director is reelected as anon-executive
Director of the company and reassumes his/her office as such on the expiration of the term of his/her office as anon-executive
Director of the company, the liability limitation agreement shall continue to be effective after the reelection andre-assumption
without any action or formality. |
(6) Policy and Procedure for Selection and Dismissal of Senior Executives
Sony Corporation appoints Corporate Executive Officers including the CEO and other officers that assume important roles for the management of Sony as “Senior Executives.”
In addition, Sony Group Corporation has a directors and officers liability insurance policy covering all Directors as insured parties. For an outline of the directors and officers liability insurance policy, refer to “Outline of the Terms of Directors and Officers Liability Insurance Policy ”. (6) Policy and Procedure for Selection and Dismissal of Senior Executives Sony Group Corporation appoints Corporate Executive Officers including the CEO and other officers that assume important roles for the management of Sony as “Senior Executives.” The Board has the authority to appoint and dismiss and assign the roles and responsibilities of, or to request a report regarding such matters for Senior Executives, including the CEO, and exercises such authority as necessary. In making decisions on the appointment of Corporate Executive Officers, including the CEO, the Board considers whether candidates for CEO meet certain qualifications for the CEO position which are set by the Nominating Committee and whether candidates for other Corporate Executive Officer positions have the necessary skills, capabilities, experiences and achievements that correspond to such Corporate Executive Officers’ expected roles and responsibilities. The Board also receives a report on the status of appointment and dismissal of Senior Executives other than Corporate Executive Officers. The term of office of Senior Executives, including the CEO, is one year. The Board discusses, determines and/or oversees theirre-appointment upon the expiration of each term considering the factors described above as well as their latest performance. The Board dismisses a Corporate Executive Officer, as necessary, in the event that the Board recognizes such Corporate Executive Officer is disqualified after discussions amongst the members of the Board or the Nominating Committee, even in the middle of the term for such Corporate Executive Officer.
The Board, a majority of which is comprised of independent outside Directors, has the authority to appoint and dismiss Senior Executives, including the CEO, and assign the roles and responsibilities of Senior Executives, and exercises its authority as necessary. In making decisions on the appointment of Senior Executives, including the CEO, the Board considers whether candidates for CEO meet certain qualifications for the CEO position which are set by the Nominating Committee and whether candidates for other Senior Executives have the necessary skills, capabilities, experiences and achievements that correspond to such Senior Executives’ expected roles and responsibilities.
The tenure of Senior Executives, including the CEO, is one year. The Board determines theirre-appointment
upon the expiration of each term considering the factors described above as well as their latest performance. The Board dismisses a Senior Executive, as necessary, in the event that the Board recognizes such Senior Executive is disqualified after discussions amongst the members of the Board or the Nominating Committee, even in the middle of the term for such Senior Executive.(1) | Members: 4 Directors including 3 outside Directors (as of June 26, 2020)20, 2023) |
| | | | | | | | | | | | Shuzo SumiYoshihiko Hatanaka
| | ChairmanChair of the Nominating Committee
| | | | | | Nominating Committee Member | | | | Yoshihiko HatanakaWendy Becker
| | Nominating Committee Member | | | | | | Nominating Committee Member
|
The primary roles of the Nominating Committee are to: (a) determine the content of proposals regarding the appointment/dismissal of Directors to be submitted for approval at a General Meeting of Shareholders and (b) evaluate management succession plans, which the CEO develops, for the CEO and other executives designated by the Nominating Committee.
The Nominating Committee determines the content of proposals regarding the appointment and dismissal of Directors, considering the policy on composition of the Board, the qualifications for Directors and the limitation of re-election of Directors described above. (3) Policy Regarding Composition of the Nominating Committee Under the Companies Act, the Nominating Committee shall consist of at least three Directors, the majority of whom shall be outside Directors. In addition, under the Board Charter, at least one Director of the Nominating Committee shall be a Corporate Executive Officer and the chair is to be selected from among the outside Directors. In determining whether to appoint or remove a member of the Nominating Committee, continuity of the Nominating Committee shall be duly taken into account. As of June 26, 2020,the date of this report, the Nominating Committee is comprised of four Directors, three of whom are outside Directors. (4) Management Succession Plans The Nominating Committee evaluates the succession plans, and the implementation of such plans, for the CEO and other executives designated by the Nominating Committee and reports the implementationresults of such plans, and reports its evaluation results to the Board, as appropriate. For such evaluations,Evaluations are conducted by having the CEO periodically reports thesubmit draft succession plans to the Nominating Committee, and the Nominating Committee reviews such plans.which it reviews. As a part of such review, the Nominating Committee considers the development or promotion of the next generation’sgeneration of management and evaluates whether such plan isthe succession plans have been prepared in a reasonable manner in light of Sony’s purpose to create sustainable social value and to enhance the corporate value over the mid- to long-term.
(1) Members: 3 outside Directors (as of June 26, 2020)20, 2023) | | | | | | | | | | | | Kazuo MatsunagaToshiko Oka
| | ChairmanChair of the Audit Committee
| | | | | | | | | | | | | | | | | |
The primary roles of the Audit Committee are to: (a) monitor the performance of duties by Directors and Corporate Executive Officers and (b) oversee and evaluate the independent auditor. (3) Policy Regarding Composition of the Audit Committee Under the Companies Act, the Audit Committee shall consist of at least three Directors, the majority of whom shall be outside Directors. In addition, under the Board Charter, each member of the Audit Committee (“Audit Committee Member”) shall satisfy all of the following qualifications: (a) he/she shall not be a Director engaged in the business operations of Sony Group Corporation or any of its subsidiaries, a Corporate Executive Officer, an accounting counselor, a general manager or other employee of Sony and (b) he/she shall meet the independence requirements or such other equivalent requirements of the U.S. securities laws and regulations as may from time to time be applicable to Sony Group Corporation. The chair is to be selected from among the outside Directors. The Audit Committee Members shall be selected from among the persons who possess appropriate experience and talent as well as the necessary finance, accounting and legal knowledge to serve on the Audit Committee. No Audit Committee Member shall become, as a general rule, a member of the Nominating Committee or the Compensation Committee. In determining whether to appoint or remove the Audit Committee Member, continuity of the Audit Committee shall be duly taken into account. Moreover, at least one Audit Committee Member shall meet the audit committee financial expert requirements or such other equivalent requirements of the U.S. securities laws and regulations as may from time
to time be applicable to Sony Group Corporation. The Board makes a determination on whether or not such Audit Committee Members meet these requirements. As of June 26, 2020,the date of this report, the Audit Committee is comprised of three outside Directors, two of whom (Toshiko Oka and Keiko Kishigami) are “audit committee financial experts” within the meaning of Item 16A of Form 20-F under the Securities Exchange Act, of 1934, as amended. (4) Policy on Selection of Independent Auditor Candidates and Independence of the Independent Auditor With respect to the candidates for independent auditor nominated by the CEO and other Corporate Executive Officers, the Audit Committee evaluates the nomination, prior to making a decision on the candidates. The Audit Committee continues to evaluate the independence, the qualification and the reasonableness as well as the performance of the independent auditor so appointed.
(1) Members: 3 outside Directors (as of June 26, 2020)20, 2023) | | | | | | | | | | | | | | ChairmanChair of the Compensation Committee
| | | | | | Compensation Committee Member | | | | Joseph A. Kraft Jr.William Morrow
| | Compensation Committee Member |
The primary roles of the Compensation Committee are to: (a) set policy on the content of individual compensation for Directors, Senior ExecutivesCorporate Executive Officers and other officers and (b) determine the amount and content of individual compensation of Directors and Senior ExecutivesCorporate Executive Officers in accordance with the policy.policy, and oversee the determination regarding the amount and content of individual compensation of Senior Executives other than Corporate Executive Officers. For the basic policy regarding Director and Corporate Executive Officer compensation, refer to “Item 6B. Compensation”. (3) Policy Regarding Composition of the Compensation Committee Under the Companies Act, the Compensation Committee shall consist of at least three Directors, the majority of whom shall be outside Directors. In addition, under the Board Charter, a Director who is a CEO, a Chief Operating Officer (“COO”) or a Chief Financial Officer (“CFO”) of Sony Group Corporation or who holds any equivalent position shall not be a member of the Compensation Committee. In determining whether to appoint or remove a member of the Compensation Committee, continuity of the Compensation Committee shall be duly taken into account. As of June 26, 2020,the date of this report, the Compensation Committee is comprised of three outside Directors. Senior Executives (Corporate Executive Officer, Senior Executive Vice President and Executive Vice President) (1) Total number of Senior Executives: 1715 (including 6 Corporate Executive Officers) (as of June 26, 2020)20, 2023) The primary roles of Senior Executives are to determine and execute Sony’s business activities in accordance with their roles and responsibilities assigned by the Board.responsibilities. (3) Delegation of Authority from the Board The Board determines the fundamental management policies and other material matters related to the operation of Sony’s business. The Board assigns the duties of Senior Executives,Corporate Executive Officers, including the CEO,
by determining the areas over which each SeniorCorporate Executive Officer is in charge and widelyby determining the scope of Senior Executives. Then, it delegates its decision-making authority to the CEO with a view to promoting timely and efficient decision-making within Sony. The CEO further subdelegates a part of such authority to other Senior Executives. Other Officers (Senior Vice President) (1) Total number of other officers: 2510 (as of June 26, 2020)20, 2023) The primary roles of other officers are to carry out their assignments within designated areas, such as business units, headquarters functions and/or research and development,R&D, in accordance with the fundamental policies determined by the Board and Senior Executives. Meeting RecordOutline of the Terms of Directors and Attendance Record of Outside DirectorsOfficers Liability Insurance Policy
DuringSony Group Corporation has, at its expense in respect of insurance premiums, entered into a directors and officers liability insurance policy for all Directors, Corporate Executive Officers, corporate auditors, and persons in equivalent positions (the “Executives”) of itself and its subsidiaries over which Sony Group Corporation has a direct or indirect ownership more than 50%. The outline of the fiscal year ended March 31, 2020, the Board convened nine times. The Nominating Committee met five times, the Audit Committee met six times and the Compensation Committee met five times. All thirteenterms of such liability insurance policy is as follows:
| (i) | The insurance policy covers compensation for damages, litigation costs (including attorney’s fees) and other costs that may be incurred by the Executives as a result of assuming responsibility for the execution of their duties or receiving claims related to such responsibility. |
| (ii) | As a measure to ensure the appropriateness of the execution of duties by the Executives, there are certain exemptions, such as in the case of an act committed by the Executives with the knowledge that it constitutes a violation of laws or regulations. |
outside Directors, including Osamu Nagayama and Eiko Harada who retired in June 2019, participated in all meetings of the Board held during their tenure period in the fiscal year ended March 31, 2020. Also, all outside Directors, except for Yoshihiko Hatanaka, who are members of the Committees participated in all of the meetings of each Committee held during the fiscal year ended March 31, 2020. (Yoshihiko Hatanaka, who is a member of the Nominating Committee, attended three of four meetings of the Committee held during his tenure in the fiscal year ended March 31, 2020.)
Support for Activities of Directors, the Board and the Committees Sony Group Corporation engages in various activities to enhance the oversight function of the Board over management’s operation of Sony’s business as follows: (1) Outside Director Initiatives The Chairman of the Board, who is elected from among those Directors that are not also the Representative Corporate Executive Officer, and the Chairmanan outside Director, leads the Board’s activities and secures the appropriate cooperation, communication and arrangement among outside Directors and Senior Executives. ForAs an example of such initiatives, the Board conducted outside Directors’ meetings have been held, generally on the same day as each Board Meeting, was held.for the purpose of exchanging information and sharing information with respect to recognized issues among outside Directors. The Board also conducted Directors’ corporate strategic workshops with management, business site visits by outside Directors, and meetings ofwith the Chairman and the CEO. All of these activities were aimed at securing better understanding by outside Directors of Sony’s business and management’s initiativeschallenges and encouraging corporate strategic discussions among Directors. In September 2022, the Directors visited the Kumamoto Technology Centre of SSS located in Kumamoto Prefecture, Japan, where they observed manufacturing lines of image sensor products and discussed with the image sensor business’s management the current challenges and future strategies of the business. At a workshop held over two days in December 2022, through direct dialogue with executives in charge of Sony’s main business segments, the Directors intensively discussed a variety of matters, including the business environment and challenges surrounding each of Sony’s businesses and corresponding strategies, as well as Sony’s internal and external conditions related to sustainability and geopolitical risks, which are becoming increasingly important, in addition to Sony’s business portfolio. (2) Secretariat Offices for the Board and each Committee The company has established the secretariat offices of the Board and each Committee to support the activities of the members and encourage constructive and proactive discussion at the meetings of the Board and each Committee. Each secretariat office endeavors to distribute necessary materials for the meetings in advance and to provide other information such as accounting information, organizational charts, press releases, external analyst reports and credit rating reports, as appropriate. Each secretariat office explains the meeting agenda to the members and provides them with presentation materials in advance of each meeting date and facilitates deliberation in separate meetings or briefbriefing sessions depending on the nature of matters to be discussed. Each
secretariat office also provides the absent members with a follow up briefing, as appropriate. In addition, each secretariat office shares the annual schedule of the meetings and anticipated agenda items in advance with the members in order to appropriately set the frequency of meetings and the number of agenda items to be deliberated at each meeting. (3) Provision of Necessary Information When the company is requested to provide additional information, each secretariat office endeavors to provide the members such information promptly. Also, each secretariat office verifies appropriately whether requested information is provided smoothly. In the event that the members consult with external specialists, participate in various seminars and so on to perform their duties, the costs and expenses in connection with such activities are borne by the company in accordance with applicable internal rules. With the approval of the Board and with the Audit Committee’s consent, the company has established the Audit Committee Aide to support the activities of the Audit Committee. The Audit Committee Aide does not concurrently hold positions related to the business operations of Sony and, upon instruction by each Audit Committee member, conducts investigations into and analyses ofanalyzes auditing matters and engages in physical inspections or visiting audits either by him/herself or by cooperating with relevant departments in order to support the Audit Committee. (5) Policy on Director Training Newly appointed Directors receive briefings by Senior Executives and outside experts regarding their expected roles and responsibilities, including their legal duties as a Director or as a member of the Committees, andas well as briefings about the business, financial status, organization and governance structure of Sony. Also, throughout their tenure, each Director receives compliance-related training in accordance with internal protocols and briefings on matters relevant to each Director’s fulfillment of his/her roles and responsibilities including the current status of Sony’s business.
Evaluation of the Board and the Committees’ Effectiveness (1) Policy for Evaluation Sony Group Corporation believes that it is important to endeavor to improve the effectiveness of the Board and each Committee in order to support Sony’s business operations and enhance the corporate value of Sony. To achieve this goal, Sony Group Corporation conducts evaluations of the effectiveness of the Board and of each Committee (the “Evaluation”) at least annually. From February through April 2020,2023, under the leadership of the Chairman and the Vice Chairman of the Board, the Board conducted the Evaluation mainly in respect of the Board and Committee activities in the fiscal year ended March 31, 20202023 after confirming that actions proposed in response to the results of the previous Evaluation were appropriately taken. The recent Evaluation was conducted, as the company did with the previous Evaluation, with the support of a third-party evaluation by an outside counsel havingwith expertise in Japanese and global corporate governance practices (the “Outside Counsel”) in order to ensure transparency and objectivity and to obtain professional advice. (3) Procedures forProcedure of the Recent Evaluation First, the Board discussed and confirmed that the actions proposed to be taken in response to the results of the previous Evaluation were taken, and it discussed and confirmed the proposed procedures for the Evaluation for the fiscal year ended March 31, 2020.2023. Thereafter, the third-party evaluation was conducted by the Outside Counsel in accordance with the following steps: Reviewed relevant material, such as the minutes of Board meetings, and attended a Board meeting; Confirmed with the Board secretariat office and each Committee’s secretariat office how meetings of the Board and Committees were conducted;
Gathered responses to a questionnaire from each Director about the current status and practices of the Board and each Committee, such as the composition of the Board, operation of the Board, commitments of each Director, activities of each Committee and procedures of the previous Evaluation; Interviewed all the Directors including the Peer Review(*); and Interviewed the Chairman of the Board, newly-appointed Directors, a Director who is concurrently in the position of the CEO, and certain additional Directors about the Board and Committee status and practices; and
Researched other global companies’ practices in Japan, the United States and Europe, and compared them with the company’s practices. The Board then received, reviewed and discussed the Outside Counsel’s report on the results of its evaluation. The Board confirmed the effectiveness of the Board and the Committees. * Peer Review: Mutual evaluation by Directors. We conducted the Evaluation through interviews in the presence of the Chairman or Vice Chairman of the Board. (4) Summary of the Results of the Recent Evaluation TheBased on the following findings, the Outside Counsel reported that, as assessed in the previous Evaluation, the Board is established and operated in a manner sufficient to be highly appreciated, based on various points, including the self-evaluationevaluated: The results of the questionnaire and interviews show that many Directors and comparisonrate the effectiveness of the Board highly overall. Outward factors such as the composition of the Board are comparable with benchmarkedglobal companies in Japan,Europe and North America as well as Japan. In addition, the United StatesPeer Review was conducted in the fiscal year ended on March 31, 2023, and Europe. the involvement of the Board in the process of appointment of the new president was appropriate. The Board also received a favorable assessment on its response to the suggestions made by the Outside Counsel in the previous Evaluation and on its overall operations. Following discussiondiscussions and analysis based on the Outside Counsel’s report, the Board re-affirmed that the Board and each Committee were functioning effectively as of April 2020.2023.The Outside Counsel also provided examples of potentialsuggested several possible options based on other companies’ practices, to help further improve effectiveness offor the Board and Committees. The examples include continuously studying the feasibility of having special committees accordingCommittees to recent evolution of the business environment, further progress of the relationship between the Audit Committee and the internal audit department, further expanding disclosure about the enhanced compensation plan and experience/expertise of each Director and development of new methods to hold Board meetings.improve their own effectiveness. (5) Actions in responseResponse to the Results of the Evaluation In order to increase the corporate value of Sony, Sony Group Corporation will take appropriate actions to further enhance functions of the Board and the Committees in response to the results of the Evaluation, as well as various comments and opinions given by Directors and the Outside Counsel during the Evaluation process.
For reference, after the previous Evaluation conducted from February through April 2019,May 2022, Sony Group Corporation took the following actions, among others, to help improve the effectiveness of the Board: Enhanced diversity in the boardroom (by newly appointing twonon-Japanese
and one female Directors as outside Directors); Continuously made periodic reports to the Board on ESGsustainability (Environment Social and Governance)Social) related matters; Enhanced Board’s supervision over risks regarding geopolitics and information security; Conducted deep discussions about Sony’s strategies on information security continuously through the Director in charge of Information Security;growth areas and new businesses (gaming, metaverse and mobility) ; and Held additional executive sessions;
Expanded disclosure regarding compensation ofPromoted engagement between outside Directors and Senior Executives; andinvestors.
Conducted visiting audits by Audit Committee members at Sony’s business sites.
Internal Control and Governance Framework At a Board meeting held on April 26, 2006, the Board reaffirmed the internal control and governance framework in effect as of the date of determination and determined to continue to evaluate and improve such framework going forward, as appropriate. At a Board meetingmeetings held on May 13, 2009 and April 30, 2015, the Board amended and updated the internal control and governance framework, and with the written resolution of theat a Board dated as of May 15, 2020,meeting held on April 28, 2023, the Board reaffirmed that such framework was in effect and determined to continue to evaluate and improve such framework going forward, as appropriate. These determinations were required by and met the requirements of the Companies Act.
A summary of the principal framework inof the internal control and governance framework based on the Board determination above is as follows: (1) Disclosure Control Framework The securities of Sony Group Corporation are listed for trading on exchanges in Japan and the U.S. As a result, Sony is obligated to make various disclosures to the public in accordance with applicable securities laws, regulations and rules in those countries and listing standards of the stock exchanges on which Sony Group Corporation’s shares are listed. Sony is committed to full compliance with all requirements applicable to its public disclosures. Sony Group Corporation’s policy on investor relations activities is to aim to disclose accurate information in a timely and fair manner, as well as to endeavor to promote constructive dialogue with shareholders and investors, with a view to maximizing the corporate value by building a relationship of trust with shareholders and investors. Sony Group Corporation has in placeestablished disclosure controls and procedures in support ofas an approach to implement this policy. All personnel responsible for the preparation of submissions to and filings with the Tokyo Stock Exchange,TSE, the U.S. Securities and Exchange CommissionSEC and other regulatory entities, or for other public communications made on behalf of Sony, or who provide information as part of that process, have a responsibility to ensure that such disclosures and information are full, fair, accurate, timely and understandable, and in compliance with the established disclosure controls and procedures. Sony Group Corporation has established “Disclosure Controls and Procedures,”Procedures” outlining the process through which potentially material information is reported from important business units, subsidiaries, affiliated companies and corporate divisions and is reviewed and considered for disclosure in light of its materiality to Sony. As a body to assist the CEO and the CFO of Sony Group Corporation in designing, implementing and evaluating the Disclosure Controls and Procedures, Sony Group Corporation has established the “Disclosure Committee,” which is comprised of members of senior management of Sony Corporation who are in charge of relevant departments.a part of Sony’s headquarters functions. In order to assure appropriate and timely disclosure, the Disclosure Committee shall evaluate events that are reported from the important business units, subsidiaries, affiliated companies and corporate divisions in accordance with Sony’s internal rules in light of their materiality to Sony. Based on such evaluation, the Disclosure Committee shall review the necessity of disclosure in accordance with applicable securities laws, regulations and rules, as well as the listing standards of the relevant stock exchanges, and report to the CEO and CFO for their determination. (2) Risk Management Framework Each business unit, subsidiary/affiliated company and corporate division of Sony periodically reviews and assesses risks and establishestablishes and maintainmaintains necessary risk management systems (such as detection, communication,
evaluation and response) for the area offor which they are in charge.responsible. In addition, Senior Executives, including the Corporate Executive Officers, of Sony Group Corporation have established and currently maintain a system to identify and control risks that may cause losses to Sony regarding the areas offor which they are in charge.responsible. The Corporate Executive Officer in charge of group risk control shall comprehensively promote and manage the establishment and maintenance of the systems as stated above. Details of Actions Taken by the Board and the Committees (1) Details of Actions Taken by the Board During the fiscal year ended on March 31, 2023, the Board convened 9 times. The attendance records of respective Directors are as follows. D. | Employees | | | | | | | | | | | | | | | | | 9 Times | | 9 Times (100%) | | | | | | 9 Times | | 9 Times (100%) | | | | | | 9 Times | | 9 Times (100%) | | | | | | 9 Times | | 9 Times (100%) | | | | | | 9 Times | | 9 Times (100%) | | | | | | 9 Times | | 9 Times (100%) | | | | | | 9 Times | | 9 Times (100%) | | | | | | 9 Times | | 9 Times (100%) | | | | | | 9 Times | | 9 Times (100%) | | | | | | 9 Times | | 9 Times (100%) |
*1 The numbers of the Meeting Records and the Attendance Records are those applicable to the fiscal year ended on March 31, 2023. *2 Shuzo Sumi and Tim Shaaff, who were Directors during the fiscal year ended on March 31, 2023, retired as Directors at the conclusion of the Ordinary General Meeting of Shareholders on June 20, 2023. Accordingly, Neil Hunt and William Morrow were newly appointed as Directors at the Ordinary General Meeting of Shareholders on June 20, 2023. During the fiscal year ended on March 31, 2023, the Board of Directors discussed a variety of matters, such as supervision of the progress of the fourth mid-range plan, formulation of a business plan for the fiscal year ending on March 31, 2024, enhancement of Sony’s management structure (including the appointment of Hiroki Totoki as President, COO and CFO), Sony’s business portfolio, strategically important M&A and capital investments, effectiveness of internal control (including the ethics and compliance program and information security), approach to new risks (including geopolitical risks), and Sony’s situation and initiatives related to sustainability and environment as well as Sony’s strategy related to new technologies (including generative AI). (2) Details of Actions Taken by the Nomination Committee During the fiscal year ended on March 31, 2023, the Nomination Committee convened 5 times. The attendance records of respective Directors are as follows. | | | | | | | | | | | | | | | | | | 5 Times | | 5 Times (100%) | | | | | | 5 Times | | 5 Times (100%) | | | | | | 5 Times | | 5 Times (100%) |
*1 The numbers of the Meeting Records and the Attendance Records are those applicable to the fiscal year ended on March 31, 2023. *2 Shuzo Sumi, who was a member of the Nomination Committee during the fiscal year ended on March 31, 2023, retired both as a Director and a member of the Nomination Committee at the conclusion of the Ordinary General Meeting of Shareholders on June 20, 2023. Accordingly, Toshiko Oka was newly appointed as a member of the Nomination Committee pursuant to the resolution at the Board meeting held on June 20, 2023. During the fiscal year ended on March 31, 2023, the matters given consideration by the Nominating Committee included policies on selecting outside Director candidates, exploring Director prospects, and CEO succession. In addition, the Nominating Committee assessed succession plans for Senior Executives with key management responsibilities for individual business units and headquarters functions, based on management, including CEO, reports. With respect to the selection of candidates for outside Directors, as a priority item for the current fiscal year, the Nominating Committee confirmed the policy that candidates for outside Directors should be selected from persons who have experience as CEOs of major global companies, backgrounds in technology and/or knowledge of the entertainment industry, and the Nomination Committee held discussions based on such policy. As a result, two new outside Director candidates were appointed based on this policy. Regarding the appointment of Senior Executives, Kenichiro Yoshida, Representative Corporate Executive Officer, Chairman, President and CEO, proposed to the Nominating Committee that Hiroki Totoki, Representative Corporate Executive Officer, Executive Deputy President and CFO, assume the position of President, COO and CFO. After a multifaceted review and discussion, including interviews by the Nominating Committee members, the proposal was shared with the outside Directors other than the Nominating Committee members and confirmed. (3) Details of Actions Taken by the Audit Committee During the fiscal year ended on March 31, 2023, the Audit Committee convened 6 times. The attendance records of respective Directors are as follows. | | | | | | | | | | | | | | | | | | 6 Times | | 6 Times (100%) | | | | | | 6 Times | | 6 Times (100%) | | | | | | 6 Times | | 6 Times (100%) |
*1 The numbers of the Meeting Records and the Attendance Records are those applicable to the fiscal year ended on March 31, 2023.
Specific considerations by the Audit Committee include review of audit plans inthree-way audits, identification and audit of priority audit items for each fiscal year, review of financial results and disclosure documents related to financial results, review of development and operation of internal control systems, audit of financial reports and SOX404-related activities, audit of internal audit activities, review of the content and process for determining the compensation of the independent auditors, audit of the appropriateness of audit by the independent auditors and evaluation of the independent auditors. In addition to these, the Audit Committee held interviews with Senior Executives to receive reports on matters such as the recognition of issues and the status of risk management in the respective areas of responsibility of each business and headquarter function, and engaged in dialogue. The priority audit items for the fiscal year ended on March 31, 2023 were disclosure ofnon-financial information and risk management. Through audit activities conducted in cooperation with the internal audit division and the divisions of the Sony Group responsible for internal control, the Audit Committee was informed about the latest trends in Japan and overseas regarding the disclosure ofnon-financial information such as climate change disclosure and risk management such as information security, and confirmed the status of internal responses. (4) Details of Actions Taken by the Compensation Committee During the fiscal year ended on March 31, 2023, the Compensation Committee convened 5 times. The attendance records of respective Directors are as follows. | | | | | | | | | | | | | | | | | | 5 Times | | 5 Times (100%) | | | | | | 5 Times | | 5 Times (100%) | | | | | | 5 Times | | 5 Times (100%) |
*1 The numbers of the Meeting Records and the Attendance Records are those applicable to the fiscal year ended on March 31, 2023. *2 Yoshihiko Hatanaka, who was a member of the Compensation Committee during the fiscal year ended on March 31, 2023, retired as a member of the Compensation Committee on June 20, 2023. Accordingly, William Morrow was newly appointed as a member of the Compensation Committee pursuant to the resolution at the Board meeting held on June 20, 2023. The specific matters given consideration by the Compensation Committee included the Corporation’s policy regarding the determination of individual remuneration for Directors and Senior Executives, including Corporate Executive Officers, for each fiscal year, and the amount and content of such remuneration. The Committee also considered the total number of stock acquisition rights to be issued for the purpose of granting stock options to Corporate Executive Officers, employees of the Corporation, Directors and other officers of the Corporation’s subsidiaries, and other stock-based compensation utilizing shares of the Corporation’s stock. In the fiscal year ended March 31, 2023, the Corporation newly introduced RSUs for the purpose of giving the recipients an incentive to contribute towards the improvement of the business performance of the Sony Group, and the Committee confirmed and discussed the scope of and plans for the recipients and the decision-making authority for the grant of RSUs. For the fiscal year ending March 31, 2024 and beyond, the Committee conducted a comprehensive review and discussion on the ideal KPIs for remuneration linked to business results and the ideal governance of executive compensation, with consideration of other companies’ trends and regulatory developments in Japan and other countries. As of March 31, 2020,2023, Sony had approximately 111,700113,000 employees, a decreasean increase of approximately 2,7004,100 employees from March 31, 2019.2022. During the fiscal year ended March 31, 2020,2023, although there was an increase of employees in the Game & Network Services (“G&NS”) (outside of Japan), Imaging & Sensing Solutions (“I&SS”) (within Japan), Music and Financial Services segments, there was a decrease of employees mainly in the Electronics Products & Solutions (“EP&S”)ET&S segment (outside of Japan) due to closure of manufacturing sites in Malaysia, employees of the G&NS, I&SS, and Pictures (outside of Japan) segments as well as in All Other. In the EP&S segment and All Other, this was mainlyincreased due to the restructuringexpansion of the smartphone businessthese businesses, including through mergers and disc manufacturing business.acquisitions. Approximately 11%9% of the total number of employees were members of labor unions. As of March 31, 2019,2022, Sony had approximately 114,400108,900 employees, a decrease of approximately 2,900800 employees from March 31, 2018.2021. During the fiscal year ended March 31, 2019,2022, although there was an increase of
employees mainly in the I&SS, Music (outside of Japan) and G&NS (outside of Japan) segments, there was a decrease of employees in the ET&S segment (outside of Japan) and All Other (outside of Japan). In the ET&S segment, this was mainly due to closure of manufacturing sites in Malaysia. Approximately 9% of the total number of employees were members of labor unions. As of March 31, 2021, Sony had approximately 109,700 employees, a decrease of approximately 2,000 employees from March 31, 2020. During the fiscal year ended March 31, 2021, although there was an increase of employees in the I&SS and Financial Services segments, there was a significant decrease of employees in the EPET&S and Pictures segments, as well as in All Other. In the ET&S segment, and All Otherthis was mainly due to the restructuringclosure of the smartphone businessmanufacturing sites in Malaysia and disc manufacturing business.Brazil. Approximately 13% of the total number of employees were members of labor unions. As of March 31, 2018, Sony had approximately 117,300 employees, a decrease of approximately 11,100 employees from March 31, 2017. During the fiscal year ended March 31, 2018, although there was an increase of employees in the Financial Services and Pictures segments, there was a significant decrease of employees in the Electronics segment mainly due to the transfer of the battery business. Approximately 14%10% of the total number of employees were members of labor unions.
The following table shows the number of employees of Sony by segment and region as of March 31, 2018, 20192021, 2022 and 2020.2023. Number of Employees by Segment and Region | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | G&NS, EP&S and I&SS total | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unallocated — Corporate employees | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | 2021 | | | 2022 | | | | | | | | | | | | | | | | | | | | | 9,600 | | | | 10,200 | | | | | | | | | 9,900 | | | | 10,800 | | | | | | | | | 8,000 | | | | 8,100 | | | | | | | | | 43,700 | | | | 40,200 | | | | | | | | | 16,800 | | | | 18,100 | | | | | | | | | 12,900 | | | | 13,200 | | | | | | | | | 2,800 | | | | 2,300 | | | | | | Unallocated — Corporate employees | | | 6,000 | | | | 6,000 | | | | | | | | | | | | | | | | | | | | | | 54,500 | | | | 55,100 | | | | | | | | | 55,200 | | | | 53,800 | | | | | | | | | | | | | | | | | | | | | | 109,700 | | | | 108,900 | | | | | | | | | | | | | | | | | | |
In addition, the average number of employees for the fiscal years ended March 31, 2018, 20192021, 2022 and 20202023 calculated by averaging the total number of employees at the end of each quarter, was approximately 118,900, 116,000110,700, 109,600 and 113,000112,300 respectively. Sony generally considers its labor relations to be good. In Japan, Sony Group Corporation and several subsidiaries have labor unions. In the G&NS, EPET&S and I&SS segments, Sony owns many manufacturing sites, particularly in Asia, where a few sites have labor unions that have union contracts. In China, most employees are members of labor unions. In the Americas, some manufacturing sites have labor unions. Sony has generally maintained good relationships with these labor unions. In Europe, Sony also maintains good labor relations with the European Works Council and the local Unions and Works Councils.
In the Music segment, Sony has severala labor unionsunion and generally considers its labor relations to be good. In the Pictures segment, Sony also generally considers its labor relations to be good. A number of Pictures’ subsidiaries are signatories to union contracts. During the fiscal year ended March 31, 2020,2023, negotiations were conducted and agreements reached with a number of unions. Negotiations were successfully concluded with the International Alliance of Theatrical and Stage Employees (“IATSE”) for agreements with three-year terms covering The Animation Guild as well as for additional local agreements in New York. Negotiations were also completed with Teamsters for agreements for three-year terms covering Location Managers in New York, Casting Directors in New York and Los Angeles and drivers in Miami. Agreements were also reached for new three-year deals with Screen Actors Guild-American Federation of Television and Radio Artists(“SAG-AFTRA”) on the Network Code and The Animation Guild Agreement and with the Communications Workers of America,AFL-CIO for parking production assistants in New York. Negotiations were completed with Directors Guild of Canada, British Columbia District Council for a three-year agreement. An agreement was reached with the American Federation of Musicians to extend the Theatrical and Television Agreements through November 13, 2023. During the fiscal year, amendments to theCOVID-19 Return to Work Agreement with the
Directors Guild of America (“DGA”), IATSE,SAG-AFTRA, Teamsters and Basic Crafts coveringCOVID-19 safety protocols were negotiated and were in effect through May 11, 2023. The WGA agreement expired on May 1, 2023 and the parties have not reached agreement on the terms of a new deal. The WGA went on strike effective May 2, 2023. Negotiations have been completed with the DGA for new three-year terms fordeals on the Basic Agreement and the Film Live Tape Television Agreement.Two-year
deals were reached withAgreement subject to ratification by the American Federation of Musicians DGA. Negotiations have commenced withSAG-AFTRA for the TheatricalCodified Basic Agreement and the Television Agreement. An agreement was reached withBasic Agreement which expire on June 30, 2023. If negotiations to renew expiring collective bargaining agreements are not successful or become unproductive, the Studio Transportation Drivers, Local 399, Cook Helper/Cook Helper Drivers foraffected unions could take actions such as strikes, work slowdowns or work stoppages. Strikes, work slowdowns, work stoppages or the term January 19, 2020 to July 31, 2021. In addition, a new three-year deal was reached withpossibility of such actions could result in delays in the International Brotherhoodproduction of Teamsters, Local 817 on the Feature Film Agreement with Theatrical Driverstelevision programs and Helpers. Negotiations with the Screen Actors Guild-American Federation of Television and Radio Artists commenced on April 27, 2020. Negotiations for afeature films or otherwise disrupt operations. The Pictures segment could also incur higher costs from such actions or new collective bargaining agreement with the Writers Guild of America commenced on May 18, 2020.agreements that include rate increases.Sony continuously strives to provide competitive wages and benefits and good working conditions for all of its employees. The total number of shares of Common Stock beneficially owned by Directors and Corporate Executive Officers listed in “Directors and Senior Management” above (out of whom 1312 people own shares) was approximately 0.025%0.043% of the total shares outstanding as of June 4, 2020.2, 2023. During the fiscal year ended March 31, 2020,2023, Sony Group Corporation granted stock acquisition rights, which represent rights to subscribe for shares of Common Stock, to Corporate Executive Officers and employees of Sony Group Corporation as well as directors, officers and employees of its subsidiaries. The stock acquisition rights cannot be exercised for one year from the date of grant and generally vest ratably up to three years from the date of grant and are generally exercisable up to ten years from the date of grant. The following table shows the portion of those stock acquisition rights which were granted by Sony Group Corporation to Directors and Corporate Executive Officers as of June 4, 20202, 2023 and which were outstanding as of the same date. | | | | | | | | | (Fiscal year ended March 31) | | Total number of shares subject to stock acquisition rights | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | (Fiscal year ended March 31) | |
| | | | | | | | | | | | | | | 290 | | | | 11,390 yen | | | | | 280 | | | | 14,350 yen | | | | | 260 | | | | 9,237 yen | | | | | 248 | | | | 6,705 yen | | | | | 214 | | | | 6,440 yen | | | | | 33 | | | | 5,231 yen | | | | | 126 | | | | 3,364 yen | | | | | 15 | | | | 3,404 yen | | | | | 86 | | | | 2,410.5 yen | |
Regarding the above compensation plans, refer to Note 1721 of the consolidated financial statements. | Major Shareholders and Related Party Transactions |
As of March 31, 2020,2023, there were 1,261,058,7811,261,081,781 shares of Common Stock outstanding, including 40,898,84126,584,521 shares of treasury stock. Out of the total outstanding shares, 114,612,168117,871,924 shares were in the form of ADRsAmerican Depositary Receipts (“ADRs”) and 229,425,899215,074,779 shares were held of record in the form of Common Stock by residents in the U.S. As of March 31, 2020,2023, the number of registered ADR holders was 4,9744,697 and the number of registered holders of Common Stock in the U.S. was 401.389.
The Financial Instruments and Exchange Act of Japan requires any person who solely or jointly owns more than 5% of total issued voting shares of a company listed on any Japanese stock exchange to file with the Kanto Local Finance Bureau (the “Bureau”) a Bulk Shareholding Report. The following table summarizes the Bulk Shareholding Reports related to Sony (each a “Report”) submitted to the Bureau, where it is reported that ownership percentage by the reported entity exceeds 5% in the most recent updated Report. The Reports do not specify whether reported ownership is direct or beneficial. | | | | | | | | | | | | | | | Reported number of direct or indirect owned and deemed owned shares** | | | Reported percentage of direct or indirect owned and deemed owned shares** | | | | BlackRock Japan Co., Ltd. | | | | | | | | | | | Sumitomo Mitsui Trust Asset Management Co., Ltd. | | | | | | | | |
| | | | | | | | | | | | | | | Reported number of direct or
| | | Reported percentage of direct or
| | | | Nomura Asset Management Co., Ltd. and 3 Joint Holders | | | 63,156,882 | | | | 5.01 | | | | Sumitomo Mitsui Trust Asset Management Co., Ltd. and 1 Joint Holder | | | 82,189,224 | | | | 6.52 | | | | BlackRock Japan Co., Ltd. and 9 Joint Holders | | | 93,769,348 | | | | 7.43 | |
* The table above contains information from the most recent updated Reports. ** Shares issuable or transferable upon exchange of exchangeable securities, conversion of convertible securities or exercise of warrants or stock acquisition rights (including those incorporated in bonds with stock acquisition rights) are taken into account in determining both the size of the reported entity’s holding and Sony’s total issued share capital. To the knowledge of Sony Group Corporation, it is not directly or indirectly owned or controlled by any other corporation, by any foreign government or by any other natural or legal person either severally or jointly. As far as is known to Sony Group Corporation, there are no arrangements the operation of which may, at a subsequent date, result in a change in control of Sony Group Corporation. To the knowledge of Sony Group Corporation, there were no significant changes in the percentage ownership held by any other major beneficial shareholders during the past three fiscal years. Major shareholders of Sony Group Corporation do not have different voting rights from other shareholders. | Related Party Transactions |
In the ordinary course of business, Sony purchases materials, supplies, and services from numerous suppliers throughout the world, including firms with which certain members of the Board of Directors are affiliated. In addition, in the fiscal year ended March 31, 2020, sales to affiliates accounted for under the equity method totaled 36.0 billion yen and purchases from those equity affiliates totaled 3.5 billion yen. Although there were 140 equity affiliates accounted for under the equity method at March 31, 2020, there were no individually significant investments.
As of March 31, 2020, Sony had accounts receivable, trade of 12.0 billion yen due from its equity affiliates and had accounts payable, trade of 1.5 billion yen due to its equity affiliates. Due to the size of these transactions, Sony does not consider the amount involved to be material to its business. Refer to Note 532 of the consolidated financial statements for additional information regarding Sony’s investments inaccount balances and transactions with associates and joint ventures accounted for under the equity affiliates.method.
| Interests of Experts and Counsel |
| Consolidated Statements and Other Financial Information |
Refer to the consolidated financial statements and the notes of the consolidated financial statements. Beginning in 2009, the U.S. Department of Justice, the European Commission and certain other governmental agencies outside the United States have conducted investigations relating to competition in the optical disk drives market. Sony Corporation and/or certain of its subsidiaries have been subject to these investigations. Sony Corporation understands that these investigations have ended. However, proceedings
initiated by the European Commission as a result of its investigation continue. In October 2015, the European Commission adopted a decision in which it fined Sony Corporation and certain of its subsidiaries 31 million euros; however, Sony Corporation filed an appeal against the decision with the European Union’s General Court. In July 2019, the General Court upheld the European Commission’s decision. Sony Corporation reviewed the judgment carefully and filed an appeal with the Court of Justice of the European Union in September 2019. A number of direct and indirect purchaser lawsuits, including class actions, have been filed in certain jurisdictions in which the plaintiffs allege that Sony Corporation and certain of its subsidiaries violated antitrust laws and seek recovery of damages and other remedies. All of these lawsuits have been settled, including the class actions brought by the direct and indirect purchasers in the United States, except one lawsuit which is still pending. Sony believes that final resolution of the pending proceedings will not have a material impact on Sony’s results of operations and financial position.
Since 2011, in relation to the secondary batteries business that was operated by Sony Corporation and certain of its subsidiaries, a number of direct and indirect purchaser lawsuits, including class actions, have been filed in certain jurisdictions in which the plaintiffs allege that Sony Corporation and certain of its subsidiaries violated antitrust laws and seek recovery of damages and other remedies. All of these lawsuits have been settled, including the class actions brought by the direct and indirect purchasers in the United States, except one lawsuit which is still pending. Sony believes that final resolution of the pending proceeding will not have a material impact on Sony’s results of operations and financial position.
In addition, SonyGroup 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.
Sony believes that continuously increasing corporate value and providing dividends are essential to rewarding shareholders. It is Sony’s policy to utilize retained earnings, after ensuring the perpetuation of stable dividends, to carry out various investments that contribute to an increase in corporate value, such as those that ensure future growth and strengthen competitiveness. Going forward, Sony will determine the amount of dividends based on an overall consideration of Sony’s consolidated operating results, financial condition and future business expectations. A fiscal year-end dividend of 2540 yen per share of Common Stock of Sony Group Corporation was approved with the written resolution ofat the Board of Directors dated as of May 13, 2020meeting held on April 28, 2023 and the payment of such dividend started on June 5, 2020.
2023. Sony Group Corporation has already paid an interim dividend for Common Stock of 2035 yen per share to each shareholder; accordingly, the total annual dividend per share of Common Stock for the fiscal year ended March 31, 20202023 is 4575 yen. | Offer and Listing Details |
The principal trading markets for Sony Group Corporation’s ordinary shares are the Tokyo Stock Exchange (“TSE”)TSE in the form of Common Stock and the NYSE in the form of American Depositary Shares (“ADSs”)ADSs evidenced by American Depositary Receipts (“ADRs”).ADRs. Each ADS represents one share of Common Stock. Sony Group Corporation’s Common Stock, with no par value per share, has been listed on the TSE since 1958 under the stock code “6758.” Sony Group Corporation’s ADRs have been traded in the U.S. since 1961 and have been listed on the New York Stock Exchange (“NYSE”)NYSE since 1970 under1970. As of April 1, 2021, the ticker symbol “SNE.changed from “SNE” to “SONY.” Sony Group Corporation’s ADRs are issued and exchanged by Citibank, N.A., as the Depositary. |
Please referRefer to “Item 9.A. Offer and Listing Details. ” | Memorandum and Articles of Association |
Sony Group Corporation is a joint stock corporation incorporated in Japan under the Companies Act of Japan. It is registered in the Commercial Register maintained by the Minato Branch Office of the Tokyo Legal Affairs Bureau. The Articles of Incorporation of Sony Group Corporation provide that its purpose is to engage in the following business activities: | (i) | manufacture and sale of electronic and electrical machines and equipment, medical instruments, optical instruments and other equipment, machines and instruments; |
| (ii) | planning, production and sale of audio-visual software and computer software programs; |
| (iii) | manufacture and sale of metal industrial products, chemical industrial products and ceramic industrial products, textile products, paper products and wood-crafted articles, daily necessities, foodstuffs and toys, transportation machines and equipment, and petroleum and coal products; |
| (iv) | real estate activities, construction business, transportation business and warehousing business; |
| (v) | publishing business and printing business; |
| (vi) | advertising agency business, insurance agency business, broadcasting enterprise, recreation business such as travel, management of sporting facilities, etc. and other service enterprises; |
| (viii) | Type I and Type II telecommunications business under the Telecommunications Business Law; |
| (ix) | investing in stocks and bonds, etc.; |
| (x) | manufacture, sale, export and import of products which are incidental to or related to those mentioned above; |
| (xi) | rendering of services related to those mentioned above; |
| (xii) | investment in businesses mentioned above operated by other companies or persons; and |
| (xiii) | all businesses which are incidental to or related to those mentioned above. |
Under the Companies Act, because Sony Group Corporation has adopted the “Company with Three Committees” system, Directors have no power to execute the business of Sony Group Corporation except in limited circumstances as permitted by law. If a Director also serves concurrently as a Corporate Executive Officer, then he or she can execute the business of Sony Group Corporation in the capacity of Corporate Executive Officer. Under the Companies Act, Directors must refrain from engaging in any business competing with Sony Group Corporation unless approved by the Board of Directors, and any Director who has a material interest in the subject matter of a resolution to be taken by the Board of Directors cannot vote on such resolution. The amount of remuneration to each Director is determined by the Compensation Committee, which consists of Directors, the majority of whom are outside Directors (Refer to “Board Practices” in “Item 6. Directors, Senior Management and Employees ”). No member of the Compensation Committee may vote on a resolution with respect to his or her own compensation as a Director or a Corporate Executive Officer. Neither the Companies Act nor Sony Group Corporation’s Articles of Incorporation make a special provision as to the borrowing powers exercisable by Directors (subject to requisite internal authorizations as required by the Companies Act), their retirement age, or a requirement to hold any shares of capital stock of Sony Group Corporation. For more information on Directors, refer to “Board Practices” in “Item 6. Directors, Senior Management and Employees. ” Unless indicated otherwise, set forth below is information relating to Sony Group Corporation’s capital stock, including brief summaries of the relevant provisions of Sony Group Corporation’s Articles of Incorporation and Share Handling Regulations, currently in effect, and of the Companies Act and related regulations. On January 5, 2009, aThe central book-entry transfer system for shares of Japanese listed companies was established pursuant tounder the Act Concerning Book-entry Transfer of Corporate Bonds, Shares, etc. (including regulations promulgated thereunder, “Book-entry Transfer Act”), and this system is applied to the shares of Common Stock of Sony Group Corporation. Under this system, shares of all Japanese companies listed on any Japanese stock exchange are dematerialized, and shareholders must have accounts at account management institutions to hold their shares unless such shareholder has an account at Japan Securities Depository Center, Inc. (“JASDEC”). “Account management institutions” are
financial instruments traders (i.e., securities companies), banks, trust companies and certain other financial institutions that meet the requirements prescribed by the Book-entry Transfer Act. Transfer of the shares of Common Stock of Sony Group Corporation is effected exclusively through entry in the records maintained by JASDEC and the account management institutions, and title to the shares passes to the transferee at the time when the transfer of the shares is recorded at the transferee’s account at an account management institution. The holder of an account at an account management institution is presumed to be the legal holder of the shares recorded in such account. Under the Companies Act and the Book-entry Transfer Act, in order to assert shareholders’ rights against Sony Group Corporation, a shareholder of shares must have its name and address registered in Sony Group Corporation’s register of shareholders. Under the central book-entry transfer system operated by JASDEC, shareholders shall notify the relevant account management institutions of certain information prescribed under the Book-entry Transfer Act or Sony Group Corporation’s Share Handling Regulations, including their names and addresses, and the registration on Sony Group Corporation’s register of shareholders is updated upon receipt by Sony Group Corporation of necessary information from JASDEC (as described in “ ”). On the other hand, in order to assert, against Sony Group Corporation, shareholders’ rights to which shareholders are entitled, regardless of whether such shareholder held shares on the requisite record date, such as minority shareholders’ rights, including the right to propose a matter to be considered at a General Meeting of Shareholders, except for shareholders’ rights to request that Sony Group Corporation purchase or sell shares constituting less than a full unit (as described in “ ”), JASDEC shall, upon the shareholder’s request, issue a notice of certain information, including the name and address of such shareholder, to Sony Group Corporation.
Thereafter, such shareholder is required to presentshall provide Sony Group Corporation a receipt of thewith written notice requestthat he or she exercises such shareholder’s right in accordance with the Sony Group Corporation’s Share Handling Regulations. Under the Book-entry Transfer Act, the shareholder shall exercise such shareholders’ right within four weeks after the notice above has been given to Sony Group Corporation. Mitsubishi UFJ Trust and Banking Corporation is the transfer agent for Sony Group Corporation’s capital stock. As such, it keeps Sony Group Corporation’s register of shareholders in its office at 4-5, Marunouchi 1-chome, Chiyoda-ku, Tokyo. Non-resident shareholders are required to appoint a standing proxy in Japan or file notice of a mailing address in Japan. Notices from Sony Group Corporation to non-resident shareholders are delivered to such standing proxies or mailing address. Japanese securities companies and commercial banks customarily act as standing proxies and provide related services for standard fees. The recorded holder of deposited shares underlying the American Depositary Shares (“ADSs”)ADSs is the depositary for the ADSs. Accordingly, holders of ADSs will not be able to directly assert shareholders’ rights against Sony Group Corporation. Under the Articles of Incorporation of Sony Group Corporation, Sony Group Corporation may only issue shares of Common Stock. Sony Group Corporation’s Articles of Incorporation provide that the total number of shares authorized to be issued by Sony Group Corporation is 3.6 billion shares. All shares of capital stock of Sony Group Corporation have no par value. All issued shares are fully-paid and non-assessable. (Distribution of Surplus) Distribution of Surplus — General Under the Companies Act, distributions of cash or other assets by joint stock corporations to their shareholders, so called “dividends,” are referred to as “distributions of Surplus” (“Surplus” is defined in “— Restriction on distribution of Surplus”). Sony Group Corporation may make distributions of Surplus to shareholders any number of times per business year, subject to certain limitations described in “— Restriction on distribution of Surplus.” Distributions of Surplus are required in principle to be authorized by a resolution of a General Meeting of Shareholders, but Sony Group Corporation may authorize distributions of Surplus by a resolution of the Board of Directors as long as its non-consolidated annual financial statements and certain documents for the last business year present fairly its assets and profit or loss, as required by ordinances of the Ministry of Justice.
Distributions of Surplus may be made in cash or in kind in proportion to the number of shares of Common Stock held by each shareholder. A resolution of the Board of Directors or a General Meeting of Shareholders authorizing a distribution of Surplus must specify the kind and aggregate book value of the assets to be distributed, the manner of allocation of such assets to shareholders, and the effective date of the distribution. If a distribution of Surplus is to be made in kind, Sony Group Corporation may, pursuant to a resolution of the Board of Directors or (as the case may be) a General Meeting of Shareholders, grant a right to the shareholders to require Sony Group Corporation to make such distribution in cash instead of in kind. If no such right is granted to shareholders, the relevant distribution of Surplus must be approved by a special resolution of a General Meeting of Shareholders (refer to “ ” with respect to a “special resolution”). Under the Articles of Incorporation of Sony Group Corporation, year-end dividends and interim dividends may be distributed in cash to shareholders appearing in Sony Group Corporation’s register of shareholders as of March 31 and September 30 each year, respectively, in proportion to the number of shares of Common Stock held by each shareholder following approval by the Board of Directors or (as the case may be) the General Meeting of Shareholders. Sony Group Corporation is not obliged to pay any dividends in cash unclaimed for a period of five years after the date on which they first became payable. In Japan, the ex-dividend date and the record date for dividends precede the date of determination of the amount of the dividends to be paid. The price of the shares of Common Stock generally goes ex-dividend on the business day immediately prior to the record date (or if the record date is not a business day, the second business day prior thereto).
Distribution of Surplus — Restriction on distribution of Surplus In making a distribution of Surplus, Sony Group Corporation must, until the sum of its additional paid-in capital and legal reserve reaches one quarter of its stated capital, set aside in its additional paid-in capital and/or legal reserve an amount equal to one-tenth of the amount of Surplus so distributed. The amount of Surplus at any given time must be calculated in accordance with the following formula: A + B + C + D -– (E + F + G) | | | | | “A” = | | | | | | | | | | | | | the total amount of other capital surplus and other retained earnings, each such amount being that appearing on the non-consolidated balance sheet as of the end of the last business year | | | | “B” = | | | | | | | | | | | | | (if Sony Group Corporation has disposed of its treasury stock after the end of the last business year) the amount of the consideration for such treasury stock received by Sony Group Corporation less the book value thereof | | | | | | | | | | | | | | (if Sony Group Corporation has reduced its stated capital after the end of the last business year) the amount of such reduction less the portion thereof that has been transferred to additional paid-in capital or legal reserve (if any) | | | | | | | | | | | | | | (if Sony Group Corporation has reduced its additional paid-in capital or legal reserve after the end of the last business year) the amount of such reduction less the portion thereof that has been transferred to stated capital (if any) | | | | “E” = | | | | | | | | | | | | | (if Sony Group Corporation has cancelled its treasury stock after the end of the last business year) the book value of such treasury stock | | | | | | | | | | | | | | (if Sony Group Corporation has distributed Surplus to its shareholders after the end of the last business year) the total book value of the Surplus so distributed | | | | | | | | | | | | | | certain other amounts set forth in ordinances of the Ministry of Justice, including (if Sony Group Corporation has reduced Surplus and increased its stated capital, additional paid-in capital or legal reserve after the end of the last business year) the amount of such reduction and (if Sony Group Corporation has distributed Surplus to the shareholders after the end of the last business year) the amount set aside in additional paid-in capital or legal reserve (if any) as required by ordinances of the Ministry of Justice. |
The aggregate book value of Surplus distributed by Sony Group Corporation may not exceed a prescribed distributable amount (the “Distributable Amount”), as calculated on the effective date of such distribution. The
Distributable Amount at any given time shall be equal to the amount of Surplus less the aggregate of the following: | (a) | the book value of its treasury stock; |
| (b) | the amount of consideration for any of treasury stock disposed of by Sony Group Corporation after the end of the last business year; and |
| (c) | certain other amounts set forth in ordinances of the Ministry of Justice, including (if the sum of one-half of goodwill and the deferred assets exceeds the total of stated capital, additional paid-in capital and legal reserve, each such amount being that appearing on the non-consolidated balance sheet as of the end of the last business year) all or certain part of such exceeding amount as calculated in accordance with ordinances of the Ministry of Justice. |
As Sony Group Corporation has become a company with respect to which consolidated balance sheets should also be considered in the calculation of the Distributable Amount ( renketsu haito kisei tekiyo kaisha ), Sony Group Corporation must further deduct from the amount of Surplus the excess amount, if any, of (x) the total amount of stockholders’ equity appearing on the non-consolidated balance sheet as of the end of the last business year and certain other amounts set forth by an ordinance of the Ministry of Justice over (y) the total amount of stockholders’ equity and certain other amounts set forth by an ordinance of the Ministry of Justice appearing on the consolidated balance sheet as of the end of the last business year. If Sony Group Corporation has prepared interim financial statements as described below, and if such interim financial statements have been approved by the Board of Directors or (if so required by the Companies Act) by a
General Meeting of Shareholders, then the Distributable Amount must be adjusted to take into account the amount of profit or loss, and the amount of consideration for any of the treasury stock disposed of by Sony Group Corporation, during the period in respect of which such interim financial statements have been prepared. Sony Group Corporation may prepare non-consolidated interim financial statements consisting of a balance sheet as of any date subsequent to the end of the last business year and an income statement for the period from the first day of the current business year to the date of such balance sheet. Interim financial statements so prepared by Sony Group Corporation must be audited by the Audit Committee and the independent auditor, as required by the Companies Act and in accordance with the details prescribed by ordinances of the Ministry of Justice. Sony Group Corporation may generally reduce its additional paid-in capital or legal reserve by resolution of a General Meeting of Shareholders and, if so decided by the same resolution, may account for the whole or any part of the amount of such reduction as stated capital. On the other hand, Sony Group Corporation may generally reduce its stated capital by a special shareholders’ resolution (as defined in “ ”) and, if so decided by the same resolution, may account for the whole or any part of the amount of such reduction as additional paid-in capital. In addition, Sony Group Corporation may reduce its Surplus and increase either (i) stated capital or (ii) additional paid-in capital and/or legal reserve by the same amount, in either case by resolution of a General Meeting of Shareholders. Sony Group Corporation may at any time split shares in issue into a greater number of shares at the determination of the CEO, and may amend its Articles of Incorporation to increase the number of the authorized shares to be issued to allow such stock split pursuant to a resolution of the Board of Directors or a determination by a Corporate Executive Officer to whom the authority to make such determination has been delegated by a resolution of the Board of Directors, rather than relying on a special shareholders’ resolution, which is otherwise required for amending the Articles of Incorporation. When a stock split is to be made, Sony Group Corporation must give public notice of the stock split, specifying the record date thereof, at least two weeks prior to such record date. Under the central book-entry transfer system operated by JASDEC, Sony Group Corporation must also give notice to JASDEC regarding a stock split at least two weeks prior to the relevant effective date of the stock split. On the effective date of the stock split, the numbers of shares recorded in all accounts held by Sony Group Corporation’s shareholders at account managing institutions or JASDEC will be increased in accordance with the applicable ratio. (Consolidation of shares) Sony Group Corporation may at any time consolidate issued shares into a smaller number of shares by a special shareholders’ resolution. When a consolidation of shares is to be made, Sony Group Corporation must
give public notice or notice to each shareholder at least two weeks prior to the effective date of the consolidation of shares. Under the central book-entry transfer system operated by JASDEC, Sony Group Corporation must also give notice to JASDEC regarding a consolidation of shares at least two weeks prior to the effective date of the consolidation of shares. On the effective date of the consolidation of shares, the numbers of shares recorded in all accounts held by Sony Group Corporation’s shareholders at account managing institutions or JASDEC will be decreased in accordance with the applicable ratio. Sony Group Corporation must disclose the reason for the consolidation of shares at a General Meeting of Shareholders. (General Meeting of Shareholders) The Ordinary General Meeting of Shareholders of Sony Group Corporation for each business year is normally held in June of each year in Tokyo, Japan. In addition, Sony Group Corporation may hold an Extraordinary General Meeting of Shareholders whenever necessary by giving notice thereof at least two weeks prior to the date set for the meeting. Notice of a shareholders’ meeting setting forth the place, time and purpose thereof must be mailed to each shareholder having voting rights (or, in the case of a non-resident shareholder, to such shareholder’s resident proxy or mailing address in Japan) at least two weeks prior to the date set for the meeting. Under the Companies Act, such notice may be given to shareholders by electronic means, subject to obtaining the consent byof the relevant shareholders. The record date for voting rights at an Ordinary General Meeting of Shareholders is March 31 of each year. Under the Companies Act and the Articles of Incorporation, Sony Group Corporation shall take measures to electronically provide to its shareholders (“Electronic Provision”) the contents of reference materials for a General Meeting of Shareholders, etc. 93Notice of a shareholders meeting must set forth the contents of reference materials for a General Meeting of Shareholders, etc. to be provided by way of Electronic Provision and the URL of the website used for Electronic Provision, in addition to the place, time and purpose of the meeting. The contents of reference materials for a General Meeting of Shareholders, etc. must be posted on the website from the earlier of the date three weeks prior to the date set for the meeting or the date on which the notice of the shareholders meeting is dispatched until the date on which three months have elapsed from the meeting. Any shareholder (other than those shareholders consenting to receipt of notice of shareholders’ meeting by electronic means) is entitled to request printed paper copies of the contents of reference materials for a General Meeting of Shareholders, etc. by the record date for voting rights at the relevant General Meeting of Shareholders.
Any shareholder or group of shareholders holding at least 3% of the total number of voting rights for a period of six months or more may require the convocation of a General Meeting of Shareholders for a particular purpose. Unless such a shareholders’ meeting is convened promptly or a convocation notice of a meeting whichthat is to be held notno later than eight weeks from the day of such demandrequest is dispatched, the requiring shareholder requesting the holding of the meeting may, upon obtaining a courtcourt’s approval, convene such a shareholders’ meeting. Any shareholder or group of shareholders holding at least 300 voting rights or 1% of the total number of voting rights for a period of six months or more may propose a matter to be considered at a General Meeting of Shareholders by submitting a written request to Sony Group Corporation at least eight weeks prior to the date set for such meeting.meeting, provided that Sony Group Corporation may limit the number of such matters requested by each shareholder to 10. If the Articles of Incorporation so provide, any of the minimum voting rights or percentages, time periods and number of voting rights necessary for exercising the minority shareholder rights described above may be decreased or shortened. Sony Group Corporation’s Articles of Incorporation currently do not include any such provisions. So long as Sony Group Corporation maintains the unit share system, a holder of shares constituting one or more units is entitled to one vote for each such unit of stock (refer to “ ” below; currently 100 shares constitute one unit), except that no voting rights with respect to shares of capital stock of Sony Group Corporation are afforded to Sony Group Corporation or any corporate or certain other entities more than one-quarter of the total voting rights of which are directly or indirectly held by Sony Group Corporation. If Sony Group Corporation eliminates from its Articles of Incorporation the provisions relating to units of stock, holders of capital stock will have one vote for each share they hold. Except as otherwise provided by law or by the
Articles of Incorporation of Sony Group Corporation, a resolution can be adopted at a General Meeting of Shareholders by a majority of the number of voting rights of all the shareholders represented at the meeting. The Companies Act and Sony Group Corporation’s Articles of Incorporation provide, however, that the quorum for the election of Directors shall be one-third of the total number of voting rights of all the shareholders. Sony Group Corporation’s shareholders are not entitled to cumulative voting in the election of Directors. Shareholders may cast their votes in writing and may also exercise their voting rights through proxies, provided that the proxies are also shareholders holding voting rights. Shareholders may also exercise their voting rights by electronic means pursuant to the method designated by Sony Group Corporation. The Companies Act and the Articles of Incorporation of Sony Group Corporation provide that in order to amend the Articles of Incorporation and in certain other instances, including: | (1) | acquisition of its own shares from a specific party other than its subsidiaries; |
| (3) | any offering of new shares or existing shares held by Sony Group Corporation as treasury stock at a “specially favorable” price (or any offering of stock acquisition rights to acquire shares of capital stock, or bonds with stock acquisition rights on “specially favorable” conditions) to any persons other than shareholders; |
| (4) | the exemption of liability of a Director, Corporate Executive Officer or independent auditor with certain exceptions; |
| (5) | a reduction of stated capital with certain exceptions; |
| (6) | a distribution of in-kind dividends which meets certain requirements; |
| (7) | dissolution, merger, consolidation, or corporate split with certain exceptions; |
| (8) | the transfer of the whole or a material part of the business; |
| (9) | the transfer of the whole or a part of the shares or equity interests in a subsidiary which meets certain requirements; |
| (10) | the taking over of the whole of the business of any other corporation with certain exceptions; or |
| (11) | share exchange or share transfer for the purpose of establishing 100% parent-subsidiary relationships with certain exceptions,exceptions; or |
| (12) | partial share exchange for the purpose of establishing parent-subsidiary relationships with certain exceptions, |
the quorum shall be one-third of the total number of voting rights of all the shareholders, and the approval by at least two-thirds of the number of voting rights of all the shareholders represented at the meeting is required (the “special shareholders’ resolutions”). (Issue of additional shares and pre-emptive rights) Holders of Sony Group Corporation’s shares of capital stock have no pre-emptive rights under its Articles of Incorporation. Authorized but unissued shares may be issued, or existing shares held by Sony Group Corporation as treasury stock may be transferred, at such times and upon such terms as the Board of Directors or the CEO determines, subject to the limitations as to the offering of new shares or transfer of existing shares held by Sony Group Corporation as treasury stock at a “specially favorable” price mentioned under “ ” above. In the case of an issuance of shares (including a transfer of existing shares held by Sony Group Corporation as treasury stock) or stock acquisition rights whereby any subscriber will hold more than 50% of the voting rights of all shareholders, generally Sony Group Corporation shall give public notice at least two weeks prior to the payment date for such issuance, and if shareholders who hold one-tenth or more of the voting rights of all shareholders dissent from the issuance of shares or stock acquisition rights, the approval by a resolution of a General Meeting of Shareholders is generally required before the payment date pursuant to the Companies Act. In addition, in the case of an issuance of shares (including a transfer of existing shares held by Sony Group Corporation as treasury stock) or stock acquisition rights by way of an allotment to a third party which would dilute the outstanding voting shares by 25% or more or change the controlling shareholder, in addition to a resolution of the Board of Directors or a determination by the CEO, the approval of the shareholders or an
affirmative vote from a person independent of the management is generally required pursuant to the rules of the TSE. The Board of Directors or the CEO may, however, determine that shareholders shall be given subscription rights regarding a particular issue of new shares, in which case such rights must be given on uniform terms to all shareholders as of a record date of which not less than two weeks’ prior public notice is given. Each of the shareholders to whom such rights are given must also be given notice of the expiry thereof at least two weeks prior to the date on which such rights expire. Subject to certain conditions, Sony Group Corporation may issue stock acquisition rights by a resolution of the Board of Directors or a determination by the CEO. Holders of stock acquisition rights may exercise their rights to acquire a certain number of shares within the exercise period as prescribed in the terms of their stock acquisition rights. Upon exercise of stock acquisition rights, Sony Group Corporation will be obliged to issue the relevant number of new shares or alternatively to transfer the necessary number of treasury stock held by it. In cases where a particular issue of new shares or stock acquisition rights (i) violates laws and regulations or Sony Group Corporation’s Articles of Incorporation, or (ii) will be performed in a materially unfair manner, and shareholders may suffer disadvantages therefrom, such shareholders may file an injunction to enjoin such issue with a court. In the event of a liquidation of Sony Group Corporation, the assets remaining after payment of all debts, liquidation expenses and taxes will be distributed among the holders of shares of Common Stock in proportion to the respective numbers of shares of Common Stock held. March 31 is the record date for Sony Group Corporation’s year-end dividends, if declared. So long as Sony Group Corporation maintains the unit share system, shareholders who are registered as the holders of one or more unit of stock in Sony Group Corporation’s register of shareholders at the end of each March 31 are also entitled to exercise shareholders’ rights at the Ordinary General Meeting of Shareholders with respect to the business year ending on such March 31. September 30 is the record date for interim dividends, if declared. In addition, Sony Group Corporation may set a record date for determining the shareholders entitled to other rights and for other purposes by giving at least two weeks’ prior public notice. JASDEC is required to promptly give Sony Group Corporation notice of the names and addresses of Sony Group Corporation’s shareholders, the numbers of shares of Common Stock held by them and other relevant information as of such respective record dates. The price of shares generally goes ex-dividends or ex-rights on Japanese stock exchanges on the business day immediately prior to a record date (or if the record date is not a business day, the second business day prior thereto), for the purpose of dividends or rights offerings.
(Acquisition by Sony Group Corporation of its capital stock) Under the Companies Act and the Articles of Incorporation of Sony Group Corporation, Sony Group Corporation may acquire shares of Common Stock (i) from a specific shareholder other than any of its subsidiaries (pursuant to the special shareholders’ resolution), (ii) from any of its subsidiaries (pursuant to a determination by the CEO as delegated byresolution of the Board of Directors), or (iii) by way of purchase on any Japanese stock exchange on which Sony Group Corporation’s shares of Common Stock are listed or by way of tender offer (pursuant to a resolution of the Board of Directors, as long as its non-consolidated annual financial statements and certain documents for the last business year present fairly its assets and profit or loss, as required by ordinances of the Ministry of Justice). In the case of (i) above, any other shareholder may make a request to Sony Group Corporation that such other shareholder be included as a seller in the proposed purchase, provided that no such right will be available if the purchase price or any other consideration to be received by the relevant specific shareholder will not exceed the last trading price of the shares on the relevant stock exchange on the day immediately preceding the date on which the resolution mentioned in (i) above was adopted (or, if there is no trading in the shares on the stock exchange or if the stock exchange is not open on such day, the price at which the shares are first traded on such stock exchange thereafter). The total amount of the purchase price of shares of Common Stock may not exceed the Distributable Amount, as described in “( ) — Distributions of Surplus — Restriction on distribution of Surplus.”
Shares acquired by Sony Group Corporation may be held for any period or may be retired at the determination of the CEO. Sony Group Corporation may also transfer (by public or private sale or otherwise) to any person the treasury stock held by it, subject to a determination byat such times and upon such terms as the Board of Directors or the CEO determines, and subject also to other requirements similar to those applicable to the issuance of new shares, as described in “ (Issue of additional shares and pre-emptive rights) ” above. Sony Group Corporation may also utilize its treasury stock for the purpose of transfer to any person upon exercise of stock acquisition rights or for the purpose of acquiring another company by way of merger, share exchange, partial share exchange or corporate split through exchange of treasury stock for shares or assets of the acquired company. The Articles of Incorporation of Sony Group Corporation provide that 100 shares constitute one “unit” of shares of stock. The Board of Directors or the Corporate Executive Officer to whom the authority to make such a determination has been delegated by a resolution of the Board of Directors is permitted to amend the Articles of Incorporation to reduce the number of shares that constitute a unit or to abolish the unit share system entirely. Under the Companies Act, the number of shares constituting one unit cannot exceed 1,000 shares nor 0.5% of the total number of issued shares. Under the unit share system, shareholders have one voting right for each unit of stock that they hold. Any number of shares less than one full unit have neither voting rights nor rights related to voting rights. Holders of shares constituting less than one unit will have no other shareholder rights if Sony Group Corporation’s Articles of Incorporation so provide, except that such holders may not be deprived of certain rights specified in the Companies Act or an ordinance of the Ministry of Justice, including the right to receive distribution of Surplus. A holder of shares constituting less than one full unit may require Sony Group Corporation to purchase such shares at their market value in accordance with the provisions of the Share Handling Regulations of Sony Group Corporation. In addition, the Articles of Incorporation of Sony Group Corporation provide that a holder of shares constituting less than one full unit may request Sony Group Corporation to sell to such holder such amount of shares which will, when added together with the shares constituting less than one full unit, constitute one full unit of stock. Such request by a holder and the sale by Sony Group Corporation must be made in accordance with the provisions of the Share Handling Regulations of Sony Group Corporation. As prescribed in the Share Handling Regulations, such requests shall be made through an account management institution and JASDEC pursuant to the rules set by JASDEC, without going through the notification procedure required for the exercise of the shareholders’ rights to which shareholders are entitled, regardless of whether such shareholder held shares on the requisite record date, as described in “ .” Shares constituting less than a full unit are transferable, under the central book-entry transfer system described in “ .” Under the rules of the Japanese stock exchanges, however, shares constituting less than a full unit do not comprise a trading unit, except in limited circumstances, and accordingly may not be sold on the Japanese stock exchanges.
(Sale by Sony Group Corporation of shares held by shareholders whose location is unknown) Sony Group Corporation is not required to send a notice to a shareholder if a notice to such shareholder fails to arrive at the registered address of the shareholder in Sony Group Corporation’s register of shareholders or at the address otherwise notified to Sony Group Corporation continuously for five years or more. In addition, Sony Group Corporation may sell or otherwise dispose of shares of capital stock for which the location of the shareholder is unknown. Generally, if (i) notices to a shareholder fail to arrive continuously for five years or more at the shareholder’s registered address in Sony Group Corporation’s register of shareholders or at the address otherwise notified to Sony Group Corporation, and (ii) the shareholder fails to receive distributions of Surplus on the shares continuously for five years or more at the address registered in Sony Group Corporation’s register of shareholders or at the address otherwise notified to Sony Group Corporation, Sony Group Corporation may sell or otherwise dispose of such shareholder’s shares at the then market price of the shares by a determination of a Corporate Executive Officer and after giving at least three months’ prior public and individual notice, and hold or deposit the proceeds of such sale or disposal of shares for such shareholder. Reporting of substantial shareholdings The Financial Instruments and Exchange Act of Japan and its related regulations require any person, regardless of residence, who has become, beneficially and solely or jointly, a holder of more than 5% of the total issued shares of capital stock of a company listed on any Japanese stock exchange or whose shares are traded on the market in Japan to file with the Director General of the competent Local Finance Bureau of
the Ministry of Finance within five business days a report concerning such shareholdings. A similar report must also be filed in respect of any subsequent change of 1% or more in any such holding, or any change in material matters set out in reports previously filed, with certain exceptions. For this purpose, shares issuable to such persons upon conversion of convertible securities or exercise of share subscription warrants or stock acquisition rights are taken into account in determining both the number of shares held by such holders and the issuer’s total issued share capital. Any such report shall be filed with the Director General of the relevant Local Finance Bureau of the Ministry of Finance through the Electronic Disclosure for Investors’ Network (EDINET) system. Except for the general limitation under Japanese anti-trust and anti-monopoly regulations against holding of shares of capital stock of a Japanese corporation which leads or may lead to a restraint of trade or monopoly, except for the limitations under the Foreign Exchange Regulations as described in “D. Exchange Controls” below, and except for general limitations under the Companies Act or Sony Group Corporation’s Articles of Incorporation on the rights of shareholders applicable regardless of residence or nationality, there is no limitation under Japanese laws and regulations applicable to Sony Group Corporation or under its Articles of Incorporation on the rights of non-residents or foreign shareholders to hold or exercise voting rights on the shares of capital stock of Sony Group Corporation. There is no provision in Sony Group Corporation’s Articles of Incorporation or internal regulations that would have an effect of delaying, deferring or preventing a change in control of Sony Group Corporation and that would operate only with respect to a merger, acquisition or corporate restructuring involving Sony Group Corporation. Japanese Foreign Exchange Controls Regulations The following is a general summary of major Japanese foreign exchange controls regulations applicable to holders of shares of capital stock or voting rights of Sony Group Corporation who are “exchange non-residents” or “foreign investors,” as described below. The statements regarding Japanese foreign exchange control regulations set forth below are based on the laws and regulations in force and as interpreted by the Japanese authorities as of the date of this annual report and are subject to subsequent changes in the applicable Japanese laws or interpretations thereof. This summary is not exhaustive of all possible foreign exchange controls considerations that may apply to a particular investor, and potential investors are advised to satisfy themselves as to the overall foreign exchange controls consequences of the acquisition, ownership and disposition of shares of capital stock or voting rights of Sony Group Corporation by consulting their own advisors. The Foreign Exchange and Foreign Trade Act of Japan (the “FEFTA”)FEFTA) and its related cabinet orders and ministerial ordinances (collectively, the “Foreign Exchange Regulations”) govern certain aspects relating to the
acquisition and holding of shares of capital stock and voting rights of Sony Group Corporation by “exchange non-residents” and by “foreign investors” (as these terms are defined below). The Foreign Exchange Regulations also apply to the acquisition and holding of ADSs and the exercise of voting rights by holders of ADSs who are “foreign investors” that constitute an “inward direct investment” (as defined below). Except as described below with respect to an “inward direct investment” by a “foreign investor”, the Foreign Exchange Regulations currently in effect do not affect transactions between exchange non-residents to purchase or sell shares of a Japanese listed corporation outside Japan using currencies other than Japanese yen. In general, the acquisition of shares of a Japanese corporation (such as the shares of capital stock of Sony Group Corporation) by an exchange non-resident from an exchange resident requires post facto reporting by the exchange resident to the Minister of Finance. No such reporting requirement is imposed, however, if: | (i) | the aggregate purchase price of the relevant shares is 100 million yen or less; |
| (ii) | the acquisition is effected through any bank, financial instruments business operator or other entity prescribed by the Foreign Exchange Regulations acting as an agent or intermediary; or |
| (iii) | the acquisition constitutes an “inward direct investment” described below (in which case a prior notification requirement may apply). |
Exchange residents are defined in the Foreign Exchange Regulations as: | (i) | individuals who reside within Japan; or |
| (ii) | corporations whose principal offices are located within Japan. |
Exchange non-residents are defined in the Foreign Exchange Regulations as: | (i) | individuals who do not reside in Japan; or |
| (ii) | corporations whose principal offices are located outside Japan. |
Generally, branches and other offices of non-resident corporations that are located within Japan are regarded as exchange residents. Conversely, branches and other offices of Japanese corporations located outside Japan are regarded as exchange non-residents. Inward Direct Investment in Shares of Listed Corporations On May 8, 2020, an amendment to the Foreign Exchange Regulations (the “Amendment”) came into effect. By the full implementation of the Amendment on June 7, 2020 (the “Implementation of the Amendment”), the requirements and procedures regarding the prior notifications of inward direct investment to the Minister of Finance and any other competent Ministers under the FEFTA were amended, as described below.
Definition of Foreign Investor Foreign investors are defined in the Foreign Exchange Regulations as: | (i) | individuals who are exchange non-residents; |
| (ii) | corporations or other entities that are organized under the laws of foreign countries or whose principal offices are located outside Japan; |
| (iii) | corporations of which 50% or more of the total voting rights are held, directly or indirectly, by individuals and/or corporations falling within (i) and/or (ii) above; |
| (iv) | partnerships under the Civil Code of Japan established to invest in corporations, limited partnerships for investment under the Limited Partnership Act for Investment of Japan or any other similar partnerships under foreign law of which (a) 50% or more of the total contributions are made by individuals and/or corporations falling within (i), (ii), (iii) above and/or (v) below or any other persons prescribed under the Foreign Exchange Regulations or (b) a majority of the general partners are individuals and/or corporations falling within (i), (ii), (iii) above and/or (v) below or any other persons prescribed under the Foreign Exchange Regulations; or |
| (v) | corporations or other entities, a majority of whose directors or other officers (or directors or other officers having the power of representation) are individuals who are exchange non-residents. |
Definition of Inward Direct Investment Prior to the Implementation of the Amendment, ifIf a foreign investor acquiredacquires shares or voting rights of a Japanese corporation that is listed on a Japanese stock exchange (such as the shares of capital stock of Sony Group Corporation) or that is traded on an market in Japan and, as a result of the acquisition, the foreign investor, in combination with any existing holdings, directly or indirectly held 10%holds 1% or more of the total number of issued shares or the total number of voting rights of the relevant corporation, such acquisition constitutedconstitutes an “inward direct investment.” By the Implementation of the Amendment, the threshold for the acquisition of shares or voting rights that constitutes an “inward direct investment” was lowered from 10% to 1%. In addition, the acquisition of the authority to exercise, either directly or through instructions, voting rights held by other shareholders that results in the foreign investor, in combination with any existing shareholding, directly or indirectly holding 1% or more of the total number of voting rights of the relevant corporation constitutes an “inward direct investment.” In addition to the acquisitions of shares or voting rights described above, prior to the Implementation of the Amendment, if a foreign investor (i) wasis granted the authority to exercise voting rights on behalf of other shareholders of the relevanta Japanese listed corporation regarding certain matters controllingwhich may give such foreign investor the power to control, or havingmay have a material influence on the management of such corporation, such as the election or removal of directors, or (ii) obtainedobtains consent from another foreign investor holding the voting rights of the relevant corporation to exercise the voting rights of such
corporation held by such other foreign investor jointly, and, in each case, as a result of these arrangements, the number of the voting rights directly or indirectly held by the foreign investor, including the total number of the voting rights subject to such proxy,authorization to exercise, or the sum of the number of the voting rights directly or indirectly held by the foreign investor and such other foreign investor subject to such joint voting agreement, as the case may be, wasis 10% or more of the total number of voting rights of the relevant corporation, each such arrangement regarding voting rights (hereinafter referred to as a “voting arrangement”) also constituted an “inward direct investment,” and still constitutes an “inward direct investment” after the Implementation of the Amendment.. Additionally, after the Implementation of the Amendment, if a foreign investor directly or indirectly holds 1% or more of the total voting rights of a Japanese listed corporation and, at a general meeting of shareholders, consents to certain proposals having a material influence on the management of such corporation such as the (i) election of such foreign investor or any of its related persons (as defined in the Foreign Exchange Regulations) as a director or corporate auditor of the relevant corporation or (ii) transfer or discontinuation of its business, such consent also constitutes an “inward direct investment.” Prior Notification Requirements regarding Inward Direct Investment Prior to the Implementation of the Amendment, ifIf a foreign investor intendedintends to consummate an acquisition of shares or voting rights of a Japanese listed corporation or the authority to exercise, either directly or through instructions, voting rights held by other shareholders that constitutedconstitutes an “inward direct investment” as described above, unless certain exemptions appliedapply (such as where the foreign investor is in a country that is listed on an exemption schedule in the Foreign Exchange Regulations and where that Japanese corporation is not engaged in certain businesses (the “Designated Businesses”) designated by the Foreign Exchange Regulations), a prior notification of the relevant inward direct investment wasis required to be filed with the Minister of Finance and any other competent Ministers. After the Implementation of the Amendment, such prior notification is still required in such circumstances as described above but the definition of “inward direct investment” is expanded as described in “Definition of Inward Direct Investment.”
However, after the Implementation of the Amendment, if a foreign investor is seeking to acquire shares or voting rights of a Japanese listed corporation or the authority to exercise, either directly or through instructions, voting rights held by other shareholders and such acquisition would constitute an “inward direct investment”, such foreign investor may be eligible for the newly introduced exemptions if certain conditions are met. In the case of an acquisition of shares or voting rights or the authority to exercise, either directly or through instructions, voting rights of a Japanese listed corporation that is engaged in a Designated Business other than certain Designated Business designated by the Foreign Exchange Regulations as a core sector business (the “Core Sector Designated Businesses”), the foreign investor may be exempted from the prior notification requirement if such foreign investor complies with the following conditions (the “Exemption Conditions”): | (i) | the foreign investor or its related persons will not become directors or corporate auditors of the relevant corporation; |
| (ii) | the foreign investor will not make certain proposals (as prescribed in the Foreign Exchange Regulations) at the general meeting of shareholders, including transfer or discontinuation of the Designated Businesses of the relevant corporation; and |
| (iii) | the foreign investor will not access non-public technical information in relation to the Designated Businesses of the relevant corporation, or take certain other actions that may lead to the leak of such non-public technical information (as prescribed in the Foreign Exchange Regulations). |
In addition, in the case of an acquisition of shares or voting rights or the authority to exercise, directly or through instructions, voting rights of a Japanese listed corporation that is engaged in the Core Sector Designated Businesses, the foreign investor may be exempted from the prior notification requirement, if, as a result of such acquisition, the foreign investor, in combination with any existing holdings, directly or indirectly holds less than 10% of the total number of issued shares or voting rights of the relevant corporation and such foreign investor complies with the Exemption Conditions and the following additional conditions: | (i) | the foreign investor will not attend, or not cause any persons designated by it to attend, meetings of the relevant corporation’s board of directors, or meetings of committees having authority to make important decisions, in respect of the Core Sector Designated Businesses of the relevant corporation; and |
| (ii) | the foreign investor will not make, or not cause any persons designated by it to make, proposals to such board or committees or their members in writing or electronic form requesting any response or actions by certain deadlines in respect of the Core Sector Designated Businesses of the relevant corporation. |
Notwithstanding the above, if a foreign investor falls under a category of disqualified investors designated by the Foreign Exchange Regulations (including (a) investors who have recordsbeen sanctioned during the previous five
years due to violations of the FEFTA and (b) certain investors that are state-owned enterprises or other related entities that are not otherwise accredited by the Minister of Finance), in no event may such foreign investor be eligible for the exemptions described above. On the other hand, if a foreign investor, excluding the disqualified investors described in the foregoing sentence, falls under a category of certain foreign financial institutions (as prescribed in the Foreign Exchange Regulations) and complies with the Exemption Conditions, such foreign investor may be eligible for the exemptions described above, even if the acquisition results in such foreign investor’s directly or indirectly holding 10% or more of the total number of issued shares or voting rights of the corporation engaged in the Core Sector Designated Businesses, which would have required prior notification before the Implementation of the Amendment.Businesses. For reference purposes only, the Minister of Finance publishes, and may update from time to time, a list that classifies Japanese listed corporations into the following categories: (i) corporations engaged only in businesses other than the Designated Businesses, (ii) corporations engaged in Designated Businesses other than Core Sector Designated Businesses and (iii) corporations engaged in the Core Sector Designated Businesses. According to the list published by the Minister of Finance, as of May 8, 2020,19, 2023, Sony Group Corporation is classified as category (iii) above. In addition, if a foreign investor intends to make a voting arrangement with respect to a Japanese listed corporation engaged in the Designated Businesses or after the Implementation of the Amendment, consents to a proposal at the general meeting of shareholders of such corporation, in each case, that constitutes an “inward direct investment” as described in “Definition of Inward Direct Investment” above, in certain circumstances, prior notification of the relevant inward direct investment must be filed with the Minister of Finance and any other competent Ministers. In such cases, the newly introduced exemptions from the prior notification requirements may not be available, except for cases where the relevant voting arrangement is a joint voting agreement with other foreign investors to exercise voting rights regarding matters other than certain matters with respectwhich may give such foreign investor the power to controllingcontrol, or havingmay have a material influence on the management of the relevant corporation, such as the election or removal of directors, which would have required prior notification before the Implementation of the Amendment.directors. Acquisitions of shares by foreign investors by way of stock split are not subject to the foregoing notification requirements. Procedures for Prior Notification regarding Inward Direct Investment If such prior notification is filed, the proposed inward direct investment may not be consummated until 30 days after the date of filing during which time the Ministers will review the proposed inward direct investment, although this screening period may be shortened to two weeks by such Ministers if they no longer deem it necessary to review the proposed inward direct investment.investment, or may be shortened to five business days, if the proposed inward direct investment is determined not to raise concerns from the perspective of national security or certain other factors. The Ministers may extend the screening period up to five months if they deem it necessary to continue to review the proposed inward direct investment, and may
recommend any modification or abandonment of the proposed inward direct investment and, if the foreign investor does not accept such recommendation, the Ministers may order the modification or abandonment of such inward direct investment. In addition, if the Ministers consider the proposed inward direct investment to be an inward direct investment that is likely to cause damage to the national security of Japan, to interfere with the maintenance of public order or to pose an obstacle to the preservation of public safety, and, if a foreign investor (i) consummates such inward direct investment without filing the prior notification described above; (ii) consummates such inward direct investment before the expiration of the screening period described above; (iii) in connection with such inward direct investment, makes false statements in the prior notification described above; or (iv) does not follow the recommendation or order issued by the Ministers to modify or abandon such inward direct investment, the Ministers may order such foreign investor to divest all or part of the shares acquired or take other measures. Post Facto Reporting Requirements regarding Inward Direct Investment After the Implementation of the Amendment, aA foreign investor who consummates an inward direct investment as described above through an acquisition of shares or voting rights or the authority to exercise, directly or through instructions, voting rights of a Japanese listed corporation that is engaged in the Designated Businesses, but is not subject to the prior notification requirements described above due to the exemptions from such prior notification requirements, in general, must file a post facto report of the relevant inward direct investment with the Minister of Finance and any other competent Ministers having jurisdiction over such Japanese corporation within 45 days of the date when, as a result of such acquisition, the foreign investor, in combination with any existing holdings, directly or indirectly holds (i) 1% or more but less than 3% of the total number of issued shares or voting rights, for the first time, (ii) 3% or more but less than 10% of the total number of issued shares or voting rights, for the first time, or (iii) 10%
or more of the total number of issued shares or voting rights (excluding, in the cases of (i) and (ii) above, a foreign investor who falls under a category of certain foreign financial institutions (as prescribed in the Foreign Exchange Regulations)). In addition, if a foreign investor consummates the inward direct investment described above through the acquisition of shares or voting rights or the authority to exercise, directly or through instructions, voting rights of a Japanese listed corporation that is not engaged in the Designated Businesses (which is, in general, not subject to the prior notification requirements described above) and, as a result of such inward direct investment, such foreign investor, in combination with any existing holdings, directly or indirectly holds 10% or more of shares or voting rights of the total number of issued shares or voting rights of the relevant corporation, such foreign investor, in general, must file a post facto report of the relevant inward direct investment with the Minister of Finance and any other competent Ministers having jurisdiction over such Japanese corporation within 45 days of such inward direct investment. In addition, after the Implementation of the Amendment, if a foreign investor consummates the inward direct investment described above through a voting arrangement with respect to a Japanese listed corporation that is not engaged in the Designated Businesses (which is, in general, not subject to the prior notification requirements described above), such foreign investor, in general, must file a post facto report of the relevant inward direct investment with the Minister of Finance and any other competent Ministers having jurisdiction over such Japanese corporation within 45 days of such inward direct investment. Acquisitions of shares by foreign investors by way of stock split are not subject to the foregoing reporting requirements. Dividends and Proceeds of Sale Under the Foreign Exchange Regulations, dividends paid on and the proceeds from sales in Japan of shares of capital stock of Sony Group Corporation held by exchange non-residents may generally be converted into any foreign currency and repatriated abroad. The following is a summary of the major Japanese national tax and U.S. federal income tax consequences of the ownership, acquisition and disposition of shares of Common Stock of Sony Group Corporation and of ADRs evidencing ADSs representing shares of Common Stock of Sony Group Corporation by a non-resident of Japan or a non-Japanese corporation without a permanent establishment in Japan. The summary does not purport to be a comprehensive description of all of the tax considerations that may be relevant to any particular investor, and does not take into account any specific individual circumstances of any particular investor. Accordingly, holders of shares of Common Stock or ADSs of Sony Group Corporation are encouraged to consult their tax advisors regarding the application of the considerations discussed below to their particular circumstances.
This summary is based upon the representations of the depositary and the assumption that each obligation in the deposit agreement in relation to the ADSs dated as of October 15, 2014, and in any related agreement, will be performed in accordance with its terms. For purposes of the income tax convention between Japan and the United States (the “Treaty”) and the U.S. Internal Revenue Code of 1986, as amended (the “Code”), U.S. holders of ADSs generally will be treated as owning shares of Common Stock of Sony Group Corporation underlying the ADSs evidenced by the ADRs. For the purposes of the following discussion, a “U.S. holder” is a holder that: | (i) | is a resident of the U.S. for purposes of the Treaty; |
| (ii) | does not maintain a permanent establishment in Japan (a) with which shares of Common Stock or ADSs of Sony Group Corporation are effectively connected and through which the U.S. holder carries on or has carried on business or (b) of which shares of Common Stock or ADSs of Sony Group Corporation form part of the business property; and |
| (iii) | is eligible for benefits under the Treaty with respect to income and gain derived in connection with shares of Common Stock or ADSs of Sony Group Corporation. |
The following is a summary of the principal Japanese tax consequences (limited to national taxes) to non-residents of Japan or non-Japanese corporations without a permanent establishment in Japan (“non-resident Holders”) who are holders of shares of Common Stock of Sony Group Corporation or of ADRs evidencing ADSs representing shares of Common Stock of Sony Group Corporation. The information given below regarding Japanese taxation is based on the tax laws and tax treaties in force and their interpretations by the Japanese tax
authorities as of June 26, 2020.20, 2023. Tax laws and tax treaties as well as their interpretations may change at any time, possibly with retroactive effect. Sony Group Corporation will not update this summary for any changes in the tax laws or tax treaties or their interpretation that occurs after such date. Generally, non-resident Holders are subject to Japanese withholding tax on dividends paid by Japanese corporations. Such taxes are withheld prior to payment of dividends as required by Japanese law. Stock splits are, in general, not a taxable event. In the absence of an applicable tax treaty, convention or agreement reducing the maximum rate of Japanese withholding tax or allowing exemption from Japanese withholding tax, the rate of Japanese withholding tax applicable to dividends paid by Japanese corporations to non-resident Holders is generally 20.42%, provided, with respect to dividends paid on listed shares issued by a Japanese corporation (such as the shares of Common Stock or ADSs of Sony Group Corporation) to non-resident Holders other than any non-resident Holder who is an individual shareholder who holdsholding 3% or more of the total shares issued by the relevant Japanese corporation, the aforementioned 20.42% withholding tax rate is reduced to 15.315% for dividends due and payable on or before December 31, 2037. Due to the imposition of a special additional withholding tax (2.1 %(2.1% of the original withholding tax amount) to secure funds for reconstruction from the Great East Japan Earthquake, the original withholding tax rates of 15% and 20% as applicable, have been effectively increased to 15.315% and 20.42%, respectively, until December 31, 2037. As of the date of this document, Japan has income tax treaties, conventions or agreements in force, whereby the above-mentioned withholding tax rate is reduced, in most cases to 15%, 10% or 10%5% for portfolio investors (15% under the income tax treaties with, among other countries, Canada, Denmark, Finland, Germany, Iceland, Ireland, Italy, Luxembourg, New Zealand, Norway Singapore and Spain, andSingapore, 10% under the income tax treaties with, among other countries, Australia, Austria, Belgium, France, Hong Kong, the Netherlands, Portugal, Sweden, Switzerland, the U.K. and the United States)States, and 5% under the income tax treaties with, among other countries, Spain). Under the Treaty, the maximum rate of Japanese withholding tax that may be imposed on dividends paid by a Japanese corporation to a U.S. holder that does not own directly or indirectly at least 10% of the voting stock of the Japanese corporation is generally reduced to 10% of the gross amount actually distributed, and dividends paid by a Japanese corporation to a U.S. holder that is a pension fund are exempt from Japanese income taxation by way of withholding or otherwise unless such dividends are derived from the carrying on of a business, directly or indirectly, by such pension fund. If the maximum tax rate provided for in the income tax treaty applicable to dividends paid by Sony Group Corporation to any particular non-resident Holder is lower than the withholding tax rate otherwise applicable under Japanese tax law, or if any particular non-resident Holder is exempt from Japanese income tax with respect to such dividends under the income tax treaty applicable to such particular non-resident Holder, such non-resident Holder who is entitled to a reduced rate of or exemption from Japanese withholding tax on payment of dividends on shares of Common Stock by Sony Group Corporation is, in principle, required to submit an Application Form for Income Tax Convention Regarding Relief from Japanese Income Tax and Special Income Tax for Reconstruction on Dividends (together with any other required forms and documents) in advance through the
withholding agent to the relevant tax authority before the payment of dividends. A standing proxy for non-resident Holders of a Japanese corporation may provide this application service. In this regard, a certain simplified special filing procedure is available for non-resident Holders to claim treaty benefits of exemption from or reduction of Japanese withholding tax, by submitting a Special Application Form for Income Tax Convention Regarding Relief from Japanese Tax and Special Income Tax for Reconstruction on Dividends of Listed Stock (together with any other required forms and documents). With respect to ADSs, this reduced rate or exemption is applicable if the depositary or its agent submits two Application Forms (one before payment of dividends and the other within eight months after the record date concerning such payment of dividends). To claim this reduced rate or exemption, a non-resident Holder of ADSs will be required to file a proof of taxpayer status, residence and beneficial ownership (as applicable) and to provide other information or documents as may be required by the depositary. A non-resident Holder who is entitled, under an applicable income tax treaty, to a reduced rate which is lower than the withholding tax rate otherwise applicable under Japanese tax law or an exemption from the withholding tax, but failed to submit the required application in advance will be entitled to claim the refund of taxes withheld in excess of the rate under an applicable tax treaty (if such non-resident Holder is entitled to a reduced treaty rate under the applicable income tax treaty) or the full amount of tax withheld (if such non-resident Holder is entitled to an exemption under the applicable income tax treaty) from the relevant Japanese tax authority, by complying with a certain subsequent filing procedure. Sony Group Corporation does not assume any responsibility to ensure withholding at the reduced treaty rate or to ensure the absence of withholding for shareholders who would be so eligible under any applicable income tax treaty but where the required procedures as stated above are not followed.
Gains derived from the sale of shares of Common Stock or ADSs of Sony Group Corporation outside Japan by a non-resident Holder holding such shares or ADSs as portfolio investors are, in general, not subject to Japanese income tax or corporation tax under Japanese tax law. U.S. holders are not subject to Japanese income or corporation tax with respect to such gains under the Treaty. Japanese inheritance tax and gift tax at progressive rates may be payable by an individual who has acquired from another individual shares of Common Stock or ADSs of Sony Group Corporation as a legatee, heir or donee even though neither the acquiring individual nor the deceased nor donor is a Japanese resident. Holders of shares of Common Stock or ADSs of Sony Group Corporation should consult their tax advisors regarding the effect of these taxes and, in the case of U.S. holders, the possible application of the Estate and Gift Tax Treaty between the U.S. and Japan. United States Taxation with respect to shares of Common Stock and ADSs The U.S. dollar amount of dividends received (prior to deduction of Japanese taxes) by a U.S. holder of ADSs or Common Stock of Sony Group Corporation will be included in income as ordinary income for U.S. federal income tax purposes to the extent paid out of current or accumulated earnings and profits of Sony Group Corporation as determined for U.S. federal income tax purposes. Subject to certain exceptions for short-term and hedged positions, theThe U.S. dollar amount of dividends received by a non-corporate U.S. holder with respect to the ADSs or Common Stock will be subject to taxation at a reduced rate if the dividends are “qualified dividends.” DividendsSubject to certain exceptions for short-term and hedged positions, dividends paid on the ADSs or Common Stock will be treated as qualified dividends if Sony Group Corporation was not, in the year prior to the year in which the dividend was paid, and is not, in the year in which the dividend is paid a passive foreign investment company (“PFIC”). Based on Sony Group Corporation’s audited financial statements and relevant market and shareholder data, Sony Group Corporation believes that it was not treated as a PFIC for U.S. federal income tax purposes with respect to its taxable year ended March 31, 2020.2023. In addition, based on Sony Group Corporation’s audited financial statements and Sony Group Corporation’s current expectations regarding the value and nature of its assets, the sources and nature of its income, and relevant market and shareholder data, Sony Group Corporation does not anticipate becoming a PFIC for the taxable year ending March 31, 2021.2024. Holders of ADSs and Common Stock of Sony Group Corporation should consult their own tax advisors regarding the availability of the reduced dividend tax rate in light of the considerations discussed above and their own particular circumstances. Dividends paid by Sony Group Corporation to U.S. corporate holders of ADSs or Common Stock of Sony Group Corporation will not be eligible for the dividends-received deduction.Subject to applicable limitations and special considerations discussed below, a U.S. holder of ADSs or Common Stock of Sony Group Corporation willmay be entitled to a credit for Japanese tax withheld in accordance with the Treaty from dividends paid by Sony Group Corporation. For purposesThe applicable limitations include new requirements recently adopted by the U.S. Internal Revenue Service that any Japanese tax will need to satisfy in order to be eligible to be a creditable tax for a U.S. holder. In the case of a U.S. holder that properly elects the benefits of the foreignTreaty, the Japanese tax credit limitation,on dividends will be foreign source income,treated as meeting the new requirements and will generally constitute “passive” income.therefore as a creditable tax. In the case of all other U.S. holders, the application of these requirements to the Japanese tax on dividends is uncertain and Sony Group Corporation has not determined whether these requirements have been met. Foreign tax credits will not be allowed for withholding taxes imposed in respect of certain short-term or hedged positions and may not be allowed in respect of arrangements in which economic profit, after non-U.S. taxes, is insubstantial. If the Japanese dividend tax is not a creditable tax for a U.S. holder or the U.S. holder does not elect to claim a foreign tax credit for any foreign income taxes paid or accrued in the same taxable year, the U.S. holder may be able to deduct the Japanese tax in computing such U.S. holder’s taxable income for U.S. federal income tax purposes. Holders of ADSs and Common Stock of Sony Group Corporation should consult their own tax advisors regarding the implications of these rules in light of their particular circumstances.
Dividends paid by Sony Corporation to U.S. corporate holders of ADSs or Common Stock of Sony Corporationthe foreign tax credit limitation, dividends will not be eligible for the dividends-received deduction.foreign source income, and will generally constitute “passive” income.
In general, a U.S. holder will recognize capital gain or loss upon the sale or other disposition of ADSs or Common Stock of Sony Group Corporation equal to the difference between the amount realized on the sale or disposition and the U.S. holder’s tax basis in the ADSs or Common Stock. Such capital gain or loss will be long-term capital gain or loss if the ADSs or Common Stock have been held for more than one year on the date of the sale or disposition. The net amount of long-term capital gain recognized by an individual holder is subject to lower rates of federal income taxation than ordinary income or short-term capital gain rates.
Under the Code, a U.S. holder of ADSs or Common Stock of Sony Group Corporation may be subject, under certain circumstances, to information reporting and possibly backup withholding with respect to dividends and proceeds from the sale or other disposition of ADSs or Common Stock, unless the U.S. holder provides proof of an applicable exemption or correct taxpayer identification number and otherwise complies with applicable requirements of the backup withholding rules. Any amount withheld under the backup withholding rules is not an additional tax and may be refunded or credited against the U.S. holder’s federal income tax liability, so long as the required information is furnished to the U.S. Internal Revenue Service. | Dividends and Paying AgentAgents |
It is possible to read and copy documents referred to in this annual report on Form 20-F that have been filed with the SEC at the SEC’s public reference room located at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at for further information on the public reference rooms and their copy charges. You can also access the documents at the SEC’s home page (http:(https:// www.sec.gov/index.html)www.sec.gov). | Annual Report to Security Holders |
| Quantitative and Qualitative Disclosures about Market Risk |
Sony’s business is continuously exposed to market fluctuation, such as fluctuations in currency exchange rates, interest rates or stock prices. Sony utilizes several derivative instruments, such as foreign exchange forward contracts, foreign currency option contracts, interest rate swap agreementsFor risk management policies and currency swap agreementsexposures for each risk, refer to Note 6 of the consolidated financial statements. For risk inherent in order to hedge the potential downside risk on the cash flow from the normal course ofinsurance business, caused by market fluctuation. Sony uses foreign exchange forward contracts and foreign currency option contracts primarily to reduce the foreign exchange volatility risk that transactions and accounts receivable or accounts payable denominated in yen, U.S. dollars, euros or other currencies have through the normal course of Sony’s worldwide business. Interest rate swap agreements and currency swap agreements are utilized to diversify funding conditions or to reduce funding costs, andwhich is included in the Financial Services segment, these transactions are usedrefer to Note 13 of the consolidated financial statements. For derivative instruments and hedging activities utilized by Sony to reduce such risk, refer to Note 15 of the consolidated financial statements. For credit risk exposure for asset liability management. Sony uses these derivative financial assets of debt instruments mainly for risk-hedging purposes as described above, and some derivative transactions, such as bond futures and bond options, are held or utilized for trading purposes in the Financial Services segment. If hedge accounting cannot be applied because the accounts receivable or accounts payabledesignated to be hedged are not yet booked, or because cash flows from derivative transactions do not coincide with the underlying exposures recorded on Sony’s balance sheet, such derivatives agreements are subject to amark-to-market
evaluation and their unrealized gains or losses are recognized in earnings. In addition, Sony holds marketable securities, such as straight bonds and stocks in yen or other currencies, in the Financial Services segment to obtain interest income or capital gain on the financial assets under management. These securities include a concentration of investments in long-term Japanese national government bonds, for which Sony monitors the related credit ratings and other market information on an ongoing basis. Investments in marketable securities are also subject to market fluctuation.Sony measures the economic impact of market fluctuations on the value of derivatives agreements and marketable securities by usingValue-at-Risk
(“VaR”) analysis in order to comply with Item 11 disclosure
requirements. VaR in this context indicates the potential maximum amount of loss inmeasured at fair value resulting from adverse market fluctuations for a selected periodthrough profit or loss, refer to Note 6 of time and at a selected level of confidence.the consolidated financial statements.
The following table shows the results of VaR. These analyses for the fiscal year ended March 31, 2020 indicate the potential maximum loss in fair value as predicted by the VaR analysis resulting from market fluctuations in one day at a 95% confidence level. The VaR of currency exchange rate risk principally consists of risks arising from the volatility of the exchange rates between the yen and the U.S. dollar and between the yen and the euro, the currencies in which a significant amount of financial assets and liabilities and derivative transactions are maintained on a consolidated basis. The VaR of interest rate risk and stock price risk consists of risks arising from the volatility of the interest rates and stock prices against invested securities and derivatives transactions in the Financial Services segment.
The net VaR for Sony’s entire portfolio is smaller than the simple aggregate of VaR for each component of market risk. This is due to the fact that market risk factors such as currency exchange rates, interest rates and stock prices are not completely independent and potential profits and losses arising from each market risk may be mutually offsetting to some degree.
The disclosed VaR amounts simply represent the calculated maximum potential loss on the specified date and do not necessarily indicate an estimate of actual or future loss.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | VaR of currency exchange rate risk | | | | | | | | | | | | | | | | | VaR of interest rate risk | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | VaR of currency exchange rate risk | | | | | | | | | | | | | | | | | VaR of interest rate risk | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Sony without the Financial Services segment
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | VaR of currency exchange rate risk | | | | | | | | | | | | | | | | | VaR of interest rate risk | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description of Securities Other Than Equity Securities |
| American Depositary Shares |
Citibank N.A. (the “Depositary”) serves as the depositary for Sony Group Corporation’s American Depositary Shares (“ADSs”)ADSs pursuant to a deposit agreement between Sony Group Corporation, the Depositary, and the holders and beneficial owners of ADSs issued thereunder from time to time (the “Deposit Agreement”) (attached as Exhibit 2.1 to this report). ADS holders (“Holders”) may be required to pay various fees to the Depositary and the Depositary may refuse to provide any service for which a fee is assessed until the applicable fee has been paid. The following fees may at any time and from time to time be changed by agreement between Sony Group Corporation and the Depositary.
Under the terms of the Deposit Agreement, Holders may have to pay the following service fees to the Depositary. | | | | | | | | | | | Issuance of ADSs upon deposit of Sony Group Corporation’s Common Stock | | Up to 5.00 U.S. dollar per 100 ADSs (or fraction thereof) issued | | Person depositing Sony Group Corporation’s Common Stock or person receiving ADSs | | | | | | Delivery of deposited securities against surrender of ADSs | | Up to 5.00 U.S. dollar per 100 ADSs (or fraction thereof) surrendered | | Person surrendering ADSs for the purpose of withdrawal of deposited securities or person to whom deposited securities are delivered | | | | | | Distribution of cash dividends or other cash distributions (i.e., sale of rights and other entitlements) | | Up to 5.00 U.S. dollar per 100 ADSs (or fraction thereof) held | | Person to whom distribution is made | | | | | | Distribution of ADSs pursuant to (i) stock dividends or other free stock distributions, (ii) exercise of rights to purchase additional ADSs | | Up to 5.00 U.S. dollar per 100 ADSs (or fraction thereof) held | | Person to whom distribution is made | | | | | | Distribution of securities other than ADSs or rights purchase Additional ADSs (i.e., spin-off shares) | | Up to 5.00 U.S. dollar per 100 ADSs (or fraction thereof) held | | Person to whom distribution is made | | | | | | | | Up to 5.00 U.S. dollar per 100 ADSs (or fraction thereof) held on the applicable record date(s)date (s) established by the Depositary | | Person holding ADSs on the applicable record date(s)date (s) established by the Depositary |
Holders will also be responsible for paying certain charges such as: (i) taxes (including applicable interest and penalties) and other governmental charges; (ii) such registration fees as may from time to time be in effect for the registration of Sony Group Corporation’s Common Stock or other deposited securities on the share register and applicable to transfer of Sony Group Corporation’s Common Stock or other deposited securities to or from the name of the custodian, the Depositary or any nominees upon the making of deposits and withdrawals, respectively; (iii) such cable, telex and facsimile transmission and delivery expenses as are expressly provided in the Deposit Agreement to be at the expense of the person depositing Sony Group Corporation’s Common Stock or withdrawing deposited securities or of the Holders and beneficial owners of ADSs; (iv) the expenses and charges incurred by the Depositary in the conversion of foreign currency; (v) such fees and expenses as are incurred by the Depositary in connection with compliance with exchange control regulations and other regulatory requirements applicable to Sony Group Corporation’s Common Stock, deposited securities, ADSs and ADRs; and (vi) the fees and expenses incurred by the Depositary, the custodian, or any nominee in connection with the servicing or delivery of deposited property. ADS fees and charges payable upon (i) deposit of shares against issuance of ADSs and (ii) surrender of ADSs for cancellation and withdrawal of deposited securities will be payable by the person to whom the ADSs so issued are delivered by the Depositary (in the case of ADS issuances) or by the person who delivers the ADSs for cancellation to the Depositary (in the case of ADS cancellations). In the case of ADSs issued by the Depositary into the Depository Trust Company (DTC) or presented to the Depositary via DTC,the Depository Trust Company, the ADS issuance and cancellation fees and charges will be payable by the DTCDepository Trust Company participant(s) receiving the ADSs from the Depositary or the DTCDepository Trust Company participant(s) surrendering the ADSs to the Depositary for cancellation, as the case may be, on behalf of the beneficial owner(s) and will be charged by the DTCDepository Trust Company participant(s) to the account(s) of the applicable beneficial owner(s) in accordance with the procedures and practices of the DTCDepository Trust Company participant(s) as in effect at the time. ADS fees and charges in respect of distributions and the ADS service fee are payable by Holders as of the applicable ADS record date established by the Depositary. In the case of distributions of cash, the amount of the applicable ADS fees and charges is deducted from the funds being distributed. In the case of (i) distributions other than cash and (ii) the ADS service fee, the applicable Holders as of the ADS record date established by the Depositary will be invoiced for the amount of the ADS fees and charges. For ADSs held through DTC,the Depository Trust Company, the ADS fees and charges for distributions other than cash and the ADS service fee are charged to the DTCDepository Trust Company participants in accordance with
the procedures and practices prescribed by DTCthe Depository Trust Company from time to time and the DTCDepository Trust Company participants in turn charge the amount of such ADS fees and charges to the beneficial owners for whom they hold ADSs.
In the event of refusal by a Holder to pay the Depositary fees, the Depositary may, under the terms of the Deposit Agreement, refuse the requested service until payment is received or may set off the amount of the Depositary fees from any distribution to be made to the Holder. Note that the fees and charges Holders may be required to pay may vary over time and may be changed by Sony Group Corporation and by the Depositary. Holders will receive prior notice of such changes. The Depositary may reimburse Sony Group Corporation for certain expenses incurred by Sony Group Corporation in respect of the ADR program, by making available a portion of the ADS fees charged in respect of the ADR program or otherwise, upon such terms and conditions as Sony Group Corporation and the Depositary agree from time to time. Direct and Indirect Payments by the Depositary to Sony The Depositary reimburses Sony for certain expenses Sony incurs in connection with its ADR program, subject to certain ceilings. These reimbursable expenses currently include, but are not limited to, legal and accounting fees, investor relations expenses and fees payable to service providers for the distribution of material to ADR holders. For the fiscal year ended March 31, 2020,2023, such reimbursements totaled approximately 4,319,163.743,399,247.27 U.S. dollars. In addition, as part of its service to Sony, the Depositary waives fees in connection with its ADR program, subject to a ceiling. These waived expenses currently include, but are not limited to, standard costs associated with the administration of the ADR program, associated operating expenses, investor relations advice and access to an internet-based tool used in Sony’s investor relations activities. For the fiscal year ended March 31, 2020,2023, the amount of such indirect payments was estimated to total 5,000 U.S. dollars. | Defaults, Dividend Arrearages and Delinquencies |
| Material Modifications to the Rights of Security Holders and Use of Proceeds |
Item 15(a). Disclosure Controls and Procedures Sony has carried out an evaluation under the supervision and with the participation of Sony’s management, including the CEO and CFO, of the effectiveness of the design and operation of Sony’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act, of 1934, as of March 31, 2020.2023. Disclosure controls and procedures require that information to be disclosed in the reports Sony Group Corporation files or submits under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported as and when required, within the time periods specified in the applicable rules and forms, and that such information is accumulated and communicated to Sony’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon Sony’s evaluation, the CEO and CFO have concluded that, as of March 31, 2020,2023, the disclosure controls and procedures were effective at the reasonable assurance level. Item 15(b). Management’s Annual Report on Internal Control over Financial Reporting Sony’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934.Act. Sony’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America.IFRS. Sony’s internal control over financial reporting includes those policies and procedures that: | (i) | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Sony; |
| (ii) | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and |
| | expenditures of Sony are being made only in accordance with authorizations of management and directors; and |
| (iii) | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Sony’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Sony’s management excluded AEGON Sony Life Insurance Co., Ltd. (subsequently renamed Sony Life With Insurance Co., Ltd. as of April 1, 2020) and SA Reinsurance Ltd. (collectively, the “Companies”),Bungie, which became a wholly-owned subsidiaries of Sony Life Insurance Co., Ltd. and consolidated subsidiariessubsidiary of Sony on January 29, 2020,July 15, 2022, from its assessment of the effectiveness of Sony’s internal control over financial reporting as of March 31, 2020, except for the recognition2023. Bungie’s total assets and measurementtotal sales excluded from its assessment represented less than 1% of the goodwill. The Companies represented approximately 3% of(i) Sony’s total consolidated assets as of March 31, 2020 (after excluding the goodwill)2023 and less than 1% of(ii) Sony’s total consolidated sales and operatingfinancial services revenue for the fiscal year ended March 31, 2020. This2023. The Bungie acquisition is discussed in Note 2530 to the consolidated financial statements. Sony’s management evaluated the effectiveness of Sony’s internal control over financial reporting as of March 31, 20202023 based on the criteria established in “Internal Control — Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the evaluation, management has concluded that Sony maintained effective internal control over financial reporting as of March 31, 2020.2023. Sony’s independent registered public accounting firm, PricewaterhouseCoopers Aarata LLC, has issued an audit report on the effectiveness of Sony’s internal control over financial reporting as of March 31, 2020,2023, presented on page (F-2). Item 15(c). Attestation Report of the Registered Public Accounting Firm Refer to the Report of Independent Registered Public Accounting Firm on page (F-2). Item 15(d). Changes in Internal Control over Financial Reporting There has been no change in Sony’s internal control over financial reporting during the fiscal year ended March 31, 20202023 that has materially affected, or is reasonably likely to materially affect, Sony’s internal control over financial reporting. | Audit Committee Financial Expert |
Sony Group Corporation’s Board of Directors has determined that Toshiko Oka and Keiko Kishigami each qualifies as an “audit committee financial expert” as defined in Item 16A of Form 20-F under the Securities Exchange Act, of 1934, as amended. In addition, both are determined to be independent as defined under the New York Stock ExchangeNYSE Corporate Governance Standards. Sony has adopted a code of ethics, as defined in Item 16B of Form 20-F under the Securities Exchange Act, of 1934, as amended. The code of ethics applies to Sony’s Chief Executive Officer, Chief Financial Officer, chief accounting officer and persons performing similar functions, as well as toall directors, and all other officers and employees of Sony, as defined in the code of ethics.Sony. The code of ethics is available at: https://www.sony.net/www.sony.com/en/SonyInfo/csr_report/compliance/code.htmlcode_of_conduct_En.pdf
| Principal Accountant Fees and Services |
The following table presents fees for audit and other services rendered by PricewaterhouseCoopers for the fiscal years ended March 31, 20192022 and 2020.2023. | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | 2022 | | | | | | | | | | | | 4,514 | | | | | | | | | 175 | | | | | | | | | 0 | | | | | | | | | 16 | | | | | | | | | | | | | | | | | | 4,705 | | | | | | | | | | | | | | |
(1) | Audit Fees consist of fees for the annual audit services engagement and other audit services, which are those services that only the external auditor can provide. |
(2) | Audit-Related Fees consist of fees billed for assurance and related services, and audit services relating to benefit plans, business acquisitions and dispositions. |
(3) | Tax Feesfees primarily consist of fees for tax advice. |
(4) | All Other Fees consist of fees primarily for services rendered with respect to advisory services. |
Audit Committee’s Pre-Approval Policies and Procedures Consistent with the U.S. Securities and Exchange CommissionSEC rules regarding auditor independence, Sony Group Corporation’s Audit Committee is responsible for appointing, reviewing and setting compensation, retaining, and overseeing the work of Sony’s independent auditor, so that the auditor’s independence will not be impaired. The Audit Committee established a formal policy requiring pre-approval of all audit and permissible non-audit services provided by the independent auditor to Sony Group Corporation or any of its subsidiaries. The Audit Committee periodically reviews this policy with due regard for compliance with laws and regulations of host countries where Sony Group Corporation is listed. Prior to the engagement of the independent auditor for the following fiscal year’s audit, management in charge of accounting or other relevant areas (“Accounting Management”) submits an application form to the Audit Committee for comprehensive pre-approval of all recurring services expected to be rendered during that year, other than services that are classified as “Tax” related services (“Tax Services”). In order to obtain comprehensive pre-approval, Accounting Management must designate in which of two categories (Audit and Non-Audit) the services will be classified as well as fees expected, both for each category in the aggregate and for each individual service, and detailed back-up information regarding each service to the extent possible to ensure that the Audit Committee knows precisely what particular service and the expected fees it is being asked to pre-approve and that the scope of any service or the expected fees approved is unambiguous. Any additional services not within the scope of comprehensive pre-approval and Tax Services require the Audit Committee’s separate pre-approval on an individual basis. The Audit Committee approves, if necessary, any changes in terms, conditions and fees resulting from changes in the scope of services to be provided or from other circumstances, with respect to both services that are subject to comprehensive and individual pre-approval. The Audit Committee or its designee establishes procedures to assure that the independent auditor is aware in a timely manner of the services that have been pre-approved. |
Item 16D. | Exemptions from the Listing Standards for Audit Committees |
| Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
The following table sets out information concerning purchases made by Sony Group Corporation during the fiscal year ended March 31, 2020.2023. | | | | | | | | | | | | | | | | | | | (a) Total number of shares purchased | | | (b) Average price paid per share (yen) | | | (c) Total number of shares purchased as part of publicly announced plans or programs *1,2 | | | (d) Maximum number of shares that may yet be purchased under the plans or programs *1,2 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | *3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | *4 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | |
| | |
| | |
| | | | 620,533 | | | | 11,365.92 | | | | 619,300 | | | N/A | | | | 495,331 | | | | 10,882.17 | | | | 494,200 | | | 24,692,800 | | | | 33,008 | | | | 10,973.15 | | | | 31,300 | | | 24,661,500 | | | | 1,867 | | | | 11,395.93 | | | | 0 | | | 24,661,500 | | | | 2,070,093 | | | | 11,279.85 | | | | 2,068,600 | | | 22,592,900 | | | | 1,519,072 | | | | 10,468.75 | | | | 1,517,500 | | | 21,075,400 | | | | 2,810,154 | | | | 9,655.97 | | | | 2,808,900 | | | 18,266,500 | | | | 1,331 | | | | 11,139.33 | | | | 0 | | | 18,266,500 | | | | 1,143,106 | | | | 10,565.40 | | | | 1,084,400 | | | 17,182,100 | | | | 738,822 | | | | 10,553.67 | | | | 727,700 | | | 16,454,400 | | | | 6,297 | | | | 11,693.43 | | | | 0 | | | 16,454,400 | | | | 6,056 | | | | 11,560.96 | | | | 0 | | | 16,454,400 | | | | | | | | | | | | | | | | | | | 9,445,670 | | | | 10,507.22 | | | | 9,351,900 | | | N/A |
Column (a) represents the combined total number of shares purchased during the fiscal year ended March 31, 2020,2023, including both fractional shares purchased from fractional shareholders in accordance with the Companies Act, and shares purchased in accordance with publicly announced plans, as shown in column (c). Under the Companies Act, a holder of shares constituting less than one full unit may require Sony Group Corporation to purchase such shares at their market value (Refer to “B. Memorandum and Articles of Association — — ” in “Item 10. ”). During the fiscal year ended March 31, 2020,2023, Sony Group Corporation purchased 32,27893,770 shares of common stock for a total purchase price of 212,075,3971,028,945,637 yen upon such requests from holders of shares constituting less than one full unit. *1 Sony approved on April 28, 2021 by resolution of the repurchaseBoard of sharesDirectors the setting of the following parameters for repurchase of its own common stock as follows atpursuant to the meetingCompanies Act and Sony Group Corporation’s Articles of its Board of Directors held on May 16, 2019.Incorporation Total number of shares for repurchase: 6025 million shares (maximum) (4.80%(2.02% of total number of shares issued and outstanding (excluding treasury stock)) Total purchase price for repurchase of shares: 200 billion yen (maximum) Period of repurchase: From May 17, 2019April 30, 2021 to March 31, 2020April 28, 2022 *2 The repurchase of shares of common stock based on the above approval at the Board of Directors set forth in Note 1 above was completed. The details are as follows. Total number of shares repurchased: 33,059,2008,206,900 shares Total purchase price for repurchased shares: 199,999,200,30097,381,577,700 yen Period of repurchase: May 17, 2019April 30, 2021 to March 17, 2020April 28, 2022 *3 This figure does not include sharesSony approved on May 10, 2022 by resolution of restricted stock that were acquired without cash consideration (16,600 shares). *4 This figure does not include shares of restricted stock that were acquired without cash consideration (45,000 shares).
Note: Sony cancelled treasury stock as follows in accordance with a decision by Sony’s Representative Corporate Executive Officer as delegated by the Board of Directors.Directors the setting of the following parameters for repurchase of its own common stock pursuant to the Companies Act and Sony Group Corporation’s Articles of Incorporation
Class of shares cancelled: Common stock
Total number of shares cancelled: 12,737,400for repurchase: 25 million shares Date (maximum) (2.02% of cancellation: March 26, 2020
total number of shares issued and outstanding (excluding treasury stock)) Total purchase price for repurchase of shares: 200 billion yen (maximum) Period of repurchase: From May 11, 2022 to May 10, 2023
*4 The repurchase of shares of common stock based on the approval at the Board of Directors set forth in Note 3 above was completed. The details are as follows. Total number of shares repurchased: 9,343,600 shares Total purchase price for repurchased shares: 99,118,323,800 yen Period of repurchase: May 11, 2022 to May 10, 2023 | Change in Registrant’s Certifying Accountant |
| Disclosure About Differences in |
The table below discloses the significant ways in which Sony’s corporate governance practices differ from those required for U.S. companies under the listing standards of the New York Stock Exchange (“NYSE”).NYSE. As a foreign private issuer listed on the NYSE, Sony Group Corporation is exempt from most of the exchange’s corporate governance standards requirements. For further information on Sony’s corporate governance practices and history, please refer to “Board Practices” in “Item 6. Directors, Senior Management and Employees .” | | | | | Sony’s Corporate Governance Practices | A majority of board directors must be independent. | | Sony Group Corporation has adopted the “Company with Three Committees” corporate governance system under the Companies Act. Sony Group Corporation’s Board Charter requires its board to consist of between 108 to 2014 directors. The Companies Act does not require Sony Group Corporation to have a majority of “independent” (in the meaning given by the NYSE Corporate Governance Standards) directors on its board; rather, it requires Sony Group Corporation to have a majority of “outside” directors (the definition of the term “outside” director is summarized below) on each of three statutory committees (the Nominating Committee, the Audit Committee and the Compensation Committee). | | A director is not independent if such director is (i) a person who the board determines has a material direct or indirect relationship with the company, its parent or a consolidated subsidiary; (ii) a person who, within the last three years, has been an employee of the company or has an immediate family member of an executive officer of the company, its parent or a consolidated subsidiary; (iii) a person who had received, or whose immediate family member had received, during any 12-month period within the last three years, more than 120,000 U.S. dollars per year in direct compensation from the company, its parent or a consolidated subsidiary, other than director and committee fees or deferred compensation for prior services (provided such compensation is not contingent in any way on continued service); (iv) (A) a person who is, or whose immediate family member is, a current partner or employee of a firm that is the company’s internal or external auditor; (B) a person whose immediate family member is a partner of such a firm; (C) a person who has an immediate family member who is a current employee of such a firm and who personally participates in the firm’s audit, assurance or tax compliance (but not tax planning) practice; or (D) a person who was, or has an immediate family member who was, within the last three years, a partner or employee of such a firm and personally worked on the listed company’s audit within that time; (v) a person who is, or whose immediate family member is, or has been within the last three years, employed as an executive officer of another company where any of | | “Outside” director is defined in the Companies Act as a person who satisfies all of the requirements (i) through (v) below: (i) a person who is not a Director of Sony Group Corporation or any of its subsidiaries engaged in the business operations of Sony Group Corporation or such subsidiaries, as the case may be, or a Corporate Executive Officer or general manager or other employee (“Group Executive Director, etc.”) of Sony Group Corporation or any of its subsidiaries and who has not been a Group Executive Director, etc. of Sony Group Corporation or any of its subsidiaries for ten years prior to assuming his/her office; (ii) if a person who has been a director, accounting counselor (if the accounting counselor is a juridical person, a member who is in charge of the affairs), or corporate auditor of Sony Group Corporation or any of its subsidiaries (excluding a person who has been a Group Executive Director, etc.) at the time within ten years prior to assuming his/her office, a person who has not been a Group Executive Director, etc. of Sony Group Corporation or any of its subsidiaries for ten years prior to assuming his/her office as a director, an accounting counselor, or a corporate auditor; (iii) a person who is not a director or a Corporate Executive Officer or general manager or other employee of a parent company or any entity which controls the management of Sony Group Corporation; (iv) a person who is not a Group Executive Director, etc. of a direct/indirect subsidiary of Sony Group Corporation or any entity the management of which is directly or indirectly controlled by Sony Group Corporation; and (v) a person who is not a spouse or relative within the second degree of kinship of a Director or a Corporate Executive Officer or general manager or other employee of Sony Corporation. |
| | | | | Sony’s Corporate Governance Practices | | | | the listed company’s present executive officers at the same time serves or served on that company’s compensation committee; or (vi) an executive officer or employee of a company, or has an immediate family member of an executive officer of a company, that makes payments to, or receives payments from, the listed company, its parent or a consolidated subsidiary for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of 1 million U.S. dollars or 2% of such other company’s consolidated gross revenues | | employee of Sony Group Corporation. Under the Companies Act, a director’s status as an “outside” director is unaffected by the director’s compensation, his or her affiliation with business partners, or the board’s affirmative determination of independence. On the other hand, under the Companies Act, a director who has had a career as a management director, corporate executive officer, or other employee of the company, its subsidiaries or other group companies is by definition not an “outside” director. | | | | | | | Sony Group Corporation’s Board Charter includes a provision requiring that each “outside” director: (i) Shall not have received directly from Sony Group, during any consecutive 12-month period within the last three years, more than an amount equivalent to 120,000 U.S. dollars, other than Director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service); and (ii) Shall not be an executive director, a corporate executive officer, a general manager or other employee of any company whose aggregate amount of transactions with Sony Group, in any of the last three fiscal years, exceeds the greater of an amount equivalent to 1,000,000 U.S. dollars, or 2% of the annual consolidated sales of such company; | | | | | | In addition, the Securities Listing Regulations of the Tokyo Stock ExchangeTSE require Sony Group Corporation to make efforts to have at least one “Independent Director” on the Board of Directors. “Independent Director” is defined in the Securities Listing Regulations of the Tokyo Stock ExchangeTSE as an “outside” director who is unlikely to have conflicts of interest with shareholders. According to the guidelines of the Tokyo Stock Exchange,TSE, if a person falls in any of the categories listed below, such person, in principle, will be considered to have a conflict of interest with shareholders of the listed company. (1) A person for which the listed company is a major client or a person who executes business of a person for which the listed company is a major client; (2) A major client of the listed company or a person who executes business of a major client of the listed company; (3) A consultant, accounting professional, or legal professional (or, if such consultant, accounting professional, or legal professional is a juridical person, a member of such juridical person) of | | | | | | the listed company who receives a large amount of money or other consideration other than remuneration for directorship/auditorship from such listed company; |
| | | | | Sony’s Corporate Governance Practices | | | | | | (4) A person who has fallen in any of categories (1) through (3) listed above until recently; (5) A person who has fallen in any of categories (a) or (b) listed below for ten years prior to assuming his/her office: (a) A person who executes business of a parent company of the listed company or a director who does not execute business of a parent company of the listed company; or (b) A person who executes business of a fellow subsidiary of the listed company. | | | | | | (6) A close relative of a person who falls in any of categories (a) through (f) listed below (only if such person is significant): (a) A person who falls in any of (1) through (5) listed above; (b) A person who executes business of a subsidiary of the listed company; (c) A director who does not execute business of a subsidiary of the listed company of a subsidiary of the listed company; (d) A person who executes business of a parent company of the listed company or a director who does not execute business of a parent company of the listed company; (e) A person who executes business of a fellow subsidiary of the listed company; or (f) A person who has fallen in any of categories (b) or (c) listed above or a person who has executed business of the listed company until recently. | | | | | | As of June 26, 2020, 920, 2023, 8 of the 1210 members of Sony Group Corporation’s Board of Directors qualified as “outside” directors. In addition, all 98 “outside” directors are qualified and designated as “Independent Directors” under the Securities Listing Regulations of the Tokyo Stock Exchange.TSE. | | | | | Non-management directors must meet in regularly scheduled executive sessions without management. Independent directors should meet alone in an executive session at least once a year. | | An “outside” director, as defined under the Companies Act, is equivalent to a “non-management director” under the NYSE rules because an “outside” director does not engage in the execution of business operations of the company. The outside/non-management Directors generally meet several times a year without management, though neither the Companies Act nor Sony Group Corporation’s Board Charter requires non-management Directors to meet regularly without management and there is no requirement for the outside Directors to meet alone in an executive session at least once a year. | |
| | | | | Sony’s Corporate Governance Practices | | | | Nominating/Corporate Governance Committee. A nominating/corporate governance committee of independent directors is required. The committee must have a charter that addresses the purpose, responsibilities (including development of corporate governance guidelines) and annual performance evaluation of the committee. | | Sony Group Corporation’s Nominating Committee shall consist of at least three Directors. Under the Companies Act, the Committee is responsible for determining the contents of proposals regarding the appointment and dismissal of Directors to be submitted for approval to the shareholders’ meeting. Unlike listed U.S. companies under NYSE rules, it is not responsible for developing governance guidelines or overseeing the evaluation of the board and management. Under the Companies Act, a majority of its members shall be “outside” directors, as defined under the Companies Act. Sony Corporation’s Board Charter requires at least one of the Directors on the Committee to be a Corporate Executive Officer. | | | | | A compensation committee of independent directors is required. The committee must have a charter that addresses the purpose, responsibilities and annual performance evaluation of the committee. In addition, in accordance with the SEC rules adopted pursuant to Section 952 of the Dodd-Frank Act, NYSE listing standards expanded the factors relevant in determining whether a committee member has a relationship to the company that will materially affect that member’s duties to the compensation committee and provided compensation committees the authority to engage compensation advisers. Additionally, the committee may obtain or retain the advice of a compensation adviser only after taking into consideration all factors relevant to determining that adviser’s independence from management, unless the adviser’s role is (i) limited to consulting on a generally applicable broad-based plan or (ii) is providing information that is not customized for the issuer or is not customized by the adviser and about which the adviser does not provide advice. | | Sony Group Corporation’s Compensation Committee shall consist of at least three Directors. Under the Companies Act, a majority of its members shall be “outside” directors, as defined under the Companies Act. Sony Group Corporation’s Board Charter prohibits the CEO, the COO and/or the CFO (or a person at any equivalent position) from serving on the Compensation Committee. Under the Companies Act, the Committee is responsible for, among others, determining the compensation of each director and Corporate Executive Officer. | | | | | An audit committee satisfying the independence and other requirements of Rule 10A-3 under the Exchange Act is required. The committee must have at least three members. All members must be independent. The committee must have a charter addressing the committee’s purpose, an annual performance evaluation of the committee and the duties and responsibilities of the committee. | | Sony Group Corporation’s Audit Committee shall consist of at least three Directors. Under the Companies Act, a majority of its members shall be “outside” Directors, as defined under the Companies Act. In addition, pursuant to the Companies Act, no member of the Committee shall be a Director of the company or any of its subsidiaries who is engaged in the business operations of the company or such subsidiary, as the case may be, or a corporate executive officer of the company or any of its subsidiaries, or an accounting counselor, general manager or other employee of any of such subsidiaries. Sony Group Corporation’s Board Charter also requires each member of the Audit Committee to meet the independence requirements of the applicable U.S. securities laws and regulations, and requires at least one member to meet the audit committee financial expert requirements. Currently, all the members of Sony Group Corporation’s Audit Committee are also “independent” as defined in the NYSE Corporate Governance Standards, and two members of the Committee are qualified as audit committee financial experts. | |
| | | | | Sony’s Corporate Governance Practices | | | committee financial experts. Sony Corporation’s Board Charter discourages any Audit Committee member from concurrently being a member of other Committees.
| | | | | Equity Compensation Plans. Equity compensation plans require shareholder approval, subject to limited exemptions. | | Under the Companies Act, if Sony Group Corporation wishes to adopt an equity compensation plan under which stock acquisition rights or shares of common stock are granted on specially favorable conditions, except where all of its shareholders are granted rights to subscribe for such stock acquisition rights/shares of common stock or such stock acquisition rights/shares of common stock are gratuitously allocated to all of its shareholders, each on a pro rata basis, then Sony Group Corporation must obtain shareholder approval by a “special resolution” at a General Meeting of Shareholders, where the quorum is one-third of the total number of voting rights of all of its shareholders and the approval by at least two-thirds of the number of voting rights of all the shareholders represented at the meeting is required under Sony Group Corporation’s Articles of Incorporation. On the other hand, under the Companies Act, if Sony Group Corporation wishes to adopt an equity compensation plan under which stock acquisition rights or shares of common stock are granted against fair value thereof, such plan can be adopted by the resolution of Sony Group Corporation’s Compensation Committee, and grants of stock acquisition rights or shares pursuant to such plan may be decided by a resolution of the Board of Directors or a determination by a Corporate Executive Officer to whom the authority to make such determination has been delegated, and no shareholder approval is required. | | | | | Corporate Governance Guidelines. Corporate governance guidelines must be adopted and disclosed. | | Sony Group Corporation is required to disclose the status of its corporate governance under the Companies Act, Financial Instruments and Exchange Act and its related regulations, and the Securities Listing Regulations of the Tokyo Stock Exchange;TSE; however, Sony Group Corporation does not have corporate governance guidelines that cover all the requirements described in the NYSE Corporate Governance Standards, as many of the provisions do not apply to Sony Group Corporation. Details of the status are posted on the following website: https://www.sony.net/SonyInfo/csr_report/governance/Refer to “Board Practices” in “Item 6. Directors, Senior Management and Employees.”
| | | | | A code of business conduct and ethics for directors, officers and employees must be adopted and disclosed, along with any waivers of the code for directors or executive officers. | | Although this provision of the NYSE Corporate Governance Standards does not apply to Sony Group Corporation, Sony Group Corporation has adopted a code of conduct to be observed by all its directors, officers and other employees. The code of conduct is available at: https://www.sony.net/www.sony.com/en/SonyInfo/csr_report/compliance/code.htmlcode_of_conduct_En.pdf The code’s content covers principal items described in the NYSE Corporate Governance Standards. | |
| Financial StatementsDisclosure Regarding Foreign Jurisdictions that Prevent Inspections |
Refer to the consolidated financial statements.
Documents filed as exhibits to this annual report: | | | | | | | | | | | | 1.2 | | | | | | | | | | | | | | | | | | | | | | 1.3 | | | | | | | | | | | | 2.1 | | | | | | | | | | | | | | | | | | | | | | 2.3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Inline XBRL Instance Document — the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | | | | | | | | | | Inline XBRL Taxonomy Extension Schema Document | | | | | | | | | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | | | | | Inline XBRL Taxonomy Extension Definition Linkbase Document | | | | | | | | | | Inline XBRL Taxonomy Extension Label Linkbase Document | | | | | | | | | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | | | | | The cover page for the Company’s Annual Report on Form 20-F for the fiscal year ended March 31, 2020,2023, has been formatted in Inline XBRL |
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf. | | | | | | | | | | | | | | | | | | | | | | Executive Deputy President, Chief Operating Officer and
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Date: June 26, 202020, 2023
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto.
Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Sony Group Corporation (Sony Group Kabushiki Kaisha) Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheetsstatements of financial position of Sony Group Corporation and its subsidiaries (the “Company”) as of March 31, 20202023 and 2019,2022, and the related consolidated statements of income, comprehensive income, cash flows and changes in stockholders’ equity and cash flows for each of the three years in the period ended March 31, 2020,2023, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of March 31, 2020,2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 20202023 and 2019,2022, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 20202023 in conformity with accounting principles generally accepted inInternational Financial Reporting Standards as issued by the United States of America.International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2020,2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the COSO. Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases as of April 1, 2019.
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 15(b). Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. As described in Management’s Annual Report on Internal Control over Financial Reporting, management has excluded AEGON Sony Life Insurance Co., Ltd. (subsequently renamed Sony Life With Insurance Co., Ltd. as of April 1, 2020) and SA Reinsurance Ltd. (collectively, the “Companies”)Bungie, Inc. from its assessment of internal control over financial reporting as of March 31, 20202023 because they wereit was acquired by the Company in a purchase business combinationscombination during the year ended March 31, 2020.2023. We have also excluded the CompaniesBungie, Inc. from our audit of internal control over financial reporting. The Companies areBungie, Inc. is a wholly-owned subsidiariessubsidiary whose total assets and total sales and operating revenue excluded from management’s assessment and our audit of internal control over financial reporting collectively represent approximately 3% and less than 1%, respectively, of the related total consolidated assets and total consolidated sales and financial statement amountsservices revenue as of and for the year ended March 31, 2020.2023.
Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The critical audit mattersmatter communicated below are mattersis a matter arising from the current period audit of the consolidated financial statements that werewas communicated or required to be communicated to the audit committee and that (i) relaterelates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit mattersmatter below, providing a separate opinionsopinion on the critical audit mattersmatter or on the accounts or disclosures to which they relate.it relates. RealizabilityValuation of deferred tax assets for entity’s national tax filing group in Japan As described in Note 2 and Note 22 to the consolidated financial statements, carrying amounts of deferred tax assets require a reduction by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish a valuation allowance for deferred tax assets is assessed periodically with appropriate consideration given to all positive and negative evidence related to the realization of the deferred tax assets. Management’s judgments related to this assessment consider, among other matters, the nature, frequency and severity of current and cumulative losses on an individual tax jurisdiction basis, forecasts of future income after consideration of uncertain tax positions, excess of carrying value over the tax basis of net assets, the duration of statutory carryforward periods, the past utilization of net operating loss carryforwards prior to expiration, as well as prudent and feasible tax planning strategies which would be employed by the Company to prevent net operating loss and tax credit carryforwards from expiring unutilized. For the fiscal year ended March 31, 2020, based on an assessment of the available positive and negative evidence including the Company’s positive earnings for the past several years, due to the uncertainty of the forecast of future income impacted by the spread ofCOVID-19
from early 2020, the Company has continued to establish a valuation allowance against the deferred tax assets in the Japan consolidated national tax filing group, except for the amounts expected to be offset with taxable temporary differences. The valuation allowance of 274,761 million yen relating to Japan national taxes was established as of March 31, 2020.The principal considerations for our determination that performing procedures relating to the realizability of deferred tax assets for the Japan consolidated national tax filing group was a critical audit matter are (i) there was significant judgment involved by management in an assessment of the available positive and negative evidence including forecasted income, and (ii) this in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to management’s assessment, including forecasts of future income.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s assessment of the realizability of deferred tax assets, including assessing positive and negative evidence including future forecasts for the Japan consolidated national filing group. These procedures also included, among others, evaluating management’s weighing of positive and negative evidence; testing the completeness of the positive and negative evidence used; and evaluating the reasonableness of assumptions used by management, including the uncertainty regarding the Company’s ability
to generate income in the Japan consolidated national filing group. Evaluating management’s assumptions related to generating income in Japan involved evaluating whether the assumptions used by management were reasonable considering the current and past performance of the Company.
Liabilitiesliabilities for future insurance policy benefits and deferred acquisition costs
As described in Note 2Notes 3 and 1013 to the consolidated financial statements, liabilities for future insurance policy benefits include liabilities for minimum guarantee benefits related to certain variable annuity and variable life insurance contracts. The Company has elected fair value options for variable annuity contracts with minimum guarantee benefits in their entirety, which includes liabilities for minimum guarantee benefits. The fair value of the liabilities for minimum guarantee benefits is calculated as the present value of future expected cash flows. The significant assumptions used in the valuation include mortality rates, lapse rates, discount rates, and investment yields. As of March 31, 2020, the liabilities for minimum guarantee benefits for the variable annuity contracts were 64,045 million yen. Liabilities are also established for the variable life contracts that include minimum guarantee benefits features. For these contract features, the liabilities for minimum guarantee benefits are calculated using current best estimatebest-estimate assumptions and are based on the ratio of the present value of expected total excess payments divided by the present value of expected total assessments over the life of the contract. The significant assumptions in the valuation include mortality rates, lapse rates, discount rates and investment yields. As of March 31, 2020,2023, the liabilities for minimum guarantee benefits for the variable life contracts were 79,86076,012 million yen. Also, the Company defers acquisition costs that vary with and are directly related directly to the acquisition or renewal of insurance policies to the extent such costsas long as they are determined to be recoverable from future profits.recoverable. Among them, the deferred insurance acquisition costs for non-traditional life insurance contracts such as interest sensitive whole life contracts, variable life insurance contracts, individual variable annuity contracts variableand other contracts without life contracts, and investment contractscontingencies are amortized over the expected life at a constant rate based on the present value of the estimated gross profit. The present value of the estimated gross profit is affected by a number of significant assumptions, including investment yields, mortality rates, lapse rates and discount rates. AtAs of March 31, 2020,2023, deferred insurance acquisition costs for non-traditional life insurance contracts were 206,363324,862 million yen. The principal considerations for our determination that performing procedures relating to assumptions used for measurementthe valuation of the liabilities for minimum guaranteefuture insurance policy benefits and deferred insurance acquisition costs fornon-traditional
life insurance contracts is a critical audit matter are (i) there wasmanagement’s significant judgment involved by management in developing the aforementioned assumptions, (ii) this in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to management’s significant assumptions, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing procedures and evaluating the audit evidence obtained.knowledge.Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the design and operating effectiveness of controls relating to the significant assumptions of thevaluation of: (i) liabilities for minimum guarantee benefits for certain variable life insurance contracts and (ii) deferred insurance acquisition costs for non-traditional life insurance contracts, which includedcontracts; including controls over the developmentdetermination of significant assumptions such asrelated to mortality rates, lapse rates, discount rates, and investment yields, and controls over the completeness and accuracy of data used by management in developingto develop the assumptions, such as past claim, lapse,claims, lapses, discount rates, and investment yield data.yields. These procedures also included, among others, testing the completeness and accuracy of data used by management in developingto develop the significant assumptions; and considering the reasonableness of the significant assumptions across products, in relation to prior periods, and in relation to management’s historical experience or industry knowledge. Professionals with specialized skill and knowledge were used to assist in evaluating the reasonableness of the methodology used by management to determine their assumptions and the reasonableness of the aforementioned assumptions used in the valuation of the liabilities for minimum guarantee benefits for certain variable life contracts and deferred insurance acquisition costs for non-traditional life insurance contracts based on industry knowledge and the Company’s historical data and experience. /s/ PricewaterhouseCoopers Aarata LLC We have served as the Company’s auditor since 2006.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES [THIS PAGE IS INTENTIONALLY LEFT BLANK]Consolidated Statements of Financial Position | | | | | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | 27 | | | 2,049,636 | | | | 1,480,900 | | Investments and advances in the Financial Services segment (including assets pledged that secured parties are permitted to sell or repledge of 94,147 million yen, and 85,494 million yen as of March 31, 2022 and 2023, respectively) | | 5, 14 | | | 360,673 | | | | 328,357 | | Trade and other receivables, and contract assets | | 5, 22 | | | 1,628,521 | | | | 1,777,939 | | | | 7 | | | 874,007 | | | | 1,468,042 | | | | 5 | | | 149,301 | | | | 110,950 | | | | 19 | | | 473,070 | | | | 610,330 | | | | | | | 5,535,208 | | | | 5,776,518 | | | | | | | | | | | | | Investments accounted for using the equity method | | 8 | | | 268,513 | | | | 325,220 | | Investments and advances in the Financial Services segment (including assets pledged that secured parties are permitted to sell or repledge of 2,700,603 million yen and 2,427,446 million yen as of March 31, 2022 and 2023, respectively) | | 5, 14 | | | 18,445,088 | | | | 18,445,728 | | Property, plant and equipment | | 9 | | | 1,113,213 | | | | 1,344,864 | | | | 10 | | | 413,430 | | | | 478,063 | | | | 11 | | | 952,895 | | | | 1,275,112 | | | | 11 | | | 1,342,046 | | | | 1,561,882 | | | | 11 | | | 450,103 | | | | 563,842 | | Deferred insurance acquisition costs | | 13 | | | 676,526 | | | | 730,864 | | | | 25 | | | 298,589 | | | | 384,839 | | | | 5 | | | 696,306 | | | | 832,344 | | | | 19 | | | 289,050 | | | | 321,946 | | | | | | | 24,945,759 | | | | 26,264,704 | | | | | | | 30,480,967 | | | | 32,041,222 | |
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheets
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | | | | | | | | Marketable securities (including assets pledged that secured parties are permitted to sell or repledge of 15,437 yen and 17,521 yen in 2019 and 2020) | | | | | | | | | Notes and accounts receivable, trade and contract assets | | | | | | | | | Allowance for doubtful accounts | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | | Prepaid expenses and other current assets | | | | | | | | | | | | | | | | | | | | | | | | | | | Investments and advances: | | | | | | | | | | | | | | | | | | Securities investments and other (including assets pledged that secured parties are permitted to sell or repledge of 832,984 yen and 930,882 yen in 2019 and 2020) | | | | | | | | | | | | | | | | | | Property, plant and equipment: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Less — Accumulated depreciation | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating lease right-of-use assets | | | | | | | | | Finance lease right-of-use assets | | | | | | | | | | | | | | | | | | | | | | | | | | | Deferred insurance acquisition costs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Continued on the following page.)
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Consolidated Balance SheetsStatements of FinancialPosition (Continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Current portion of long-term debt | | | | | | | | | Current portion of long-term operating lease liabilities | | | | | | | | | Notes and accounts payable, trade | | | | | | | | | Accounts payable, other and accrued expenses | | | | | | | | | Accrued income and other taxes | | | | | | | | | Deposits from customers in the banking business | | | | | | | | | | | | | | | | | | Total current liabilities | | | | | | | | | | | | | | | | | | Long-term operating lease liabilities | | | | | | | | | Accrued pension and severance costs | | | | | | | | | | | | | | | | | | Future insurance policy benefits and other | | | | | | | | | Policyholders’ account in the life insurance business | | | | | | | | | | | | | | | | | | | | | | | | | | | Redeemable noncontrolling interest | | | | | | | | | Commitments and contingent liabilities | | | | | | | | | | | | | | | | | | Sony Corporation’s stockholders’ equity: | | | | | | | | | Common stock, no par value — | | | | | | | | | 2019 — Shares authorized: 3,600,000,000; shares issued: 1,271,230,341 | | | | | | | | | 2020 — Shares authorized: 3,600,000,000; shares issued: 1,261,058,781 | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated other comprehensive income — | | | | | | | | | Unrealized gains on securities, net | | | | | | | | | Unrealized gains (losses) on derivative instruments, net | | | | ) | | | | | Pension liability adjustment | | | | ) | | | | ) | Foreign currency translation adjustments | | | | ) | | | | ) | Debt valuation adjustments | | | | | | | | | | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total liabilities and equity | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | 5, 14 | | | 1,976,553 | | | | 1,914,934 | | Current portion of long-term debt | | 5, 14 | | | 171,409 | | | | 187,942 | | | | 5 | | | 1,843,242 | | | | 1,865,993 | | Deposits from customers in the banking business | | 5 | | | 2,886,361 | | | | 3,163,237 | | | | | | | 106,092 | | | | 152,700 | | Participation and residual liabilities in the Pictures segment | | 18 | | | 190,162 | | | | 230,223 | | Other financial liabilities | | 5 | | | 97,843 | | | | 73,572 | | Other current liabilities | | 19 | | | 1,488,488 | | | | 1,720,335 | | Total current liabilities | | | | | 8,760,150 | | | | 9,308,936 | | | | | | | | | | | | | | | 5, 14 | | | 1,203,646 | | | | 1,767,696 | | Defined benefit liabilities | | 17 | | | 254,548 | | | | 236,121 | | | | 25 | | | 696,492 | | | | 356,324 | | Future insurance policy benefits and other | | 13 | | | 7,039,034 | | | | 7,264,421 | | Policyholders’ account in the life insurance business | | 13 | | | 4,791,295 | | | | 5,148,579 | | Participation and residual liabilities in the Pictures segment | | 18 | | | 220,113 | | | | 192,952 | | Other financial liabilities | | 5 | | | 211,959 | | | | 350,278 | | Other non-current liabilities | | 19 | | | 106,481 | | | | 127,593 | | Total non-current liabilities | | | | | 14,523,568 | | | | 15,443,964 | | | | | | | 23,283,718 | | | | 24,752,900 | | | | | | | | | | | | | Sony Group Corporation’s stockholders’ equity: | | 20 | | | | | | | | | | | | | | 880,365 | | | | 880,365 | | | | | | | 1,461,053 | | | | 1,463,807 | | | | | | | 3,760,763 | | | | 4,614,637 | | Accumulated other comprehensive income | | | | | 1,222,332 | | | | 494,407 | | | | | | | (180,042 | ) | | | (223,507 | ) | Equity attributable to Sony Group Corporation’s stockholders | | | | | 7,144,471 | | | | 7,229,709 | | | | | | | 52,778 | | | | 58,613 | | | | | | | 7,197,249 | | | | 7,288,322 | | Total liabilities and equity | | | | | 30,480,967 | | | | 32,041,222 | |
The accompanying notes are an integral part of these statements.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Income Fiscal year ended March 31
| | | | | | | | | | | | | | | | | | | | | | | | | | | Sales and operating revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | Financial services revenue | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Selling, general and administrative | | | | | | | | | | | | | Financial services expenses | | | | | | | | | | | | | Other operating (income) expense, net | | | | | | | | ) | | | | ) | | | | | | | | | | | | | | Equity in net income (loss) of affiliated companies | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gain on sale of securities investments, net | | | | | | | | | | | | | Gain on equity securities, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Loss on devaluation of securities investments | | | | | | | | | | | | | Loss on equity securities, net | | | | | | | | | | | | | Foreign exchange loss, net | | | | | | | | | | | | | Loss on pension plan amendment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Income before income taxes | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Less — Net income attributable to noncontrolling interests | | | | | | | | | | | | | Net income attributable to Sony Corporation’s stockholders | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income attributable to Sony Corporation’s stockholders | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | | | Sales and financial services revenue: | | | | | | | | | | | | | | | | | 22 | | | 7,333,670 | | | | 8,396,702 | | | | 10,095,841 | | Financial services revenue | | 5, 13 | | | 1,664,991 | | | | 1,524,811 | | | | 1,443,996 | | Total sales and financial services revenue | | | | | 8,998,661 | | | | 9,921,513 | | | | 11,539,837 | | | | | | | | | | | | | | | | | | | 7, 17, 23 | | | 5,065,879 | | | | 5,845,804 | | | | 7,174,723 | | Selling, general and administrative | | 17, 23 | | | 1,473,154 | | | | 1,588,473 | | | | 1,969,170 | | Financial services expenses | | 5, 13, 17 | | | 1,501,674 | | | | 1,374,037 | | | | 1,224,208 | | Other operating (income) expense, net | | 23, 31 | | | 14,250 | | | | (65,494 | ) | | | (12,021 | ) | | | | | | 8,054,957 | | | | 8,742,820 | | | | 10,356,080 | | Share of profit (loss) of investments accounted for using the equity method | | 8 | | | 11,551 | | | | 23,646 | | | | 24,449 | | | | | | | 955,255 | | | | 1,202,339 | | | | 1,208,206 | | | | 24 | | | 83,792 | | | | 19,304 | | | | 31,058 | | | | 24 | | | 41,082 | | | | 104,140 | | | | 58,951 | | Income before income taxes | | | | | 997,965 | | | | 1,117,503 | | | | 1,180,313 | | | | 25 | | | (45,931 | ) | | | 229,097 | | | | 236,691 | | | | | | | 1,043,896 | | | | 888,406 | | | | 943,622 | | Net income attributable to | | | | | | | | | | | | | | | Sony Group Corporation’s stockholders | | | | | 1,029,610 | | | | 882,178 | | | | 937,126 | | | | | | | 14,286 | | | | 6,228 | | | | 6,496 | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | | | | | 26 | | | | | | | | | | | | | Net income attributable to Sony Group Corporation’s stockholders | | | | | | | | | | | | | | | | | | | | 836.75 | | | | 711.84 | | | | 758.38 | | | | | | | 823.77 | | | | 705.16 | | | | 754.95 | |
The accompanying notes are an integral part of these statements.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Comprehensive Income Fiscal year ended March 31
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other comprehensive income, net of tax — | | | | | | | | | | | | | Unrealized gains on securities | | | | | | | | | | | | | Unrealized gains (losses) on derivative instruments | | | | ) | | | | | | | | | Pension liability adjustment | | | | | | | | ) | | | | | Foreign currency translation adjustments | | | | ) | | | | | | | | ) | Debt valuation adjustments | | | | | | | | | | | | | Total comprehensive income | | | | | | | | | | | | | Less — Comprehensive income attributable to noncontrolling interests | | | | | | | | | | | | | Comprehensive income attributable to Sony Corporation’s stockholders | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | | | | | | | | 1,043,896 | | | | 888,406 | | | | 943,622 | | Other comprehensive income, net of tax — | | 20 | | | | | | | | | | | | | Items that will not be reclassified to profit or loss | | | | | | | | | | | | | | | Changes in equity instruments measured at fair value through other comprehensive income | | | | | 144,740 | | | | (106,426 | ) | | | (36,862 | ) | Remeasurement of defined benefit pension plans | | | | | 11,555 | | | | 33,641 | | | | 18,891 | | Share of other comprehensive income of investments accounted for using the equity method | | | | | 87 | | | | 577 | | | | 145 | | Items that may be reclassified subsequently to profit or loss | | | | | | | | | | | | | | | Changes in debt instruments measured at fair value through other comprehensive income | | | | | (205,549 | ) | | | (416,904 | ) | | | (884,678 | ) | | | | | | 51 | | | | 4,735 | | | | 12,379 | | Insurance contract valuation adjustments | | | | | (3,120 | ) | | | 599 | | | | 1,714 | | Exchange differences on translating foreign operations | | | | | 115,321 | | | | 226,275 | | | | 178,275 | | Share of other comprehensive income of investments accounted for using the equity method | | | | | 798 | | | | 1,501 | | | | 3,554 | | Total other comprehensive income, net of tax | | | | | 63,883 | | | | (256,002 | ) | | | (706,582 | ) | | | | | | 1,107,779 | | | | 632,404 | | | | 237,040 | | Comprehensive income attributable to | | | | | | | | | | | | | | | Sony Group Corporation’s stockholders | | | | | 1,118,628 | | | | 623,678 | | | | 227,794 | | | | | | | (10,849 | ) | | | 8,726 | | | | 9,246 | |
The accompanying notes are an integral part of these statements.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Cash Flows Changes in Stockholders’ Equity Fiscal year ended March 31
| | | | | | | | | | | | | | | | | | | | | | | | | | | Cash flows from operating activities: | | | | | | | | | | | | | | | | | | | | | | | | | | Adjustments to reconcile net income to net cash provided by operating activities — | | | | | | | | | | | | | Depreciation and amortization, including amortization of deferred insurance acquisition costs and contract costs | | | | | | | | | | | | | Amortization of film costs | | | | | | | | | | | | | Accrual for pension and severance costs, less payments | | | | | | | | ) | | | | | Other operating (income) expense, net | | | | | | | | ) | | | | ) | (Gain) loss on securities investments, net (other than financial services business) | | | | | | | | ) | | | | | (Gain) loss on marketable securities and securities investments held in the financial services business, net | | | | ) | | | | ) | | | | | | | | | | | | | ) | | | | | Equity in net (income) loss of affiliated companies, net of dividends | | | | ) | | | | | | | | ) | Changes in assets and liabilities: | | | | | | | | | | | | | (Increase) decrease in notes and accounts receivable, trade and contract assets | | | | ) | | | | | | | | | (Increase) decrease in inventories | | | | ) | | | | | | | | | | | | | ) | | | | ) | | | | ) | Increase (decrease) in notes and accounts payable, trade | | | | ) | | | | | | | | ) | Increase (decrease) in accrued income and other taxes | | | | | | | | ) | | | | ) | Increase in future insurance policy benefits and other | | | | | | | | | | | | | Increase in deferred insurance acquisition costs | | | | ) | | | | ) | | | | ) | Increase in marketable securities held in the life insurance business | | | | ) | | | | ) | | | | ) | (Increase) decrease in other current assets | | | | | | | | | | | | ) | Increase (decrease) in other current liabilities | | | | | | | | | | | | ) | | | | | | | | | ) | | | | | Net cash provided by operating activities | | | | | | | | | | | | | Cash flows from investing activities: | | | | | | | | | | | | | Payments for purchases of fixed assets | | | | ) | | | | ) | | | | ) | Proceeds from sales of fixed assets | | | | | | | | | | | | | Payments for investments and advances by financial services business | | | | ) | | | | ) | | | | ) | Payments for investments and advances (other than financial services business) | | | | ) | | | | ) | | | | ) | Proceeds from sales or return of investments and collections of advances by financial services business | | | | | | | | | | | | | Proceeds from sales or return of investments and collections of advances (other than financial services business) | | | | | | | | | | | | | Payment for EMI Music Publishing acquisition, net of cash acquired | | | | | | | | ) | | | | | Proceeds from sales of businesses | | | | | | | | | | | | | Proceeds related to sales of Spotify Technology S.A. Shares | | | | | | | | | | | | | Proceeds from sales of Olympus Corporation Shares | | | | | | | | | | | | | | | | | ) | | | | ) | | | | ) | Net cash used in investing activities | | | | ) | | | | ) | | | | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 880,214 | | | | 1,297,554 | | | | 1,949,697 | | | | 979,476 | | | | (232,503 | ) | | | 4,874,438 | | | | 1,120,038 | | | | 5,994,476 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 1,029,610 | | | | | | | | | | | | 1,029,610 | | | | 14,286 | | | | 1,043,896 | | Other comprehensive income, net of tax | | | 20 | | | | | | | | | | | | | | | | 89,018 | | | | | | | | 89,018 | | | | (25,135 | ) | | | 63,883 | | Total comprehensive income | | | | | | | | | | | | | | | 1,029,610 | | | | 89,018 | | | | | | | | 1,118,628 | | | | (10,849 | ) | | | 1,107,779 | | Transfer to retained earnings | | | | | | | | | | | | | | | 5,472 | | | | (5,472 | ) | | | | | | | — | | | | | | | | — | | Transactions with stockholders and other: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Exercise of stock acquisition rights | | | | | | | | | | | (354 | ) | | | (735 | ) | | | | | | | 18,074 | | | | 16,985 | | | | | | | | 16,985 | | Conversion of convertible bonds | | | | | | | | | | | (3,671 | ) | | | (8,198 | ) | | | | | | | 89,402 | | | | 77,533 | | | | | | | | 77,533 | | | | | | | | | | | | | 1,577 | | | | | | | | | | | | | | | | 1,577 | | | | | | | | 1,577 | | Dividends declared (50.00 yen per share) | | | | | | | | | | | | | | | (61,343 | ) | | | | | | | | | | | (61,343 | ) | | | (12,996 | ) | | | (74,339 | ) | Purchase of treasury stock | | | | | | | | | | | | | | | | | | | | | | | (366 | ) | | | (366 | ) | | | | | | | (366 | ) | Reissuance of treasury stock | | | | | | | | | | | 354 | | | | | | | | | | | | 1,165 | | | | 1,519 | | | | | | | | 1,519 | | Transactions with noncontrolling interests shareholders and other | | | 20 | | | | | | | | 194,137 | | | | | | | | 457,235 | | | | | | | | 651,372 | | | | (1,052,197 | ) | | | (400,825 | ) | Balance at March 31, 2021 | | | | | | | 880,214 | | | | 1,489,597 | | | | 2,914,503 | | | | 1,520,257 | | | | (124,228 | ) | | | 6,680,343 | | | | 43,996 | | | | 6,724,339 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 880,214 | | | | 1,489,597 | | | | 2,914,503 | | | | 1,520,257 | | | | (124,228 | ) | | | 6,680,343 | | | | 43,996 | | | | 6,724,339 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 882,178 | | | | | | | | | | | | 882,178 | | | | 6,228 | | | | 888,406 | | Other comprehensive income, net of tax | | | 20 | | | | | | | | | | | | | | | | (258,500 | ) | | | | | | | (258,500 | ) | | | 2,498 | | | | (256,002 | ) | Total comprehensive income | | | | | | | | | | | | | | | 882,178 | | | | (258,500 | ) | | | | | | | 623,678 | | | | 8,726 | | | | 632,404 | | Transfer to retained earnings | | | | | | | | | | | | | | | 39,425 | | | | (39,425 | ) | | | | | | | — | | | | | | | | — | | Transactions with stockholders and other: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 151 | | | | 151 | | | | | | | | | | | | | | | | 302 | | | | | | | | 302 | | Exercise of stock acquisition rights | | | | | | | | | | | 547 | | | | | | | | | | | | 12,785 | | | | 13,332 | | | | | | | | 13,332 | | Conversion of convertible bonds | | | | | | | | | | | (2,805 | ) | | | (958 | ) | | | | | | | 18,278 | | | | 14,515 | | | | | | | | 14,515 | | | | | | | | | | | | | 6,643 | | | | | | | | | | | | | | | | 6,643 | | | | | | | | 6,643 | | Dividends declared (60.00 yen per share) | | | | | | | | | | | | | | | (74,385 | ) | | | | | | | | | | | (74,385 | ) | | | (4,955 | ) | | | (79,340 | ) | Purchase of treasury stock | | | 20 | | | | | | | | | | | | | | | | | | | | (88,624 | ) | | | (88,624 | ) | | | | | | | (88,624 | ) | Reissuance of treasury stock | | | | | | | | | | | 1,544 | | | | | | | | | | | | 1,747 | | | | 3,291 | | | | | | | | 3,291 | | Transactions with noncontrolling interests shareholders and other | | | | | | | | | | | (34,624 | ) | | | | | | | | | | | | | | | (34,624 | ) | | | 5,011 | | | | (29,613 | ) | Balance at March 31, 2022 | | | | | | | 880,365 | | | | 1,461,053 | | | | 3,760,763 | | | | 1,222,332 | | | | (180,042 | ) | | | 7,144,471 | | | | 52,778 | | | | 7,197,249 | |
(Continued on following page.)
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Cash FlowsChanges in Stockholders’ Equity (Continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash flows from financing activities: | | | | | | | | | | | | | Proceeds from issuance of long-term debt | | | | | | | | | | | | | Payments of long-term debt | | | | ) | | | | ) | | | | ) | Increase in short-term borrowings, net | | | | | | | | | | | | | Increase in deposits from customers in the financial services business, net | | | | | | | | | | | | | | | | | ) | | | | ) | | | | ) | Payments for purchase of treasury stock | | | | ) | | | | ) | | | | ) | Payment for purchase of noncontrolling interest in Nile Acquisition LLC | | | | | | | | ) | | | | | Payment for purchase of noncontrolling interest in Game Show Network, LLC | | | | | | | | | | | | ) | | | | | ) | | | | ) | | | | ) | Net cash provided by (used in) financing activities | | | | | | | | ) | | | | | Effect of exchange rate changes on cash and cash equivalents, including restricted | | | | ) | | | | | | | | ) | Net increase (decrease) in cash and cash equivalents, including restricted | | | | | | | | ) | | | | | Cash and cash equivalents, including restricted, at beginning of the fiscal year | | | | | | | | | | | | | Cash and cash equivalents, including restricted, at end of the fiscal year | | | | | | | | | | | | | Less — Restricted cash and cash equivalents, included in other current assets and other assets | | | | | | | | | | | | | Cash and cash equivalents at end of the fiscal year | | | | | | | | | | | | | | | | | | | | | | | | | | Cash paid during the fiscal year for — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-cash investing and financing activities — | | | | | | | | | | | | | Obtaining assets by entering into finance leases | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 880,365 | | | | 1,461,053 | | | | 3,760,763 | | | | 1,222,332 | | | | (180,042 | ) | | | 7,144,471 | | | | 52,778 | | | | 7,197,249 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 937,126 | | | | | | | | | | | | 937,126 | | | | 6,496 | | | | 943,622 | | Other comprehensive income, net of tax | | | 20 | | | | | | | | | | | | | | | | (709,332 | ) | | | | | | | (709,332 | ) | | | 2,750 | | | | (706,582 | ) | Total comprehensive income | | | | | | | | | | | | | | | 937,126 | | | | (709,332 | ) | | | | | | | 227,794 | | | | 9,246 | | | | 237,040 | | Transfer to retained earnings | | | | | | | | | | | | | | | 18,593 | | | | (18,593 | ) | | | | | | | — | | | | | | | | — | | Transactions with stockholders and other: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Exercise of stock acquisition rights | | | | | | | | | | | (14 | ) | | | (1,352 | ) | | | | | | | 10,364 | | | | 8,998 | | | | | | | | 8,998 | | Conversion of convertible bonds | | | | | | | | | | | (2,588 | ) | | | (13,858 | ) | | | | | | | 42,993 | | | | 26,547 | | | | | | | | 26,547 | | | | | | | | | | | | | 11,064 | | | | | | | | | | | | | | | | 11,064 | | | | | | | | 11,064 | | Dividends declared (70.00 yen per share) | | | | | | | | | | | | | | | (86,635 | ) | | | | | | | | | | | (86,635 | ) | | | (5,980 | ) | | | (92,615 | ) | Purchase of treasury stock | | | 20 | | | | | | | | | | | | | | | | | | | | (99,248 | ) | | | (99,248 | ) | | | | | | | (99,248 | ) | Reissuance of treasury stock | | | | | | | | | | | 1,242 | | | | | | | | | | | | 2,426 | | | | 3,668 | | | | | | | | 3,668 | | Transactions with noncontrolling interests shareholders and other | | | | | | | | | | | (6,950 | ) | | | | | | | | | | | | | | | (6,950 | ) | | | 2,569 | | | | (4,381 | ) | Balance at March 31, 2023 | | | | | | | 880,365 | | | | 1,463,807 | | | | 4,614,637 | | | | 494,407 | | | | (223,507 | ) | | | 7,229,709 | | | | 58,613 | | | | 7,288,322 | |
The accompanying notes are an integral part of these statements.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Changes in Stockholders’ EquityCash Flows | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated other comprehensive income | | | | | | Sony Corporation’s stockholders’ equity | | | | | | | | Balance at March 31, 2017 | | | | | | | | | | | | | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Exercise of stock acquisition rights | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Conversion of convertible bonds | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other comprehensive income, net of tax — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unrealized gains (losses) on securities | | | | | | | | | | | | | | | | ) | | | | | | | | ) | | | | | | | | | Unrealized losses on derivative | | | | | | | | | | | | | | | | ) | | | | | | | | ) | | | | | | | | ) | Pension liability adjustment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign currency translation adjustments | | | | | | | | | | | | | | | | ) | | | | | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock issue costs, net of tax | | | | | | | | ) | | | | | | | | | | | | | | | | ) | | | | | | | | ) | Dividends declared (27.50 yen per share) | | | | | | | | | | | | ) | | | | | | | | | | | | ) | | | | ) | | | | ) | Purchase of treasury stock | | | | | | | | | | | | | | | | | | | | ) | | | | ) | | | | | | | | ) | Reissuance of treasury stock | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Transactions with noncontrolling interests | | | | | | | | ) | | | | | | | | | | | | | | | | ) | | | | ) | | | | ) | | | Balance at March 31, 2018 | | | | | | | | | | | | | | | | ) | | | | ) | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | | | | Cash flows from operating activities: | | | | | | | | | | | | | | | | | Income before income taxes | | | | | | | 997,965 | | | | 1,117,503 | | | | 1,180,313 | | Adjustments to reconcile income before income taxes to net cash provided by operating activities: | | | | | | | | | | | | | | | | | Depreciation and amortization, including amortization of contract costs | | | | | | | 687,373 | | | | 835,233 | | | | 1,004,590 | | Amortization of deferred insurance acquisition costs | | | | | | | 44,738 | | | | 69,237 | | | | 84,523 | | Other operating (income) expense, net | | | 23 | | | | 14,250 | | | | (65,494 | ) | | | (12,021 | ) | (Gain) loss on securities, net (other than Financial Services segment) | | | 24 | | | | (62,704 | ) | | | 60,402 | | | | 4,469 | | Share of profit of investments accounted for using the equity method, net of dividends | | | | | | | (5,012 | ) | | | (13,934 | ) | | | (17,696 | ) | Change in future insurance policy benefits and other | | | | | | | 358,666 | | | | 458,880 | | | | 234,102 | | Change in policyholders’ account in the life insurance business, less cash impact | | | | | | | 558,539 | | | | 238,309 | | | | 15,523 | | Net cash impact of policyholders’ account in the life insurance business | | | | | | | 134,299 | | | | 227,262 | | | | 346,455 | | Changes in assets and liabilities: | | | | | | | | | | | | | | | | | Increase in trade receivables and contract assets | | | | | | | (137,939 | ) | | | (171,094 | ) | | | (70,448 | ) | | | | | | | | (56,509 | ) | | | (194,624 | ) | | | (560,382 | ) | Increase in investments and advances in the Financial Services segment | | | | | | | (1,977,092 | ) | | | (1,724,164 | ) | | | (1,250,078 | ) | Increase in content assets | | | | | | | (309,178 | ) | | | (502,253 | ) | | | (603,314 | ) | Increase in deferred insurance acquisition costs | | | | | | | (98,122 | ) | | | (117,337 | ) | | | (118,096 | ) | Increase (decrease) in trade payables | | | | | | | 288,854 | | | | 126,989 | | | | (109,336 | ) | Increase in deposits from customers in the banking business | | | | | | | 333,075 | | | | 230,236 | | | | 300,201 | | Increase in borrowings in the life insurance business and the banking business | | | | | | | 462,751 | | | | 905,139 | | | | 111,314 | | Increase in taxes payable other than income taxes, net | | | | | | | 19,164 | | | | 17,840 | | | | 4,183 | | (Increase) decrease in other financial assets and other current assets | | | | | | | (9,703 | ) | | | (17,681 | ) | | | 5,965 | | Increase in other financial liabilities and other current liabilities | | | | | | | 23,906 | | | | 66,407 | | | | 122,878 | | | | | 25 | | | | (102,732 | ) | | | (269,885 | ) | | | (297,881 | ) | | | | | | | | (24,372 | ) | | | (43,328 | ) | | | (60,573 | ) | Net cash provided by operating activities | | | | | | | 1,140,217 | | | | 1,233,643 | | | | 314,691 | |
(Continued on the following page.)
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Changes in Stockholders’ EquityCash Flows (Continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated other comprehensive income | | | | | | Sony Corporation’s stockholders’ equity | | | | | | | | Balance at March 31, 2018 | | | | | | | | | | | | | | | | ) | | | | ) | | | | | | | | | | | | | Cumulative effect of newly adopted ASUs | | | | | | | | | | | | | | | | ) | | | | | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Exercise of stock acquisition rights | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Conversion of convertible bonds | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other comprehensive income, net of tax — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unrealized gains on securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unrealized gains on derivative | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Pension liability adjustment | | | | | | | | | | | | | | | | ) | | | | | | | | ) | | | | | | | | ) | Foreign currency translation adjustments | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock issue costs, net of tax | | | | | | | | ) | | | | | | | | | | | | | | | | ) | | | | | | | | ) | Dividends declared (35.00 yen per share) | | | | | | | | | | | | ) | | | | | | | | | | | | ) | | | | ) | | | | ) | Purchase of treasury stock | | | | | | | | | | | | | | | | | | | | ) | | | | ) | | | | | | | | ) | Reissuance of treasury stock | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Transactions with noncontrolling interests | | | | | | | | ) | | | | | | | | | | | | | | | | ) | | | | ) | | | | ) | | | Balance at March 31, 2019 | | | | | | | | | | | | | | | | ) | | | | ) | | | | | | | | | | | | | | |
(Continued on following page.)
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated other comprehensive income | | | | | | Sony Corporation’s stockholders’ equity | | | | | | | | Balance at March 31, 2019 | | | | | | | | | | | | | | | | ) | | | | ) | | | | | | | | | | | | | Cumulative effect of ASU 2016-02 | | | | | | | | | | | | ) | | | | | | | | | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Exercise of stock acquisition rights | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Conversion of convertible bonds | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other comprehensive income, net of tax — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unrealized gains on securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unrealized gains on derivative | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Pension liability adjustment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign currency translation adjustments | | | | | | | | | | | | | | | | ) | | | | | | | | ) | | | | ) | | | | ) | Debt valuation adjustments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock issue costs, net of tax | | | | | | | | ) | | | | | | | | | | | | | | | | ) | | | | | | | | ) | Dividends declared (45.00 yen per share) | | | | | | | | | | | | ) | | | | | | | | | | | | ) | | | | ) | | | | ) | Purchase of treasury stock | | | | | | | | | | | | | | | | | | | | ) | | | | ) | | | | | | | | ) | Reissuance of treasury stock | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cancellation of treasury stock | | | | | | | (1,072 | ) | | | (71,338 | ) | | | | | | | | | | | | | | | | | | | | | Transactions with noncontrolling interests | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | ) | | | Balance at March 31, 2020 | | | | | | | | | | | | | | | | ) | | | | ) | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | | | | Cash flows from investing activities: | | | | | | | | | | | | | | | | | Payments for property, plant and equipment and other intangible assets | | | | | | | (477,931 | ) | | | (441,096 | ) | | | (613,635 | ) | Proceeds from sales of property, plant and equipment and other intangible assets | | | | | | | 15,893 | | | | 11,409 | | | | 11,595 | | Payments for investments and advances (other than Financial Services segment) | | | | | | | (103,351 | ) | | | (91,082 | ) | | | (191,129 | ) | Proceeds from sales or return of investments and collections of advances (other than Financial Services segment) | | | | | | | 20,352 | | | | 16,081 | | | | 13,548 | | Payments for purchases of businesses | | | | | | | (15,260 | ) | | | (277,618 | ) | | | (283,402 | ) | Proceeds from sales of businesses | | | | | | | 3,151 | | | | 64,609 | | | | 1,221 | | | | | | | | | (6,764 | ) | | | (11,083 | ) | | | 9,138 | | Net cash used in investing activities | | | | | | | (563,910 | ) | | | (728,780 | ) | | | (1,052,664 | ) | Cash flows from financing activities: | | | | | | | | | | | | | | | | | Increase (decrease) in short-term borrowings, net | | | 14, 27 | | | | (18,334 | ) | | | 408 | | | | 32,391 | | Proceeds from issuance of long-term debt | | | 14, 27 | | | | 236,935 | | | | 31,458 | | | | 361,776 | | Payments of long-term debt | | | 14, 27 | | | | (89,918 | ) | | | (194,562 | ) | | | (132,198 | ) | Proceeds from issuance of short-term borrowings in connection with payment for purchase of noncontrolling interest in Sony Financial Group Inc. | | | | | | | 396,500 | | | | — | | | | — | | Payments of short-term borrowings in connection with payment for purchase of noncontrolling interest in Sony Financial Group Inc. | | | | | | | (396,500 | ) | | | — | | | | — | | | | | | | | | (61,288 | ) | | | (74,342 | ) | | | (86,568 | ) | Payments for purchases of treasury stock | | | 20 | | | | (366 | ) | | | (88,624 | ) | | | (99,248 | ) | Payment for purchase of noncontrolling interest in Sony Financial Group Inc. | | | 20 | | | | (396,698 | ) | | | — | | | | — | | | | | | | | | (8,864 | ) | | | (10,916 | ) | | | 8,147 | | Net cash provided by (used in) activities | | | | | | | (338,533 | ) | | | (336,578 | ) | | | 84,300 | | Effect of exchange rate changes on cash and cash equivalents | | | | | | | 36,685 | | | | 94,369 | | | | 84,937 | | Net increase (decrease) in cash and cash equivalents | | | | | | | 274,459 | | | | 262,654 | | | | (568,736 | ) | Cash and cash equivalents at beginning of the fiscal year | | | 27 | | | | 1,512,523 | | | | 1,786,982 | | | | 2,049,636 | | Cash and cash equivalents at end of the fiscal year | | | 27 | | | | 1,786,982 | | | | 2,049,636 | | | | 1,480,900 | |
The accompanying notes are an integral part of these statements.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Index to Notes to Consolidated Financial Statements Sony Group Corporation and Consolidated Subsidiaries | | | | | | | | | | | | | | Notes to Consolidated Financial Statements | | | | | | | | | | | | F-13 | | | 2. | | | | | | F-13 | | | 3. | | | | | | F-14 | | | 4. | | | | | | F-38 | | | 5. | | | | | | F-43 | | | 6. | | | | | | F-53 | | | 7. | | | | | | F-64 | | | | | | | | | | | | 8. | | | | | | F-65 | | | 9. | | | | | | F-66 | | | | | | | | | | | | 10. | | | | | | F-67 | | | 11. | | | | | | F-68 | | | 12. | | | | | | F-72 | | | 13. | | | | | | F-72 | | | 14. | | | | | | F-79 | | | | | | | | | | | | | | | | | | | | | 15. | | | | | | F-81 | | | 16. | | | | | | F-84 | | | 17. | | | | | | F-85 | | | 18. | | | | | | F-91 | | | 19. | | | | | | F-91 | | | 20. | | | | | | F-92 | | | 21. | | | | | | F-97 | | | | | | | | | | | | 22. | | | | | | F-99 | | | | | | | | | | | | 23. | | | | | | F-100 | | | 24. | | | | | | F-101 | | | 25. | | | | | | F-101 | | | 26. | | | | | | F-106 | | | 27. | | | | | | F-106 | | | 28. | | | | | | F-109 | | | 29. | | | | | | F-111 | | | 30. | | | | | | F-111 | | �� | 31. | | | | | | F-114 | | | 32. | | | | | | F-114 | | | 33. | | | | | | F-115 | | | | | | | | | | | | 34. | | | | | | F-116 | |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements Sony Group Corporation and Consolidated Subsidiaries | Nature of operations Reporting entity |
Sony Group Corporation is a public company domiciled in Japan. Sony Group Corporation and its consolidated subsidiaries (hereinafter collectively referred to as “Sony” or “Sony Group”) are engaged in the development, design, production, manufacture, offer and sale of various kinds of electronic equipment, instruments, and devices for consumer, professional and industrial markets such as network services, game hardwarehome gaming consoles and software, televisions, audio and video recorders and players, still and video cameras, smartphones, and image sensors. Sony’s primary manufacturing facilities are located in Asia including Japan. Sony also utilizes third-party contract manufacturers for certain products. Sony’s products and services are marketed throughout the world by sales subsidiaries and unaffiliated distributors as well as direct sales and offers via the internet. Sony is engaged in the development, production, manufacture, and distribution of recorded music and the management and licensing of the words and music of songs as well as production and distribution of animation titles includingand game applications based on the animation titles.applications. Sony is also engaged in the production, acquisition and distribution of motion pictures and television programming and the operation of television networks and digital networks.direct-to-consumer (“DTC”) streaming services. Further, Sony is also engaged in various financial services businesses, including life and non-life insurance operationsbusinesses through its Japanese insurance subsidiaries and banking operationsbusiness through a Japanese internet-based banking subsidiary. Compliance with International Financial Reporting Standards The consolidated financial statements of Sony have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). The term “IFRS” also includes International Accounting Standards (IASs) and the related interpretations of the interpretations committees (Standard Interpretations Committee (SIC) and International Financial Reporting Interpretations Committee (IFRIC)). Approval of consolidated financial statements The consolidated financial statements were approved by Kenichiro Yoshida, Chairman and Chief Executive Officer and Representative Corporate Executive Officer, and Hiroki Totoki, President, Chief Operating Officer and Chief Financial Officer and Representative Corporate Executive Officer, on June 20, 2023. The consolidated financial statements have been prepared on a historical cost basis except for items such as financial instruments measured at fair value as separately described in Note 3. Functional currency and presentation currency The consolidated financial statements have been presented in Japanese yen, which is the functional currency of Sony Group Corporation. All financial information presented in Japanese yen has been rounded to the nearest million Japanese yen. Use of estimates and judgments The preparation of the consolidated financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies, the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. Actual results could differ from these estimates and assumptions. These estimates and assumptions are reviewed on a continuous basis. Changes in these accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Information about judgments that have been made in the process of applying accounting policies that have significant effects on the amounts reported in the consolidated financial statements is as follows: Classification of financial instruments (Note 3 I (5))
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Information about accounting estimates and assumptions that have significant effects on the amounts reported in the consolidated financial statements is as follows: Fair value of financial instruments (Note 3 I (5) and (15) and Note 5) Impairment ofnon-financial assets (Note 3 I (10) and Note 12) Measurement of deferred insurance acquisition costs, future insurance policy benefits, and policyholders’ account in the life insurance business (Note 3 I (11) and Note 13) Measurement of film costs and participation and residual liabilities in the Pictures segment (Note 3 I (9) and (12), Note 11, and Note 18) Recoverability of deferred tax assets (Note 3 I (23) and Note 25) Measurement of fair value of assets acquired and liabilities assumed in business combinations (Note 3 I (2) and Note 30) Consolidated Statements of Cash Flows Adjustments for foreign exchange fluctuations related to investments in the Financial Services segment and adjustments for foreign exchange fluctuations related to content assets, which were included in “Other” in cash flows from operating activities in the previous fiscal year, have been reclassified to “Increase in investments and advances in the Financial Services segment” and “Increase in content assets,” respectively, of cash flows from operating activities from the current fiscal year considering the materiality and the nature of the adjustments. Also, adjustments for changes in taxes payable other than income taxes, net, which were included in “Other” in cash flows from operating activities in the previous fiscal year, have been presented separately as “Increase in taxes payable other than income taxes, net” in cash flows from operating activities from the current fiscal year considering, among other things, the increase in materiality of the adjustments during the fiscal year ended March 31, 2023. As a result of these changes in presentation, reclassifications within cash flows from operating activities in the consolidated statements of cash flows for the fiscal years ended March 31, 2021 and 2022 have been made to conform to the presentation for the fiscal year ended March 31, 2023. As a result, in the consolidated statements of cash flows for the fiscal year ended March 31, 2021 (39,514) million yen, which was previously included in “Other” in cash flows from operating activities, has been reclassified to (75,164) million yen of “Increase in investments and advances in the Financial Services segment” and 16,486 million yen of “Increase in content assets,” and also has been presented separately in 19,164 million yen of “Increase in taxes payable other than income taxes, net” of cash flows from operating activities. In the consolidated statements of cash flows for the fiscal year ended March 31, 2022(189,295) million yen, which was previously included in “Other” in cash flows from operating activities, has been reclassified to(194,499) million yen of “Increase in investments and advances in the Financial Services segment” and(12,636) million yen of “Increase in content assets,” and also has been presented separately in 17,840 million yen of “Increase in taxes payable other than income taxes, net” of cash flows from operating activities. | Summary of significant accounting policies |
| Significant accounting policies |
A subsidiary is an entity controlled by Sony Group Corporation. Control is obtained when Sony Group Corporation is exposed, or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The accompanyingfinancial statements of subsidiaries are included in the consolidated financial statements are presented in accordance with accounting principles generally accepted inof Sony from the United States of America (“U.S. GAAP”). Certain adjustments and reclassifications have been incorporated indate on which control is obtained until 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 domicile. (1) | Significant accounting policies |
Basis of consolidation and accounting for investments in affiliated companies -
date on which control is lost.The consolidated financial statements include the accounts of Sony Corporation and its majority-owned subsidiary companies, general partnerships and other entities in which Sony has a controlling interest, and variable interest entities (“VIEs”) for which Sony is the primary beneficiary. All intercompany transactions and accountsbalances are eliminated. Investmentseliminated in business entities in which Sony does not have control, but has the ability to exercise significant influence over operating and financial policies, generally through20-50%
ownership, are accounted for under the equity method. In addition, investments in general partnerships in which Sony does not have a controlling interest and limited partnerships are also accounted for under the equity method if more than minor influence over the operationpreparation of the investee exists (generally through more than3-5%
ownership). When the interest in the partnership is so minor that Sony has no significant influence over the operation of the investee, the interest in the partnership is carried at fair value. Under the equity method, investments are stated at cost plus/minus Sony’s portion of equity in undistributed earnings or losses. Sony’s equity in current earnings or losses of such entities is reported net of income taxes and is included in operating income (loss) after the elimination of unrealized intercompany profits. If the value of an investment has declined and is judged to be other-than-temporary, the investment is written down to its estimated fair value.consolidated financial statements.On occasion, a consolidated subsidiary or an affiliated company accounted for by the equity method may issue its shares to third parties in either a public or private offering or upon conversion of convertible debt to common stock at amounts per share in excess of or less than Sony’s average per share carrying value. With respect to such transactions, the resulting gains or losses arising from the change in ownership interest are recorded in earnings within the fiscal year in which the change in interest transactions occurs.
Gains or losses that result from a loss of a controlling financial interest in a subsidiary are recorded in earnings along with fair value remeasurement gains or losses on any retained investment in the entity, while a change in interestinF-14
a consolidated subsidiary that does not result in a change in control is accounted for as a capital transaction and no gains or losses are recorded in earnings.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES The excess
any accounting policies applied by a subsidiary differ from those applied by Sony, adjustments are made to the financial statements of the cost over the underlying net equitysubsidiary as necessary.Any changes in ownership interest in a subsidiary that do not result in a loss of investments in consolidated subsidiaries and affiliated companiescontrol are accounted for on anas equity basis is allocated to identifiable tangibletransactions. The difference between the amount by which thenon-controlling interests are adjusted and intangible assets and liabilities based onthe fair values at the date of acquisition. The unassigned residual value of the excessconsideration is directly recognized in equity and attributed to the owners of Sony. When control over a subsidiary is lost, the investment retained in the former subsidiary is remeasured at fair value as of the cost over Sony’s underlying net equitydate when control is lost, and any gain or loss resulting from the loss of control is recognized as goodwillin profit or loss. | ii) | Associates and joint ventures |
An associate is an entity over which Sony has significant influence, but does not have control or joint control, in terms of financial and operating policies. A joint venture is an investee whereby two or more parties including Sony have the rights to the net assets of the investee in accordance with the terms of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. Investments in associates and joint ventures are accounted for using the equity method from the date on which significant influence or joint control is obtained until the date on which significant influence or joint control is lost. Under the equity method, investments in associates and joint ventures are recognized at cost, adjusted for Sony’s share of the profit or loss and other comprehensive income of the associates and joint ventures from the date on which Sony obtains significant influence or joint control to the date on which Sony loses such significant influence or joint control. Sony recognizes its share of profit or loss of the investees, net of income taxes after the elimination of unrealized intercompany profits, in the consolidated operating income (loss) to the extent of Sony’s interest in these entities. For investments accounted for using the equity method, the carrying amount of each investment is tested for impairment as a componentsingle asset, when there is objective evidence that the investments may be impaired. If any accounting policies applied by an associate or a joint venture differ from those applied by Sony, adjustments are made to the financial statements of the associate or the joint venture as necessary. When an investment balance.ceases to be an associate or a joint venture and the use of the equity method is discontinued, any gain or loss arising from discontinuation of the equity method is recognized in profit or loss. A joint operation is a joint arrangement whereby two or more parties including Sony have the rights to the assets, and obligations for the liabilities, relating to the investee in accordance with the terms of the joint arrangement. Sony recognizes its share of the assets, liabilities, revenue and expenses related to joint operations. A structured entity is an entity designed so that voting or similar rights are not the dominant factor in deciding who controls the entity. Sony has control and, therefore, consolidates a structured entity when Sony has exposure or rights to variable returns and has the ability to use its power over the structured entity to affect returns. Sony recognizes identifiable assets acquired and the liabilities assumed of an acquiree at their fairvalu es at the acquisition date with Use of estimates -limited exceptions.
Table of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates include those used in determining the valuation of investment securities, valuation of inventories, fair values of long-lived assets, fair values of goodwill and other intangible assets, fair values of assets and liabilities assumed in business combinations, product warranty liability, pension and severance plans, valuation of deferred tax assets, uncertain tax positions, film costs, and insurance related liabilities. Actual results could significantly differ from those estimates. The timing and extent to which the spread of COVID-19 may negatively impact Sony’s business will depend on future developments, which are highly uncertain. This uncertainty could result in greater variability in accounting estimates and assumptions, including, but not limited to, those used in reviewing goodwill and long-lived assets for impairment and the valuation of deferred tax assets.Contents Translation of foreign currencies -SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
All asset and liability accounts of foreign subsidiaries and affiliates are translated into Japanese yen at appropriate fiscal year end exchange rates and all income and expense accounts are translated at exchange rates that approximate those rates prevailing atSony recognizes goodwill when the timeaggregate of the transactions. The resulting translation adjustments are accumulated asconsideration transferred in a componentbusiness combination,the amount of accumulated other comprehensive income. Upon remeasurementanynon-controlling interests in the acquiree and the fair value of aSony’s previously held equity interest in accordance with the accounting guidanceacquiree exceeds the net amount of the identifiable assets and liabilities of the acquiree at the acquisition date. If the aggregate above is less than the net amount of identifiable assets and liabilities, the difference is recognized as a gain. The consideration transferred is calculated as the sum of the fair values of the assets transferred, liabilities assumed and equity interest issued.Non-controlling interests are measured either at fair value or based on thenon-controlling interests’ proportionate share of the acquiree’s net identifiable assets for each business combinations achievedcombination transaction. Acquisition-related costs are recognized as expenses in stages, accumulated translation adjustments, if any,the period they are included in earnings.incurred. | Foreign currency translation - |
| i) | Foreign currency transactions |
Foreign currency transactions are translated at the exchange rates prevailing at the transaction date or rates that approximate such rates. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency using the exchange rate at appropriate fiscal yearthe end of the period. Foreign exchange gains and losses resulting from translation and settlement are generally recognized in profit or loss. They are deferred in other comprehensive income if they relate to qualifying cash flow hedges. Assets and liabilities of foreign operations such as overseas subsidiaries and associates are translated using the exchange rates at the end of the period, and revenue and expense items are translated using the resultingaverage exchange rates for the period unless the exchange rates fluctuate significantly. Exchange differences arising from the translation gains or losses are recognized intoin other comprehensive income. On the disposal of a foreign operation, the cumulative amount of exchange differences relating to that foreign operation is reclassified to profit or loss. | Cash and cash equivalents and restricted cash - |
Cash and cash equivalents include all highly liquid investments, with original maturities of three months or less, that are readily convertible to known amounts of cash and which are so near maturity that they presentsubject to an insignificant risk of changes in value because of changes in interest rates. Sony includes restricted cash within cash and cash equivalents in the statement of cash flows.value. Marketable debt and equitysecurities
Sony recognizes a financial instrument as a financial asset or a financial liability when Sony becomes party to the contractual provisions of the instrument. Debt securities designated asavailable-for-sale Financial assets and financial liabilities are carriedinitially measured at fair value. Except for financial assets and financial liabilities measured at fair value withunrealized
gainsthrough profit or losses included as a component of accumulated other comprehensive income, net of applicable taxes. Equity securities that have a readily determinable fair value, and debt securities classified as trading securities, are carried at fair value with unrealized gains or losses included in income. Debt securitiesloss, transaction costs that are expecteddirectly attributable to beheld-to-maturity
are carried at amortized cost. Individual securities classified as eitheravailable-for-sale
orheld-to-maturity
are reduced to fair value by a charge to income when an other-than-temporary impairment is recognized. Realized gains and losses are determined on the average cost method and are reflected in income.Sony regularly evaluates its investment portfolio to identify other-than-temporary impairments of individual debt securities. Factors that are considered by Sony in determining whether an other-than-temporary decline in value has occurred include: the length of time and extent to which the market valueacquisition or issuance of the security has been less than its original cost, the financial condition, operating results, business plans and estimated future cash flows of the issuer of the security, other specific factors affecting the market value, deterioration of the credit condition of the issuer, sovereign risk, and whetherasset or not Sony is ablefinancial liability are added to retain the investment for a period of time sufficient to allow for the anticipated recovery in market value.
In evaluating the factors for debt securities designated asavailable-for-sale,
Sony presumes a decline in value to be other-than-temporary if the fair value of financial assets or subtracted from the securityfair value of financial liabilities at initial recognition. | i) | Non-derivative financial assets |
| a. | Classification and measurement |
Non-derivative financial assets held by Sony are classified as either financial assets measured at amortized cost, debt instruments measured at fair value through other comprehensive income, equity instruments measured at fair value through other comprehensive income or financial assets measured at fair value through profit or loss.Financial assets measured at amortized cost Sony classifies a financial asset as measured at amortized cost if the financial asset is 20 percent or more below its original cost for an extended periodheld within a business model whose objective is to collect contractual cash flows and thecont ractual terms of time (generally for a period of up to six months). This criterion is employed as a threshold to identify securities which may have a decline in value that is other-than-temporary. The presumption of an other-than-temporary impairment in such cases may be overcome if there is evidence to support that
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. The financial asset is temporarymeasured at amortized cost by using the effective interest method after initial recognition. On derecognition of a financial asset measured at amortized cost, the difference between the carrying amount and the consideration received or receivable is recognized in nature due toprofit or loss. Debt instruments measured at fair value through other comprehensive income A debt instrument is classified as a financial asset measured at fair value through other comprehensive income if the existence of other factors which overcomedebt instrument is held within a business model whose objective is achieved by both collecting contractual cash flows and selling the duration or magnitudefinancial asset and the contractual terms of the decline. Onfinancial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the other hand, there may be cases where impairment losses are recognized when the declineprincipal amount outstanding. Changes in the fair value of the securityfinancial asset after initial recognition, except for impairment gains or losses and foreign exchange gains or losses, are recognized in other comprehensive income. Interest income from these financial assets is not more than 20 percentrecognized in profit or such decline has not existedloss using the effective interest method. On derecognition of a debt instrument measured at fair value through other comprehensive income, the cumulative amount previously recognized in other comprehensive income is reclassified to profit or loss. In the life insurance business, the financial assets are held mainly from the perspective of asset-liability management (“ALM”). The objective of holding financial assets in the life insurance business is to match the interest rate sensitivity (duration) of financial assets and insurance contract liabilities (which mainly consist of future insurance policy benefits and the policyholders’ account in the life insurance business) as much as possible, in order to ensure sufficient cash flows are available to settle insurance claims when they come due. Sony manages these assets as one portfolio, based on the overall objective of managing duration and liquidity needs in a capital efficient manner. While some assets within the portfolio may be held for an extendeda longer period of time, as a resultSony considers, because of considering specific factorsits overall objective for these assets, that all the financial assets are held within one business model whose objective is achieved by both collecting cash flows and selling financial assets. Equity instruments measured at fair value through other comprehensive income For investments in equity instruments which are not held for trading, Sony may indicate thatmake an irrevocable election at initial recognition to present subsequent changes in fair value of the declineinvestments in other comprehensive income. These financial assets are measured at fair value and subsequent changes in the fair value is other-than-temporary. When an other-than-temporary impairment of aheld-to-maturity
debt security has occurred, the amount of the other-than-temporary impairmentare recognized in income depends on whether Sony intends to sell the debt security or more likely than not will be required to sell the debt security before recovery of its amortized cost. If the debt security meets either of these two criteria, the other-than-temporary impairment isother comprehensive income. Dividends from financial assets are recognized in income, measured asprofit or loss, and the entire difference between the security’s amortized cost and its fair value at the impairment measurement date. For other-than-temporary impairment of the debt security that does not meet these two criteria, the netcumulative amount recognized in other comprehensive income is a credittransferred to retained earnings upon derecognition.Financial assets measured at fair value through profit or loss which equals the difference between the Financial assets other than those measured at amortized cost or fair value through other comprehensive income are classified as financial assets measured at fair value through profit or loss. Financial assets measured at fair value through profit or loss include financial assets held for trading. In the life insurance business, investments held for variable life insurance and individual variable annuity contracts mainly consist of equity securities, debt securities and investment funds, which are measured at fair value through profit or loss. For certain financial assets that would not normally be measured at fair value through profit or loss, Sony may, at initial recognition, choose the irrevocable option to measure such financial assets at fair value through profit or loss in order to eliminate or significantly reduce an accounting mismatch. In the banking business, Sony has made the irrevocable election as mentioned above for some fixed-rate debt security and its net present value calculated by discounting Sony’s best estimate of projected future cash flows atsecurities. In relation to such debt securities, Sony utilizes derivatives to hedge the effective interest rate implicitrisk arising from the changes in the debt security prior to impairment. Any difference between the fair value and the net present value of the debt securitysecurities due to unfavorable fluctuations of interest rates. Thus, this election is made to mitigate accounting mismatches derived from the changes in the fair value of the debt securities and derivatives used ashed ging instruments by recognizing gains and losses from the changes in the fair value of the debt securities in profit or loss.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Sony derecognizes a financial asset when the contrac tual rights to the cash flows from the financial asset expire, or when Sony transfers the contractual rights to receive the cash flows of the financial asset and transfers substantially all of the risks and rewards of the financial asset. Sony estimates expected credit losses and recognizes loss allowances for financial assets measured at the impairment measurement date is recorded in accumulatedamortized cost and debt instruments measured at fair value through other comprehensive income. Unrealized gainsAt each reporting date, Sony measures the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses if the credit risk on that financial instrument has increased significantly since initial recognition. If, at the reporting date, the credit risk on a financial instrument has not increased significantly since initial recognition, Sony measures the loss allowance for that financial instrument at an amount equal to12-month expected credit losses. In assessing whether the credit risk has increased significantly or not, Sony uses the change in the risk of a default occurring over the expected life of the financial instrument and estimates expected credit losses by using the method which reflects the past loss rate and other reasonable and supportable forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables. Sony measures the expected credit losses of a financial asset in a way that r eflects an unbiased and probability-weighted amount incorporating the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. However, for trade and other receivables, and contract assets includingnon-current other receivables in the Pictures segment, the loss allowance is measured at an amount equal to lifetime expected credit losses irrespective of the change of credit risk on a collective basis or an individual basis incorporating factors such as thepast-due status and the attributes of the counterparties. Sony determines a financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. The criteria that Sony uses to determine that a financial asset is credit-impaired include a default or delinquency of more than 90 days past due in interest or principal payments. Sony writes off the gross carrying amount of a financial asset when it cannot reasonably expect to recover all or part of the asset. Debt securities and housing loans in the Financial Services segment The expected credit losses for debt securities and housing loans in the Financial Services segment are the product of the probability of default (“PD”), loss given default (“LGD”) and exposure at default (“EAD”), by leveraging the Basel III regulatory framework or based on the external information published by major credit rating agencies. Forward-looking economic information is also included in determining the PD. Assessments on significant increases in credit risk are performed at the reporting date by comparing the risk of default occurring with that at initial recognition. Sony recognizes and measures the expected credit losses on a collective basis or an individual basis using reasonable and supportable information that is available without undue cost or effort, such as asset type, credit ratings, collateral collectability,past-due status and other relevant characteristics of financial instruments. In addition, Sony has applied the low credit risk exemption for certain debt securities for which an other-than-temporary impairmentrated “investment grade” by major credit rating agencies at the reporting date. For such instruments, Sony assumes that the credit risk has not increased significantly since initial recognition. If contractual terms of a loan have beenmodified , it is recognizednecessary to recalculate the gross carrying amount of that loan by using the original effective interest rate and recognize a modification gain or loss in income are presented as a separate component of accumulated other comprehensive income.profit or Equity securities that do not have readily determinable fair values -
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES | ii) | Non-derivative financial liabilities |
Sony classifiesnon-derivative financial liabilities as either financial liabilities subsequently measured at amortized cost by using the effective interest method or financial liabilities measured at fair value through profit or loss. Sony derecognizes a financial liability when it is extinguished, meaning when the obligation specified in the contract is discharged, cancelled or expired. | iii) | Derivative financial instruments and hedge accounting |
All derivatives are recognized as either assets or liabilities in the consolidated statements of financial position at fair value. Changes in the fair value of derivative financial instruments are either recognized periodically through profit or loss or other comprehensive income, depending on whether the derivative financial instrument qualifies as a hedge and the derivative is being used to hedge changes in cash flows. Derivative financial instruments held by Sony are accounted for as described below. Changes in the fair value of derivatives that doare designated and determined to be effective as cash flow hedges for forecasted transactions or exposures associated with recognized assets or liabilities are initially recorded in other comprehensive income and reclassified to profit or loss when the hedged transaction affects profit or loss. Changes in the fair value of the ineffective portion are immediately recognized in profit or loss. Derivatives not designated as hedges Changes in the fair value of derivatives not designated as hedges are immediately recognized in profit or loss. Assessment of hedge effectiveness When applying hedge accounting, Sony formally documents all hedging relationships between the derivatives designated as hedges and the hedged items, as well as its risk management objectives and strategies for undertaking various hedging activities. Sony links all hedges that are designated as cash flow hedges to specific assets or liabilities in the consolidated statements of financial position or to the specific forecasted transactions. Sony also assesses, both at the inception of the hedge and on anon-going basis, whether the derivatives that are designated as hedges have readily determinablean economic relationship with the hedged item in offsetting changes in fair valuesvalue or cash flows of hedged items. The effect of credit risk does not dominate the value changes that result from the underlying economic relationship. In addition, the hedge ratio of the hedging relationship is designed to be the same as that resulting from the quantity of the hedged item that Sony actually hedges and the quantity of the hedging instrument that Sony actually uses to hedge that quantity of the hedged item. When it is determined that a derivative no longer has an economic relationship with the hedged item, Sony discontinues hedge accounting. | iv) | Offsetting a financial asset and a financial liability |
Sony offsets a financial asset and a financial liability and presents the net amount in the consolidated statements of financial position when Sony currently has a legally enforceable right to set off the recognized amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. Inventories are measured at the lower of cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions fornet realizable value. The cost of inventories is determined on the identical or a similar investment of the same issuer. If the value of equity securities that do not have readily determinable fair values is estimated to have declined and such decline is judged to be other-than-temporary, Sony recognizes the impairment of the investment and the carryingweighted average costbasis. Net realizable value is reduced to its fair value. Determination of impairment is based on the consideration of several factors, including operating results, business plans and estimated future cash flows. Fair value is determined through the use of various methodologies such as discounted cash flows, valuation of recent financings and comparable valuations of similar companies. Allowance for doubtful accounts -
Sony maintains an allowance for doubtful accounts to reserve for potentially uncollectible receivables. Sony reviews accounts receivable by amounts due from customers which are past due to identify specific customers with known disputes or collectability issues. In determining the amount of the reserve, Sony makes judgments about the creditworthiness of customers based on past collection experience and ongoing credit risk evaluations.
Inventories in the Game & Network Services (“G&NS”), Music, Electronics Products & Solutions (“EP&S”) and Imaging & Sensing Solutions (“I&SS”) segments as well asnon-film
inventories for the Pictures segment are valued at cost, not in excess of the net realizable value – i.e., estimated selling price in the ordinary course of business less reasonably predictablethe estimated costs of completion and disposal, cost being determined on the “average cost” basis.estimated costs necessary to make the sale.Other receivables include receivables which relate to arrangements with certain component manufacturers whereby Sony procures goods, including product components, for these component manufacturers and is reimbursed for the related purchases. No revenue or profit is recognized on these transfers. Sony will repurchase the inventory at a later date from the component manufacturers as either finished goods inventory or as partially assembled product.
Film costs include direct production costs, production overhead and acquisition costs for both motion picture and television productions and are stated at the lower of unamortized cost or estimated fair value and
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES classified as noncurrent assets. Film | Property, plant and equipment and depreciation - |
Sony has adopted the cost model for the measurement of property, plant and equipment and presents an item of property, plant and equipment at its cost less any accumulated depreciation and any accumulated impairment losses. The cost of an item of property, plant and equipment includes any costs are amortized, and the estimated liabilities for residuals and participations are accrued using an individual-film-forecast method based on the ratio of current period actual revenuesdirectly attributable to the estimated remaining total revenues. Filmacquisition of the asset as well as costs also include broadcasting rights, whichof its dismantlement, removal or restoration. Property, plant and equipment are recognized when the license period begins and the program is available for use, and consist of acquired programming to be aired on Sony’s worldwide channel network. Broadcasting rights are stated at the lower of unamortized cost or net realizable value, classified as either current or noncurrent assets based on timing of expected use. Broadcasting rights are amortized based on estimated usage ordepreciated on a straight-line basis over thetheir useful life, as appropriate, although broadcasting rights licensed under multi-year live-event sports programming agreements are generally amortized based on the ratio of the current period’s actual advertising revenue and an allocation of subscription fee revenue to the estimated total remaining attributable revenues. Estimates used in calculating the fair value of film costs and the net realizable value of broadcasting rights are based upon assumptions about future demand and market conditions and are reviewed on a periodic basis. Property, plant and equipment and depreciation -
Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line method. Useful lives for depreciation range(depreciation period ranging from 2 to 50 years for buildings and from 2 to 10 years for machinery and equipment. Significant renewalsequipment). Sony reviews the residual values and additions are capitalizedthe useful lives at cost. Maintenance and repairs, and minor renewals and betterments are charged to income as incurred.each fiscalyear-end, or sooner if circumstances require.When entering into a contract, Sony determines whether an arrangement contains a lease at its inception. An arrangement contains a lease if it conveys the right to control the use of an identified property, plant, or equipment (an identified asset)asset for a period of time in exchange for consideration. OperatingAssets and liabilities recognized from leases are included in operating lease(“ROU”) assets, current portion of long-term operating lease liabilities, and long-term operating lease liabilities on Sony’s consolidated balance sheets. Finance leases are included in finance leaseright-of-use
assets,the current portion of long-term debt, and long-term debt onin Sony’s consolidated balance sheets. statements of financial position.Right-of-use ROU assets represent Sony’s right to use an underlying asset for the lease term and lease liabilities represent Sony’s obligation to make lease payments arising from the lease. Right-of-useROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Right-of-useROU assets also include any lease payments orand initial direct costs incurred on or before the commencement date and excludesexclude lease incentives. In determining the present value of lease payments, Sony generally uses its incremental borrowing rate, as the implicit rate is not available for most of its leases. Sony determines its incremental borrowing rate based on the estimated rate of interest for collateralized borrowing,borrowings, taking into account the lease term and the economic environmentconditions of each country or region at commencement date. The lease terms may include options to extend or terminate the lease when it is reasonably certain that Sony will exercise that option. Lease expense for operating leases recorded onIf the balance sheetlease transfers ownership of the underlying asset to the lessee by the end of the lease term or the purchase option is recognized on a straight-line basis overreasonably certain to be exercised, Sony depreciates the ROU assets from the commencement date to the end of the useful life of the underlying assets. Otherwise, Sony depreciates the ROU assets from the commencement date to the earlier of the end of the useful life of the ROU assets or the end of the lease term. Sony accounts for the lease and non-lease components of all underlying asset classes as a single lease component. Sony has applied the short-term lease exception for leases with a term of one year or less, where right-of-useROU assets and lease liabilities are not recognized and the expense is recognized on a straight-line basisbasis. | Intangible assets and amortization, including content assets - |
Intangible assets are measured using the cost model and stated at cost less accumulated amortization and impairment losses. Intangible assets acquired separately are initially recognized at cost. AsIntangible assets with finite useful lives mainly consist of April 1, 2019, Sony adopted Accounting Standards Update (“ASU”) 2016-02, which amends leasing guidance,patent rights,know-how, license agreements, customer relationships, trademarks, software, television carriage contracts (broadcasting agreements), film costs, broadcasting rights, music catalogs, artist contracts, music distribution rights and game content. Patent rights,know-how, license agreements, trademarks and software are generally amortized on a modified retrospectivestraight-line basis with no restatementover 3 to 10 years. Customer relationships, television carriage contracts (broadcasting agreements), music catalogs, artist contracts, music distribution rights and game content are generally amortized on a straight-line basis, over 10 to 44 years. Film costs are amortized using an ultimate revenue method based on the ratio of comparative periods. Priorcurrent period actual revenues to the adoption of ASU 2016-02 on April 1, 2019, right-of-use assetsestimated remaining total revenues. Sony considers that amortization pursuant to the ultimate revenue method reflects the rate at which it plans to consume the future economic benefits related to the asset, and lease liabilities for operating leases were not recognized in Sony’s consolidated balance sheet. Forthere is a high correlation between revenue and the detailed effectconsumption of the adoption ofeconomic benefits embodied in the new standardintangible assets. Broadcasting rights are generally amortized based on Sony’s results of operations and financial position, refer to Note 2 (2) Recently adopted accounting pronouncements. estimated usage or on a straight-line basis over the useful life.Goodwill and otherAmortization of intangible assets -
Goodwillis included in cost of sales and indefinite livedselling, general and administrative expenses in the consolidated statements of income. Certain intangible assets are tested annuallyassessed to have indefinite lives because there is no foreseeable limit to the period over which such assets are expected to generate net cash flows for Sony.
Film costs, broadcasting rights, music catalogs, artist contracts, music distribution rights and game content are collectively classified and presented as content assets in the consolidated statements of financial position.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Film costs include direct production costs, production overhead, and costs for acquisition and distribution rights for both motion picture and television productions. Broadcasting rights, consisting of acquired programming to be aired on Sony’s television networks and DTC streaming services, are recognized when the license period begins and the program is available for use. Music catalogs are exclusive rights to the recorded music master or music copyrights, which consist of melodies and lyrics of songs, that can be exploited and marketed in various markets. Artist contracts are contracts with recorded music artists or songwriters that provide Sony with exclusive rights to musical works. Music distribution rights are agreements to distribute music content owned by third parties. Game content includes internally developed content, content developed through a third-party arrangement where Sony owns the rights to the content, content acquired externally through contracts with third parties, and agreements to distribute game content owned by thirdparties . | Impairment ofnon-financial assets - |
Sony reviews the recoverability of itsnon-financial assets, except for inventories, contract costs and deferred tax assets, whenever there is any indication that an asset or a cash-generating unit (“CGU”) may be impaired. In addition, an annual impairment test for goodwill, intangible assets with indefinite useful lives or intangible assets not yet available for use is performed during the fourth quarter of the fiscal year and between annual tests if an event occursfor each CGU or circumstances change that would more likely than not reduce the fair value below its carrying amount. Such an event or change in circumstances would include unfavorable variances from established business plans, significant changes in forecasted results or volatility inherentgroup of CGUs to external markets and industries, which are periodically reviewed by Sony’s management. In the fourth quarter of the fiscal year ended March 31, 2020, Sony elected not to perform an optional qualitative assessment of goodwill and instead proceeded directly to a quantitative impairment test by comparing the fair value of a reporting unit with its carrying amount. Reporting units are Sony’s operating segments or one
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
level below the operating segments. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired. If the carrying amount of these assets is allocated.
A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or group of assets. Goodwill is allocated to each CGU or group of CGUs that is expected to benefit from the synergies of a reporting unit exceedsbusiness combination. A CGU or group of CGUs to which goodwill is allocated is not larger than an operating segment. The recoverable amount of an asset, a CGU or group of CGUs is the higher of its value in use and fair value an impairment loss is recognizedless costs of disposal. In assessing value in an amount equaluse, the estimated future cash flows are discounted to their present value using apre-tax discount rate that excess, not to exceedreflects current market assessments of the total amounttime value of goodwill allocatedmoney and the risks specific to the reporting unit. Indefinite lived intangible assets are tested for impairment by comparing the fair value of the intangible asset with its carrying value, and if the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The fair value of a reporting unit or indefinite lived intangible asset is generally determined using a discounted cash flow analysis.assets. This approach uses significant estimates and assumptions, including projectedestimated future cash flows, the timing of such cash flows, discount rates reflecting the risk inherent in future cash flows, perpetual growth rates, earnings or revenue multiples, the determination of appropriate comparable entities and the determination of whether a premium or discount should be applied to comparables. Consideration is also given to Sony’s market capitalization in relation to the sum of the calculated fair values of the reporting units, including reporting units with no goodwill, and taking into account corporate level assets and liabilities not assigned to individual reporting units as well as a reasonable control premium.
The assumptions used for projectedestimated future cash flows and the timing of such cash flows for each CGU are generally based on the forecast andthree-yearmid-range plan (“MRP”) of each reporting unit and take into account such factors as historical experience, market and industry information, and current and forecasted economic conditions. Perpetual growth rates are generally utilized to determine a terminal cash flow value and are generally set after the three-year forecasted period for the MRP. Certain reporting units, such as those inIf the Pictures segment, utilize longer forecast periods and baserecoverable amount is determined to be less than the terminal value oncarrying amount of a CGU or group of CGUs, an exit price using an earnings multiple appliedimpairment loss would be recognized equal to the final yearamount by which the carrying amount exceeds the recoverable amount. Such impairment losses are recognized by first reducing the carrying amount of the forecasted earnings, which also takes into consideration a control premium. Discount rates are derived from the weighted average cost of capital of market participants in similar businesses. Management believes that the assumptions used to estimate the fair value in the goodwill impairment tests are reasonable, including, but not limited to, the potential impacts arising from the spread of COVID-19. As the extent and duration of the impacts from COVID-19 remain unclear, Sony’s estimates and assumptions may evolve as conditions change. Actual results could differ from those estimates. As a result, changes in estimates resulting in lower than currently anticipated cash flows and fair values due to unforeseen changes in assumptions could negatively affect the valuations, which may result in Sony recognizing impairment charges forany allocated goodwill and indefinite lived intangible assets in the future.
When a business within a reporting unit is disposed of, goodwill isthen are allocated to the disposed business usingother assets of the relative fair value method.
Intangible assets with finite useful lives mainly consist of patent rights,know-how,
license agreements, customer relationships, trademarks, software to be sold, leased or otherwise marketed,internal-use
software, music catalogs, artist contracts, and television carriage contracts (broadcasting agreements). Patent rights,know-how,
license agreements, trademarks, software to be sold, leased or otherwise marketed, andinternal-use
software are generally amortizedCGU on a straight-linepro rata basis over 3 to 10 years. Customer relationships, music catalogs, artist contractsof the carrying amount of each asset in the CGU. Impairment losses except for content assets are included in other operating (income) expense, net, and television carriage contracts (broadcasting agreements)impairment losses for content assets are generally amortized on a straight-line basis over 10 to 44 years.The costs related to establishing the technological feasibility of software to be sold, leased or otherwise marketed are expensed as incurred as a part of research and developmentincluded in cost of sales. Costssales in the consolidated statements of income.
Assets other than goodwill are reviewed to assess whether there is any indication that are incurred to producean impairment loss recognized in prior periods may no longer exist or may have decreased. If any such indication exists, the finished product after technological feasibilityrecoverable amount of the asset is established are capitalizeddetermined and amortized to costa reversal of sales over the estimated economic life, whichan impairment loss is generally three years. The technological feasibility of game software is establishedrecognized when the product master is completed. Consideration to capitalize game software development costs before this point is limitedrecoverable amount of the asset exceeds the carrying amount. Any increase in the carrying amount of an asset attributable to the development costsreversal of games for which technological feasibility can be proven at an earlier stage. At each balance sheet date, Sony performs reviews to ensure that unamortized capitalized software costs remain recoverable from future profitsimpairment loss does not exceed the carrying amount of the related software products.asset, net of depreciation and amortization, which would have been determined if an impairment loss had never been recognized for the asset in prior periods. The costs incurred forinternal-use
software during the application development stage | Insurance-related accounts - |
In accordance with IFRS 4 “Insurance Contracts” (“IFRS 4”), insurance contracts are capitalizedrecognized and amortized, mainly to selling, general and administrative expenses, on a straight-line basis over the estimated useful life. Costs relatedmeasured according to the preliminary project stage and post implementation activities are expensed as incurred.same accounting principles previously applied under generally accepted accounting principles in the United States.
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
| i) | Deferred insurance acquisition costs - |
Costs that vary with and are directly related to the acquisition or renewal of insurance policies are deferred as long as they are recoverable. The deferred insurance acquisition costs include such items as
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES commissions, medical examination costs and inspection report fees, and are subject to recoverability testing at least annually to ensure that the capitalized amounts do not exceed the present value of anticipated gross profits or premiums less benefits and maintenance expenses, as applicable. The deferred insurance acquisition costs for traditional life insurance contracts are amortized over the premium-paying period of the related insurance policies using assumptions consistent with those used in computing future insurance policy reserves.benefits. The deferred insurance acquisition costs for non-traditional life insurance contracts are amortized over the expected life at a constant rate based on the present value of the estimated gross profit. Investment yields, mortality rates, lapse rates and discount rates are used as importantsignificant assumptions for the present value of the estimated gross profit. | ii) | Future insurance policy benefits |
Sony provides for the estimated cost of product warranties at the time revenue is recognized. The product warranty is calculated based upon product sales, estimated probability of failure and estimated cost per claim. The variables used in the calculation of the provision are reviewed on a periodic basis.
Future insurance policy benefits -
Liabilities for future insurance policy benefits are primarily comprised of the present value of estimated future payments to policyholders. These liabilities are computed by the net level premium method based upon the assumptions as to future investment yield, morbidity rates, mortality withdrawalsrates, lapse rates and other factors. These assumptions are reviewed on a periodic basis. Liabilities for future insurance policy benefits includesinclude the liabilities for the minimum guarantee benefits of individual variable annuitiesannuity and variable life insurance contracts. As discussed below in “Fair value measurement,” Sony elected the fair value option for certain of these liabilities for future insurance policy benefits.
Policyholders’ account in the life insurance business -
| iii) | Policyholders’ account in the life insurance business |
Liabilities for policyholders’ account in the life insurance business represent the contract value that has accrued to the benefit of the policyholders as of the balance sheet date.end of the reporting period. This liability is generally equal to the accumulated account deposits, plus interest credited, less policyholder withdrawals and other charges assessed against the account balances. Liabilities for policyholders’ account in the life insurance business includesinclude the liabilities related to the individual variable annuitiesannuity and variable life insurance contracts with minimum guarantee benefits. As discussed below in “Fair value measurement,” | iv) | Insurance-related accounts measured at fair value |
Sony elected themeasures at fair value option for certain of these liabilities forfuture insurance policy benefits and policyholders’ account in the life insurance business. The fair value measurement mitigates accounting mismatches related to the changes in the fair value between liabilities for those future insurance policy benefits and policyholders’ account due to changes in the minimum guarantee risk of individual variable annuity contracts with minimum guarantee benefits, and the underlying investment managed for policyholders and derivatives entered into related to such investments. Changes in fair value resulting from changes in instrument-specific credit risk were estimated by incorporating the certain subsidiary’s current credit spreads, and are recognized in other comprehensive income, net of tax. The amount recognized in other comprehensive income is reclassified to profit or loss when the insurance contract liabilities are derecognized. Impairment of long-lived assets -
| v) | Shadow accounting in the life insurance business |
Sony reviews the recoverability of the carrying value of its long-lived assets held and used, other than goodwill and intangible assets with indefinite lives, and assets to be disposed of, whenever events or changes in circumstances indicate that the individual carrying amount of an asset or asset group 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 cash flows are determined to be less than the carrying value of the asset or asset group, an impairment loss would be recognized during the period for the amount by which the carrying value of the asset or asset group exceeds estimated fair value. Long-livedWhen holding financial assets that are to be disposed of other than by sale are considered held and used until they are disposed of. Long-lived assets that are to be disposed of by sale are reportedmeasured at the lower of their carrying value or fair value less costthrough other comprehensive income and which correspond to sellinsurance contract liabilities, shadow accounting is applied to evaluate insurance-related accounts as if the financial assets were sold as of the end of reporting period and realized valuation gains or losses for the purpose of reducing the accounting mismatches between the insurance contract liabilities and the financial assets. Sony performs a shadow liability adequacy test on life insurance contracts quarterly. In a shadow liability adequacy test, mainly, future insurance policy benefits minus deferred insurance acquisition costs in the consolidated statements of financial position are not depreciated. Fair value is determined usingcompared to the present value of estimated net cash flows or comparable market values. This approach uses significant estimates and assumptions including projected future cash flows,flow on a best-estimate basis as of the timingend of such cash flows, discount rates reflecting the risk inherent in future cash flows, perpetual growth rates appliedreporting period to determine terminal values, determination of appropriate market comparables and the determination of whether a premium or discount should be applied to comparables. Management believes that the estimatesfuture insurance policy benefits are recorded at a sufficient level. If there is a shortage compared to the present value of future cash flows and fair values are reasonable, including, but not limitedon a best-estimate basis at the time, the deferred insurance acquisition costs will be decreased to the potential impacts arising from the spread of COVID-19. As the extent and duration of the impacts from COVID-19 remain unclear, Sony’s estimatesshortage through other comprehensive income. If the deferred insurance acquisition costs are decreased to zero and assumptions may evolve as conditions change. Actual results could differ from those estimates. As a result, changes in estimates resulting in lowerthe shortage remains, the future cash flows and fair values due to unforeseen changes in Sony’s businesses or assumptions could negatively affectinsurance policy benefits are increased by the valuations of long-lived assets.remaining shortage through other comprehensive income.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Shadow accounting is an accounting treatment that affects the measurement of the insurance-related accounts in response to unrealized gains or losses recognized for the assets in a manner consistent with realized gains or losses. When the gains or losses from the assets are recognized in other comprehensive income, the fluctuations in the carrying amount of insurance-related accounts are also recognized in other comprehensive income. Provisions are recognized when Sony has present legal or constructive obligations as a result of past events, it is probable that outflows of resources embodying economic benefits will be required to settle the obligations, and reliable estimates can be made of the amount of obligations. Provisions mainly consist of participation and residual liabilities in the Pictures segment and product warranties. | i) | Participation and residual liabilities in the Pictures segment |
Parties involved in the production or exploitation of film and television content may be compensated in part by contingent payments based on the financial results of a film or television show pursuant to contractual formulas (participations) and by contingent amounts due under provisions of collective bargaining agreements (residuals). Such parties are collectively referred to as participants, and such costs are referred to collectively as participation and residual costs. Participation and residual costs may be given to creative talent, such as actors or writers, investors or to entities from whom distribution rights are licensed. Participation and residual liabilities are accrued based on the ratio of current period actual revenues to the estimated remaining total revenues. The participation and residual liabilities are expected to be relieved when the contingent payments are fixed and paid. The majority of thenon-current portion of participation and residual liabilities is expected to be paid within the next 10 years. Sony also enters into arrangements with other studios to jointly produce and distribute films, under which each partner is responsible for the distribution of the film in specific territories or distribution windows. The partners’ shares in the profits and losses of the films under these arrangements are included within participation and residual costs. Sony issues contractual product warranties under which it generally guarantees the performance of products delivered and services rendered for a certain period or term. Product warranties are calculated based upon product sales, estimated probability of failure and estimated cost per claim. The estimates and forecasts used in the calculation of product warranties are reviewed on a periodic basis. Sony adopts defined benefit plans and defined contribution plans. FairSony recognizes the net defined benefit liability or asset of defined benefit plans in the consolidated statements of financial position as the amount of the present value measurement -of defined benefit obligations less the fair value of plan assets. The present value of defined benefit obligations is calculated by discounting the expected future benefit, and service costs are determined by using the projected unit credit method. If the fair value of planassets is in excess of the present value of defined benefit obligations, the amount of any asset to be recognized is limited to the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan. The discount rate is determined by
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES reference to market yields at each fiscalyear-end on high-quality corporate bonds which have approximately the same term as the defined benefit obligations and are payable in the same currency as the benefit payments. Net interest on the net defined benefit liability or asset is calculated by multiplying the net defined benefit liability or asset by the discount rate. Past service cost, which is the change in the present value of the defined benefit obligation resulting from a plan amendment or curtailment, is recognized in profit or loss. Remeasurements of the net defined benefit liability or asset are recognized in other comprehensive income when they occur and transferred to retained earnings immediately. Defined contribution plans Sony recognizes contributions to defined contribution plans as expenses when employees have rendered related services. | ii) | Short-term employee benefits |
Sony recognizes short-term employee benefits, such as salaries, bonuses and annual paid absences, as expenses at the amount expected to be paid in exchange for services when employees have rendered such services. | Stock-based compensation - |
Sony estimates the cost of stock options at their fair value on the grant date and recognizes the expense over the vesting period with a corresponding increase in equity. The fair value of options granted is calculated using the Black-Scholes option-pricing model with consideration for terms and conditions of the stock options. Sony estimates the cost of restricted stock by the fair value of the stock granted on the grant date and recognizes the expense over the vesting period with a corresponding increase in equity. | iii) | Restricted stock unit plan |
Sony estimates the cost of restricted stock units by the fair value of the units granted on the grant date and recognizes the expense over the vesting period with a corresponding increase in equity. Sony measures fair value as an exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. Sony has elected the fair value option in the banking business for certain foreign securities. The election was made to mitigate accounting mismatches related to fluctuations of foreign exchange rates by allowing the gains and losses on the translation of these securities to be included in current earnings. Sony has also elected the fair value option for certain future insurance policy benefits and policyholders’ account in the life insurance business which are not normally measured at fair value. The election was made to mitigate accounting mismatches related to the changes in the fair value between liabilities for those future insurance policy benefits and policyholders’ account due to changes in the minimum guarantee risk of contracts of variable annuities with minimum guarantee benefits, and the underlying investment managed for policyholders and derivatives. Changes in fair value resulting from changes in instrument-specific credit risk were estimated by incorporating the certain subsidiary’s current credit spreads, and are recognized in other comprehensive income, net of tax. The accounting guidance for fair value measurements specifiesSony determines a hierarchy of inputs to valuation techniques based on the extent to which inputs used in measuring fair value are observable in the market. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect Sony’s assumptions aboutwhich Sony developed using the assumptionsinformation that market participants would use in pricing the asset or liability. Observable market data is used if such data is available without undue cost and effort. Each fair value measurement is reported in one of three levels which is determined by the lowest level input that is significant to the fair value measurement in its entirety.
| | | | | | | | | Inputs are unadjusted quoted prices for identical assets and liabilities in active markets. | | | | | | | | | | Inputs are based on observable inputs other than levelLevel 1 prices, such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations, in which all significant inputs are observable in active markets. | | | | | | | | | | One or more significant inputs are unobservable. |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES When available, Sony uses unadjusted quoted market prices in active markets to measure fair value and classifies such items within levelLevel 1. If quoted market prices are not available, fair value is based upon internally developed valuation techniques that use, where possible, current market-based or independently sourced market parameters, such as interest rates, currency rates and option volatilities. Items valued using internally generated models are classified according to the lowest level input that is significant to the valuation. For certain financial assets and liabilities, Sony determines fair value using third-party information such as indicative quotes from dealers and quantitative input from investment advisors following Sony’s established valuation procedures including validation against internally developed prices. Additionally, Sony considers both counterparty credit risk and Sony’s own creditworthiness in determining fair value. Sony attempts to mitigate credit risk to third parties by entering into netting agreements and actively monitoring the creditworthiness of counterparties and its exposure to credit risk through the use of credit limits and by selecting major international banks and financial institutions as counterparties. Transfers between levels are deemed to have occurred at the beginning of the interim period in which the transfers occur. Derivative financial instruments -
All derivatives are recognized as either assets or liabilities in the consolidated balance sheets at fair value on a gross basis. Changes in the fair value of derivative financial instruments are either recognized periodically in income or stockholders’ equity (as a component of accumulated other comprehensive income), depending on whether the derivative financial instrument qualifies as a hedge and the derivative is being used to hedge changes in fair value or cash flows.
The accounting guidance for hybrid financial instruments permits an entity to elect fair value remeasurement for any hybrid financial instrument if the hybrid instrument contains an embedded derivative that would otherwise be required to be bifurcated and accounted for separately under accounting guidance for
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
derivative instruments and hedging activities. The election to measure the hybrid instrument at fair value is made on aninstrument-by-instrument
basis and is irreversible. Certain subsidiaries in the Financial Services segment had hybrid financial instruments, disclosed in Note 7 as debt securities, that contain embedded derivatives where the entire instrument was carried at fair value.In accordance with accounting guidance for derivative instruments and hedging activities, various derivative financial instruments held by Sony are classified and accounted for as described below.
Changes in the fair value of derivatives designated as fair value hedges for recognized assets or liabilities or unrecognized firm commitments are recognized in earnings as offsets to changes in the fair value of the related hedged assets or liabilities.
Changes in the fair value of derivatives designated as cash flow hedges for forecasted transactions or exposures associated with recognized assets or liabilities are initially recorded in other comprehensive income and reclassified into earnings when the hedged transaction affects earnings. The time value component of the fair value of option contracts is excluded from the assessment of hedge effectiveness and recognized in earnings on a straight-line basis over the life of the hedging instruments. Any difference between the change in fair value of the excluded component andthe
accumulated amount recognized in earnings on a straight-line basis is recognized in other comprehensive income.Derivatives not designated as hedges
Changes in the fair value of derivatives that are not designated as hedges are recognized immediately in earnings.
When applying hedge accounting, Sony formally documents all hedging relationships between the derivatives designated as hedges and the hedged items, as well as its risk management objectives and strategies for undertaking various hedging activities. Sony links all hedges that are designated as fair value or cash flow hedges to specific assets or liabilities on the consolidated balance sheets or to the specific forecasted transactions. Sony also assesses, both at the inception of the hedge and on anon-going
basis, whether the derivatives that are designated as hedges are highly effective in offsetting changes in fair value or cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge, Sony discontinues hedge accounting.Stock-based compensation -
Sony accounts for stock-based compensation using the fair value-
based method and the expense is mainly included in selling, general and administrative expenses. Sony accounts for its stock acquisition rights plan using the fair value measured on the date of grant using the Black-Scholes option-pricing model. The stock acquisition rights plan is recognized, net of an estimated forfeiture rate, over the requisite service period using the accelerated method of amortization for grants with graded vesting. The estimated forfeiture rate is based on Sony’s historical experience in the stock acquisition rights plans where the majority of the vesting terms have been satisfied.Sony recognizes revenue in an amount that reflects the consideration Sony expects in exchange for satisfying performance obligations to transfer the goods or services promised in contracts with customers. This is in accordance with the following steps: Step 1: Identify the contract(s) with a customer. Step 2: Identify the performance obligations in the contract. Step 3: Determine the transaction price. Step 4: Allocate the transaction price to the performance obligations in the contract. Step 5: Recognize revenue when (or as) Sony satisfies a performance obligation.
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Sony owns a variety of intellectual property throughout its segments and recognizes revenue through the licensing of such intellectual property. Sony has both functionallicenses rights to use its intellectual property and symbolicrights to access its intellectual property. The licensing of functional intellectual propertyWhen Sony grants a customer athe right to use Sony’s intellectual property, as it exists at a point in time, and Sony satisfies its performance obligation at the point in time when the customer obtains control and is entitled to benefit from the license. The licensing of symbolic intellectual propertyWhen Sony grants a customer athe right to access Sony’s intellectual property, over time, and Sony satisfies its performance obligation over the license period as Sony maintains the intellectual property.period. Incremental costs of obtaining a contract and costs to fulfill a contract are recognized as assets when Sony expects to recover these costs. The incremental costs of obtaining a contract are those costs that would not have been incurred if the contract had not been obtained. Costs to fulfill a contract are those costs that are directly related to a contract or to an anticipated contract and that generate or enhance resources for Sony to satisfy its performance obligations. Sony applies a practical expedient and recognizes the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that would have been recognized is one year or less. Performance obligations in contracts for the EP&SEntertainment, Technology & Services (“ET&S”) and Imaging & Sensing Solutions (“I&SS&SS”) segments are primarily to deliver various kinds of electronic equipment, instruments and devices to customers. Revenues from these performance obligations are generally recognized when a promised good is delivered to a customer. However, if the sales contract contains a customer acceptance provision, then revenues are recognized when the customer accepts the promised good or when a deemed acceptance occurs by the lapse of time. Revenues are also recognized over time, primarily from the provision of internet broadband network services to subscribers over the subscription period. Revenues are recognized net of anticipated returns and sales incentives. Within the Game & Network Services (“G&NS&NS”) segment, revenues from hardware, peripherals and software discs are recognized when performance obligations are satisfied by transferring control to the retailer/distributor, net of anticipated returns, sales incentives and cooperative advertising obligations. Revenues from platform licensing to publishers are recognized when physical software discs are delivered. Revenues from digital game content, which is licensed functionala right to use Sony’s intellectual property, are recognized when the digital content is made available for use by the licensee via an online platform, net of anticipated sales incentives and credit card chargebacks. Revenues from digital game content involving multiple performance obligations, such as obligations to make content available on future dates, are allocated to each performance obligation based on the
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES relative standalone selling prices that are observable in the market or Sony’s best estimate. Revenues from subscription fees for digital subscription services are recognized over the subscription period. Within the Music segment, Sony licenses intellectual property that transfer to a customer either a right to use Sony’s intellectual property, as it exists at the point in time in which the license is granted, or a right to access Sony’s intellectual property as it exists throughout the license period.property. Revenues are recognized when the customer has the right to use or access the intellectual property and obtains control of the use or access of that license. Digital revenues include revenues from contracts with digital streaming services typically recognized as a single performance obligation, which is ongoing access to intellectual property in an evolving library of content over the contract term, predicated on: (1) the business practice and contractual ability to remove specific content without a requirement to replace the content and without impact to minimum royalty guarantees and (2) the contracts not containing a specific listing of content subject to the license. For these contracts, revenues are recognized based on the basis of sales and usage royalties, except where there is an amount of a minimum royalty guarantee that is not expected to be recouped, or a fixed fee, which is recognized on a straight-line basis over the term of the contract. Revenues from the sale of physical productproducts such as CDs, net of anticipated returns and sales incentives, are recognized when delivery has occurred and the product is available for sale to the public. Within the Pictures segment, revenues from the theatrical exhibition of motion pictures are recognized as the customer exhibits the film. Revenues from the licensing of motion picture and television programming for pay and free television exhibition and other markets are recognized when the product is available for use by the licensee. Revenues for motion picture and television program licensing arrangements involving multiple performance obligations, for example a fee for multiple titles, territories or availability dates, are allocated based on the relative standalone selling price of each performance obligation using Sony’s best estimate based on available information such as market conditions and internal pricing guidelines. Each individual motion picture or television programming product delivered generally represents a separate performance obligation. Licensing revenue associated with certain renewals or extensions of existing agreements for motion pictures and television programming is recognized when the licensee can use and benefit from the content under the renewal or extension. Licensing revenue associated with minimum guarantees for symbolica right to access Sony’s intellectual property is
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
recognized ratably over the license term. For home entertainment distribution, revenues from the sale of physical productproducts such as DVDs and Blu-ray Disc TM™
, net of anticipated returns and sales incentives, are recognized when delivery has occurred and the product is available for sale to the public. Revenues from electronic sell-through and are recognized when the product is made available for viewing via digital distribution platforms. Revenues from the sale of broadcast advertising are recognized when the advertisement is aired, and the performance obligation in these arrangements is the delivery of advertising spots and may include a guaranteed amount of impressions. When a guarantee for a number of impressions is not achieved, revenues are not recognized until additional advertising spots are delivered to provide the guaranteed impressions. Revenues from subscription fees received by television networks and DTC streaming services are recognized when the service is provided. The performance obligation under network subscription arrangements is a license of functionalright to use Sony’s intellectual property that is satisfied as programming is provided over the term of the arrangement. TraditionalWithin the Financial Services segment, traditional life insurance policies that Sony underwrites in the life insurance subsidiary underwrites,business, most of which are categorized as long-duration contracts, mainly consist of whole life, term life, and accidentdisease and health insurance contracts. Premiums from these policies are reported as revenue when due from policyholders.
Amounts received as payment for non-traditional contracts such as interest sensitive whole life contracts, variable life insurance contracts, individual variable annuity contracts and other contracts without life contingencies are recognized in policyholders’ account in the life insurance business. Revenues from these contracts are comprised of fees earned for administrative and contract-holder services, which are recognized over the period of the contracts, and included in financial services revenue. Property and casualty insurance policies that Sony underwrites in the non-life insurance subsidiary underwritesbusiness are primarily automotive insurance contracts which are categorized as short-duration contracts. Premiums from these policies are reported as revenue over the period of the contract in proportion to the amount of insurance protection provided. Revenue is recognized net of any taxes collected from customers and subsequently remitted to governmental authorities. Costs classified as cost of sales relate to the producing and manufacturing of products and include items such as material cost, subcontractor cost, depreciation of fixed assets,property, plant and equipment, amortization of intangible assets personnelincluding content assets, employee benefits expenses and research and development costs, and amortizationcosts. Research and development costsSONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
| Research and development expenditures - |
Research and development costs, included in cost of sales,expenditures include items such as salaries, personnelemployee benefits expenses and other direct and indirect expenses associated with research and product development. ResearchDevelopment expenditures are capitalized only when technical feasibility is achieved, Sony has the intention, ability and sufficient resources to use or sell the outcome of the development, it is probable that the outcome will generate a future economic benefit, and the cost can be reliably measured. Capitalized development costs are measured as the sum of total expenditures for development upon achieving the foregoing conditions for capitalization until development is completed. Research expenditures and other development expenditures that do not meet the foregoing conditions are expensed as incurred.incurred and included in the cost of sales in the consolidated statements of income. | Selling, general and administrative - |
Costs classified as selling expenses relate to promoting and selling products and include items such as advertising, promotion, shipping and warranty expenses. General and administrative expenses include operating items such as officers’ salaries, personnelemployee benefits expenses, depreciation of fixed assets,property, plant and equipment, office rental for sales, marketing and administrative divisions, a provisionloss allowance for doubtful accountstrade receivables and amortization of intangible assets. | Financial services expenses - |
Financial services expenses include a provision for policy reserves and amortization of deferred insurance acquisition costs, interest expenses in the banking business, and all other operating costs, such as personnelemployee benefits expenses, depreciation of fixed assets,property, plant and equipment, and office rental of subsidiaries, in the Financial Services segment. Advertising costs are expensed when the advertisement or commercial appears in the selected media.
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
| Shipping and handling costs - |
The majority of shipping and handling, warehousing and internal transfer costs for finished goods are included in selling, general and administrative expenses. An exception to this isHowever, in the Pictures segment, where suchcertain costs are charged to cost of sales as they are an integral part of producing and distributing motion pictures and television programming. All other costs related to Sony’s distribution network are included in cost of sales, including inbound freight charges, purchasing and receiving costs, inspection costs and warehousing costs for raw materials and in-process inventory. Shipping and handling activities that occur after control of the related good transfers are treated as separate performance obligations. Amounts paid by customers for shipping and handling costs are included in net sales. consist of current and deferred taxes. Current and deferred taxes are recognized in profit or loss, except to the extent that the tax arises from a business combination, or a transaction or event which is recognized, in the same or a different period, outside profit or loss, either in other comprehensive income or directly in equity.The provision for incomeCurrent taxes isare computed based on taxable profit or loss for the pretax income included in the consolidated statements of income, andyear, using the tax liability attributed torates enacted or substantively enacted at the end of the reporting period.
Deferred tax assets and liabilities are recognized for temporary differences between the tax bases of assets and liabilities and their carrying amounts at the end of the reporting period. Deferred tax liabilities include the liabilities being recognized for undistributed earningsprofits of subsidiaries and affiliated companiesassociates accounted for byunder the equity method that are expected to be remitted in the foreseeable future. TheDeferred income taxes are determined using tax rates and laws that have been enacted or substantively enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset andis realized or the deferred income tax liability approach is used to recognize deferredsettled. Deferred tax assets and liabilities for the expected future tax consequencesare not recognized in respect of temporary differences betweenthat arise from the carrying amountsinitial recognition of an asset or liability in a transaction which is not a business combination and which, at the tax basestime of assets and liabilities.the transaction, affects neither accounting profit nor taxable profit (tax loss).
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Carrying amounts of deferredDeferred tax assets require a reduction by a valuation allowance if, based onare recognized to the available evidence,extent that it is more likely than notprobable that suchtaxable profit will be available against which the assets will notcan be realized.utilized. Accordingly, the need to establish valuation allowances forof the deferred tax assets is assessed periodically with appropriate consideration given to all positive and negativeavailable evidence related to the realizationrecoverability of the deferred tax assets. Management’s judgmentsjudgment related to this assessment consider, among other matters,considers the nature, frequency and severity of current and cumulative losses on an individual tax jurisdiction basis, forecasts of future profitability after consideration of uncertain tax positions, excess of appreciated asset value over the tax basis of net assets, the duration of statutory carryforward periods, the past utilization of net operating loss carryforwards prior to expiration, as well as prudent and feasible tax planning strategies which would be employed by Sony to prevent net operating loss and tax credit carryforwards from expiring unutilized. Sony records assets and liabilities for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. Sony continues to recognize interest and penalties, if any, with respect to income taxes, including unrecognized tax benefits, as interest expense and as income tax expense, respectively, in the consolidated statements of income. The amount of income taxes Sony pays is subject to ongoing audits by various taxing authorities, which may result in proposed assessments. In addition, several significant items related to intercompany transfer pricing are currently the subject of negotiations between taxing authorities in different jurisdictions as a result of pending advance pricing agreement applications and competent authority requests. Sony’s estimate for the potential outcome for any uncertain tax issues is judgmental and requires significant estimates. Sony assesses its income tax positions and records tax benefits and expenses for all years subject to examinations based upon the evaluation of the facts, circumstances and information available at that reporting date. For those tax positions for which it is more likely than not that a tax benefit will be sustained, Sony records the amount that has a greater than 50% likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. If Sony does not believe that it is more likely than not that a tax benefit will be sustained, no tax benefit is recognized. However, Sony’s future results may include favorable or unfavorable adjustments to Sony’s estimated tax liabilities due to closure of income tax examinations, the outcome of negotiations between taxing authorities in different jurisdictions, new regulatory or judicial pronouncements or other relevant events. As a result, the amount of unrecognized tax benefits, and the effective tax rate, may fluctuate significantly. The U.S. Tax Cuts and Jobs Act of 2017 (the “U.S. Tax Reform Act”) subjects a U.S. entity to tax on Global Intangible Low Tax Income (“GILTI”) earned by its foreign subsidiaries. Sony has elected to account for GILTI as a current period expense when incurred.
| Net income (loss) attributable to Sony Group Corporation’s stockholders per share (“EPS”) - |
Basic EPS is computed based on the weighted-average number of shares of common stock outstanding during each period. The computation of diluted EPS reflects the maximum possible dilution from conversion, exercise, or contingent issuance of securities. All potentially dilutive securities are excluded from the calculation in a situation where there is a net loss attributable to Sony Group Corporation’s stockholders. | Recently adopted accounting standards |
F-26Amendments to IAS 12 “Income taxes”
In May 2023, the IASB issued “International Tax Reform-Pillar Two Model Rules”. The amendments (i) introduce a temporary exception to the accounting for deferred taxes arising from the implementation of the Pillar Two model rules published by the Organization for Economic Co-operation and Development (OECD) and (ii) require additional disclosures. Sony retrospectively adopted the provision of the temporary exception to the accounting for deferred taxes from the fiscal year ended March 31, 2023. The additional disclosure requirements will be effective for Sony from the fiscal year ending March 31, 2024. | New accounting standards and interpretations not yet adopted |
Major new or amended standards and interpretations that have been issued as of the date of approval of the consolidated financial statements which are not effective and have not yet been adopted by Sony as of March 31, 2023 are as follows: IFRS 17 “Insurance Contracts” The IASB issued IFRS 17 “Insurance Contracts” (“IFRS 17”) in May 2017 and Amendments to IFRS 17 in June 2020 and December 2021. IFRS 17 replaces IFRS 4 and sets out principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of IFRS 17. IFRS 17 provides a general model, supplemented by a specific approach for contracts with direct participation features (the variable fee approach) and a simplified approach (the premium allocation approach) mainly for short-duration contracts. IFRS 17 becomeeffective for Sony as of April 1, 2023. On transition, Sony is required to apply IFRS 17 retrospectively unless such application is impracticable. If it is impracticable to apply IFRS 17 retrospectively for a group of insurance contracts, either the modified retrospective approach, which uses reasonable and supportable information, or the fair value approach, which uses the fair value as of April 1, 2022, the transition date for IFRS 17, may be applied. If Sony cannot obtain reasonable and supportable information necessary to apply the modified retrospective approach, Sony will apply the fair value approach. Sony adopted IFRS 9 “Financial Instruments” (“IFRS 9”) before its initial application of IFRS 17 and will redesignate the measurement method of certain financial assets based on the facts and circumstances existing at the date of the initial application of IFRS 17 (April 1, 2023) in order to mitigate accounting mismatches arising from the assets and liabilities in the insurance business.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Applying IFRS 17 affects the measurement and presentation of insurance-related accounts, which are primarily included in future insurance policy benefits and other, policyholders’ account in the life insurance business, and deferred insurance acquisition costs in the consolidated statements of financial position under the currently applied standard, IFRS 4. These insurance-related accounts, after applying IFRS 17, are primarily recorded as insurance contracts liability in the consolidated statements of financial position. The financial services revenue, after applying IFRS 17, consists of insurance revenue and other financial services revenue, which are separately presented in the consolidated statements of income. The insurance revenue differs from insurance premium revenue under IFRS 4 mainly because the insurance revenue excludes any investment components that are deposits, as described in “(1) Significant accounting policies of IFRS 17, which Sony will apply from the fiscal year ending March 31, 2024.” effect of adopting IFRS 17 on Sony’s total equity as of April 1, 2022, the transition date for IFRS 17, is expected to be a reduction of approximately 1.5 trillion yen mainly due to the effect of the changes in discount rate used in measuring insurance contract liabilities. These assessments and expectations above are preliminary and the actual result may differ upon adoption, as not all of the transition work has been finalized. | Significant accounting policies of IFRS 17, which Sony will apply from the fiscal year ending March 31, 2024 |
Insurance contract liabilities - | i) | Definition and classification of insurance contracts |
Sony defines insurance contracts as the contracts under which Sony accepts significant insurance risk by agreeing to compensate the policyholder if a specified uncertain future event adversely affects the policyholder. In making this assessment, all substantive rights and obligations, including those arising from laws and regulations, are considered on abasis. Sony uses judgment in assessing whether there is a scenario with commercial substance in which there is the possibility of a loss on a present value basis and whether the accepted insurance risk is significant. Contracts that have a legal form of an insurance contract but do not transfer significant insurance risk to Sony are classified as investment contracts and accounted for as financial liabilities. Insurance contracts that Sony underwrites in the life insurance business, which is included in the Financial Services segment, mainly consist of whole life, term life, disease and health insurance, variable life insurance, and individual variable annuity contracts. Sony classifies certain variable life insurance and individual variable annuity contracts as insurance contracts with direct participation features, if they meet all of the following conditions on initial recognition: the contractual terms specify that the policyholder participates in a share of a clearly identified pool of underlying items; Sony expects to pay to the policyholder an amount equal to a substantial share of the fair value returns on the underlying items; and Sony expects a substantial proportion of any change in the amounts to be paid to the policyholder to vary with the change in the fair value of the underlying items. All other insurance contracts are classified as insurance contracts without direct participation features. | ii) | Aggregation of insurance contracts |
In measuring insurance contracts, Sony aggregates the insurance contracts into groups. Each group of insurance contracts is determined by identifying portfolios of insurance contracts. Each portfolio is comprised of contracts that are subject to similar risks and are managed together, and Sony divides each portfolio by each quarterly accounting period (to which the issue date of the insurance contracts belongs). The portfolios are then classified into one of the following three groups based on the profitability of contracts: any contracts that are onerous on initial recognition;
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES any contracts that, on initial recognition, have no significant possibility of becoming onerous subsequently; and | iii) | Recognition and derecognition of insurance contracts |
A group of insurance contracts issued by Sony is recognized from the earliest of: the beginning of the coverage period of the group of insurance contracts; when the first payment from the policyholder in the group of insurance contracts becomes due; and when facts and circumstances indicate that the group to which the insurance contract belongs is onerous. If there is no contractual due date, the due date is considered as the day when the first payment is received from the policyholder. In addition, only contracts that individually meet the recognition criteria by the end of the reporting period are included in the groups. When contracts individually meet the recognition criteria after the end of the reporting period, they are added to the groups in the reporting period in which they meet the recognition criteria. Composition of the groups is not reassessed in subsequent periods. Insurance acquisition cash flows are allocated to groups of insurance contracts using a systematic and rational method and considering, in an unbiased way, all reasonable and supportable information that is available without undue cost or effort. If insurance acquisition cash flows are directly attributable to a group of insurance contracts, they are allocated to that group. If insurance acquisition cash flows are directly attributable to a portfolio but not to a group of insurance contracts, then they are allocated to the groups in that portfolio using a systematic and rational method. Sony derecognizes an insurance contract when it is extinguished, i.e., when the obligation specified in the insurance contract expires or is discharged or canceled. When an insurance contract is derecognized, Sony: adjusts the fulfillment cash flows allocated to the group of insurance contracts to eliminate those relating to the derecognized rights and obligations; adjusts the contractual service margin (“CSM”) of the group of insurance contracts for the change in the fulfillment cash flows; and adjusts the number of coverage units expected for the remaining insurance contract services to reflect the number of coverage units derecognized from the group of insurance contracts. In measuring groups of insurance contracts, Sony includes all of the future cash flows within the boundary of each contract in the group. Cash flows are within the contract boundary if they arise from substantive rights and obligations that exist during the reporting period in which the policyholder is obliged to pay premiums or Sony has a substantive obligation to provide services (including insurance coverage and any investment services). A substantive obligation to provide services ends when Sony: | (a) | has the practical ability to reassess the risks of the particular policyholder and can set a price or level of benefits that fully reflects those reassessed risks; or |
| (b) | has the practical ability to reassess the risks of the portfolio that contains the contract and can set a price or level of benefits that fully reflects the risks of that portfolio, and the pricing of the premiums up to the reassessment date does not take into account risks that relate to periods after the reassessment date. |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES For cash flows arising during the period after the renewal of the insurance contract, which has automatic renewal clauses, Sony assesses the contract boundaries and determines that they are within the existing contract boundaries when Sony does not have the above practical ability to reassess the risks. | v) | Initial measurement of insurance contracts not measured under the premium allocation approach (“PAA”) |
On initial recognition, Sony measures a group of insurance contracts as the total of the following: The fulfillment cash flows of the groups of insurance contracts consist of estimates of the future cash flows and risk adjustments fornon-financial risk. The estimates of the future cash flows are adjusted to reflect the time value of money and the associated financial risks, and do not reflect Sony’snon-performance risk. The discount rates reflect the characteristics of the cash flows arising from the groups of insurance contracts, including timing, currency and liquidity of cash flows. The determination of the discount rate that reflects the characteristics of the cash flows and liquidity characteristics of the insurance contracts involves significant estimation. The risk adjustment fornon-financial risk, determined separately from the other estimates, is designed to reflect the compensation required for bearing uncertainty about the amount and timing of the cash flows that arises fromnon-financial risk. The CSM of a group of insurance contracts represents the unearned profit that Sony will recognize as it provides insurance contract services under those contracts. | vi) | Subsequent measurement of insurance contracts not measured under the PAA |
The carrying amount of a group of insurance contracts at each reporting date is the sum of the liability for incurred claims and the liability for remaining coverage. The liability for incurred claims comprises the fulfillment cash flows for incurred claims and expenses that have not yet been paid, including claims that have been incurred but not yet reported. The liability for remaining coverage comprises the items described below. The fulfillment cash flows of groups of insurance contracts are measured at the reporting date using current estimates of future cash flows, current discount rates and current estimates of the risk adjustment fornon-financial risk. The carrying amount of the CSM of contracts without direct participation features at each reporting date is the carrying amount at the beginning of the fiscal year, adjusted for the following items (among these, (2) and (3)1, (3)2 and (3)4 are measured using the discount rate determined at initial recognition(locked-in discount rate): | (1) | the effect of any new contracts that are added to the group during the current fiscal year; |
| (2) | interest accreted on the carrying amount of the CSM during the current fiscal year; |
| (3) | the changes in fulfillment cash flows relating to future service including the following items below: |
| 1. | experience adjustments arising from premiums received in the current fiscal year that relate to future services (including those for related cash flows such as insurance acquisition cash flows and premium-based taxes); |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES | 2. | Recently adopted accounting pronouncements changes in estimates of the present value of future cash flows in the liability for remaining coverage (excluding the effect of the time value of money, financial risk and changes therein); |
| 3. | differences between any investment component expected to become payable in the current fiscal year and the actual investment component that becomes payable in the current fiscal year; and |
| 4. | changes in the risk adjustment fornon-financial risk that relate to future services; |
| (4) | the effect of any currency exchange differences; and |
| (5) | the amount recognized as insurance revenue for insurance contract services provided during the current fiscal year, which is determined after all the adjustments above. |
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02,
which amends the accounting guidance for leases. The ASU requires substantially all leases to be recognized on the balance sheet. Sony has adopted this ASU effective April 1, 2019, on a modified retrospective basis with no restatement of comparative periods. Sony has elected the package of practical expedients for leases that expired or existed prior to the adoption date. As a result, Sony did not reassess whether any expired or existing contracts are or contain leases, the lease classification for any expired or existing leases, or whether initial direct costs for any existing leases qualify for capitalization. In addition, Sony has applied the short-term lease exception.As a resultcarrying amount of the adoptionCSM of this ASU, Sony recognized 316,923 million yencontracts with direct participation features at each reporting date is the carrying amount at the beginning of operating leaseright-of-use
assets and 341,251 million yen of lease liabilities for operating leases on the consolidated balance sheets at April 1, 2019. This impact is mainly due to operating leases of real estate. The difference of 24,328 million yen betweenright-of-use
assets and lease liabilities represents deferred rent for leases that existed as of the date of adoption, which was offset against the opening balance of operating leaseright-of-use
assets. Finance leaseassets which are included in property, plant and equipment in the consolidated balance sheets for the fiscal year, ended March 31, 2019,adjusted for the following items: | (1) | the effect of any new contracts that are added to the group during the current fiscal year; |
| (2) | changes in Sony’s share of the fair value of the underlying items; |
| (3) | changes in the fulfillment cash flows that do not vary based on the returns of underlying items including the following items below: |
| 1. | changes in the effect of the time value of money and financial risks including the effect of financial guarantees; |
| 2. | experience adjustments arising from premiums received in the current fiscal year that relate to future services (including those for related cash flows such as insurance acquisition cash flows and premium-based taxes); |
| 3. | changes in estimates of the present value of future cash flows in the liability for remaining coverage (excluding the effect of the time value of money, financial risk and changes therein); |
| 4. | differences between any investment component expected to become payable in the current fiscal year and the actual investment component that becomes payable in the current fiscal year; and |
| 5. | changes in the risk adjustment fornon-financial risk that relate to future services; |
| (4) | the effect of any currency exchange differences; and |
| (5) | the amount recognized as insurance revenue for insurance contract services provided during the current fiscal year, which is determined after all the adjustments above. |
Sony selects an accounting policy to update accounting estimates related to insurance contracts made in the previous interim consolidated financial statements in the subsequent annual and interim consolidated financial statements and to measure the annual results using theapproach. Changes in the fulfillment cash flows that relate to current or past services are now presentedrecognized as finance leaseright-of-useprofit or loss. Changes in the fulfillment cash flows that relate to future services are adjusted to the extent of the CSM carrying amount as follows:
assets from April 1, 2019 onward. Premium amortization on purchased callable debt securitiesIn March 2017,when an increase in the FASB issued ASU 2017-08, which requires certain premiums on callable debt securitiesfulfillment cash flows exceeds the carrying amount of the CSM, the CSM is reduced to be amortized tozero and the earliest call date. The amortization period for callable debt securities purchased atexcess is recognized as insurance service expenses and such excess is recorded as a discount will not be affected. This ASU was effective for Sony asloss component of April 1, 2019. The adoption of this ASU did not have a material impact on Sony’s results of operations and financial position.
Targeted improvements to accounting for hedging activities -
In August 2017, the FASB issued ASU2017-12,
which made targeted improvements to the accounting for hedging activities. The amendments in this update simplify certain aspects of hedge accounting for bothnon-financial
and financial risks and better align the recognition and measurement of hedge results with an entity’s risk management activities. This ASU also amends certain presentation and disclosure requirements for hedging activities and changes how an entity assesses hedge effectiveness. This ASU was effective for Sony as of April 1, 2019. The adoption of this ASU did not have a material impact on Sony’s results of operations and financial position.(3) | Recent accounting pronouncements not yet adopted |
Measurement of credit losses on financial instruments -
In June 2016, the FASB issued ASU2016-13,
which amends the accounting guidance for credit losses on financial instruments. The ASU requires the consideration of all available relevant information when estimating expected credit losses, including past events, current conditions and forecasts and their implications for expected credit losses. This ASU is effective for Sony as of April 1, 2020. The adoption of this ASU is not expected to have a material impact on Sony’s results of operations and financial position.Improvements to Accounting for Costs of Films and License Agreements for Program Materials -
In March 2019, the FASB issued ASU2019-02,
which updates the guidanceliability for the capitalization of film costs associated with episodic television series, requires the use of fair value rather than net realizable value when determining potential impairments of broadcasting rights, and modifies the presentation and disclosure requirements for films and broadcasting rights. In addition, upon capitalization of film costs entities are required to determine qualitatively whether the predominant monetization strategy is on atitle-by-titleremaining coverage;
basis or together with other films and/or broadcast rights as part of a film group, such as in the case of a release of a film as part of a library of content on a streaming service. In the case of a film group, impairments are evaluated at the overall film group level rather than the individual title level. This ASU is effective for Sony as of April 1, 2020 and is applied on a prospective basis. Upon adoption, Sony will reclassify approximately
24.1b
illion yen of broadcasting rights in the Pictures segment and 7.4b
illion yen of animation film production costs in the Music segment included in inventories
to film costs.F-27when the CSM is zero, changes in the fulfillment cash flows adjust the loss component within the liability for remaining coverage with correspondence to insurance service expenses; and
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES the excess of any decrease in the fulfillment cash flows over the loss component reduces the loss component to zero and reinstates the CSM. When a loss component exists, Sony allocates the following items between the loss component and the remaining component of the liability for the remaining coverage for the respective group of insurance contracts, based on the ratio of the loss component to the fulfillment cash flows relating to the expected future cash outflows: | (1) | expected incurred claims and expenses for the period; |
| (2) | changes in the risk adjustment fornon-financial risk for the risk expired; and |
| (3) | finance income (expenses) from insurance contracts issued. |
The amounts of loss component allocation in (1) and (2) above reduce the respective components of insurance revenue and are reflected in insurance service expenses. For certain insurance contracts in a group with a coverage period of one year or less at initial recognition, Sony uses the PAA to simplify the measurement of the group of insurance contracts. Under the PAA, on initial recognition of each group of insurance contracts, the carrying amount of the liability for remaining coverage is measured at the premiums received on initial recognition, minus any insurance acquisition cash flows allocated to the group at the date of the receipt of the premiums. Sony amortizes insurance acquisition cash flows over the coverage period of the group of insurance contracts. Subsequently, the carrying amount of the liability for remaining coverage is increased by any premiums received and the amortization of insurance acquisition cash flows recognized as expenses, and decreased by the amount recognized as insurance revenue for services provided and any additional insurance acquisition cash flows allocated after initial recognition. Portfolios of insurance contracts that are assets and those that are liabilities are presented separately in the consolidated statements of financial position. If no insured event has occurred and the surrender option has not been exercised as of the reporting date, the insurance contract liabilities are classified asnon-current liabilities. However, if an insured event occurs or the surrender option is exercised, Sony loses its rights to postpone the payment of these liabilities. In this case, the insurance contract liabilities are classified as current liabilities, as they are due to be settled within 12 months after the end of the reporting period. Sony disaggregates amounts recognized in the consolidated statements of income and the consolidated statements of comprehensive income into an insurance service result, which is comprised of insurance revenue and insurance service expenses, and insurance finance income or expenses. Sony does not disaggregate changes in the risk adjustment fornon-financial risk between the insurance service result and insurance finance income or expenses and includes them in the insurance service result. Insurance revenue excludes any investment components and is recognized as follows: | (1) | Contracts not measured under the PAA |
Sony recognizes insurance revenue as it provides insurance contract services. For contracts not measured under the PAA, the insurance revenue relating to services provided for each period represents the total of the changes in the liability for remaining coverage that relate to services for which Sony expects to receive consideration, and primarily comprises the following items: a release of the CSM, measured based on coverage units provided during the fiscal year;
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES changes in the risk adjustment fornon-financial risk relating to current services; claims and other insurance service expenses incurred during the year, measured at the amounts expected at the beginning of the fiscal year; and allocation of the amount of insurance acquisition cash flows in a systematic way based on the passage of time. The release amount of the CSM of a group of insurance contracts that is recognized as insurance revenue in each fiscal year is determined by identifying the coverage units in the group and recognizing in profit or loss the amount of the CSM allocated to the coverage units provided during the fiscal year. The number of coverage units is the quantity of services provided based on the insurance contracts in the group, determined by considering the quantity of benefits to be provided by each insurance contract in the group and the expected coverage period. Services provided based on insurance contracts include insurance coverage and, for all direct participating contracts, investment related services for managing underlying items on behalf of policyholders. Insurance contracts other than direct participating contracts include investment return services for generating an investment return for the policyholder. | (2) | Contracts measured under the PAA |
For contracts measured under the PAA, the insurance revenue for each period is the amount of expected premium receipts for providing services during the period. Sony allocates the expected premium receipts to each period based mainly on the passage of time. | (b) | Insurance service expenses |
Insurance service expenses arising from insurance contracts comprise the following items: | (1) | incurred claims and benefits excluding investment components and reduced by the loss component allocation; |
| (2) | other incurred and directly attributable insurance service expenses (reduced by the loss component allocation); |
| (3) | amortization of insurance acquisition cash flows; |
| (4) | changes that relate to past services (e.g., changes in the fulfillment cash flows relating to the liability for incurred claims; and |
| (5) | changes that relate to future services (e.g., losses on onerous insurance contracts and reversal of those losses arising from changes in the loss components). |
For contracts not measured under the PAA, amortization of insurance acquisition cash flows is reflected in insurance service expenses in the same amount as insurance acquisition cash flows recovery reflected within insurance revenue as described above. | (c) | Insurance finance income and expenses |
Insurance finance income and expenses comprise changes in the carrying amounts of groups of insurance contracts arising from the effects of the time value of money, financial risk and changes therein. Sony has chosen to disaggregate insurance finance income or expenses between profit or loss and other comprehensive income for contracts without direct participation features, excluding certain variable life insurance and individual variable annuity contracts. The amount included in profit or loss is determined by a systematic allocation of the expected total insurance finance income or expenses over the duration of the group of insurance contracts. The amount of systematic allocation is determined using the discount rates determined on initial recognition of the group of insurance contracts. For insurance finance income or expenses arising from the CSM, the discount rates determined on initial recognition of the group of insurance contracts are used. As a result of this systematic allocation, the total amounts recognized in other comprehensive income is equal to zero over the duration of the group of insurance contracts. In addition, the cumulative amount recognized in other comprehensive income at any point in time is the difference between the carrying amount of the group of insurance contracts and the amount measured by this systematic allocation.
SONY GROU P CORPORATION AND CONSOLIDATED SUBSIDIARIES For contracts with direct participation features, the insurance finance income or expenses include changes in the value of underlying items (excluding additional premium payments and withdrawals), all of which are recognized in profit or loss. | Significant judgments and estimates for IFRS 17, which Sony will apply from the fiscal year ending March 31, 2024 |
| i) | Measurement methods and inputs for insurance contracts |
Sony estimates the mortality and morbidity rates based on the most recent actual outcomes and analyzes the historical experience and trends in data using statistical methods. When estimating the mortality and morbidity rates for each group of insurance contracts, Sony takes into account the characteristics of policyholders including gender, health conditions and smoking habits and the characteristics of the group of insurance contracts such as the selective effects over time. The estimates are revised in a timely manner to reflect changes in lifestyle, as well as changes in social conditions such as improvement of mortality and morbidity rates in the future. Sony estimates the lapse and surrender rates based on the most recent actual outcomes and determines the probability-weighted lapse and surrender rates for each group of insurance contracts by analyzing historical experience and trends in data using statistical methods. Lapse and surrender rates are estimated, taking into account both ordinary and dynamic lapses, and reflect the tendency to higher surrender rates when the yield on contracts increases or exceeds the guaranteed minimum for certain insurance contracts. In determining the lapse and surrender rates, historical actual data is considered. If no clear correlation is found in historical actual data, the actual results of similar products as well as domestic and overseas practical trends are used as reference. Sony projects estimates of future expenses based on the current expense levels. The expenses comprise expenses directly attributable to the Accountinggroup of insurance contracts, including the allocation of fixed and variable overhead expenses. In addition, Sony applies inflation adjustments to the estimated claims to be paid in future. | ii) | Discretionary participation features of future cash flows |
For certain participating insurance contracts other than direct participating contracts, the effect of discretionary changes on the fulfillment cash flows is adjusted in the contractual service margin. Although Sony has discretionary participation features related to the investment policy for Long-Duration Contracts -these contracts, the investment policy is established based on the market conditions. Therefore, the effect of changes in assumptions that relate to financial risk on the investment policy is included in insurance finance income or expenses. In addition, since the dividend policy can be changed at Sony’s discretion, the effect of changes in the dividend policy on the fulfillment cash flows is adjusted in the contractual service margin. | iii) | Risk adjustments fornon-financial risk |
Risk adjustments fornon-financial risk are determined to reflect the compensation that each insurance subsidiary would require for bearingnon-financial risk, and are allocated to groups of insurance contracts based on an analysis of the risk profiles of the groups. Risk adjustments fornon-financial risk reflect the diversification benefits, in a way that is consistent with the compensation that the insurance company would require and that reflects its degree of risk aversion. The risk adjustments fornon-financial risk are determined mainly using a cost of capital technique. In applying a cost of capital technique, Sony determines the risk adjustment fornon-financial risk by applying arate to the amount of capital required for each future reporting date and discounting the result using risk-free rates adjusted for illiquidity. The required capital is determined by estimating the probability distribution of the present value of future cash flows from insurance contracts at each future reporting date and calculating the capital that Sony would require to meet its contractual obligations to pay claims and expenses arising over the duration of the contracts at a 99.5% confidence level. Therate represents the additional reward that investors would require for exposure to thenon-financial risk.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES cash flows are discounte d using risk-free yield curves adjusted to reflect the characteristics of the cash flows and the liquidity of the insurance contracts. Sony determines the risk-free yield curves using the yields on government bonds. The yield curve is determined by incorporating long-term real interest rate and inflation expectations. For extrapolation for the periods in which market data is not available, a method using an ultimate forward rate is used. To be specific, the method uses an ultimate forward rate of 3.5% and starts extrapolation in the 40th year (or the 30th year for U.S. dollar). The forward rates for the 41st year (or the 31st year for U.S. dollar) and onwards are extrapolated so that they will converge to the level of the ultimate forward rate in 30 years, using the Smith-Wilson method. To reflect the liquidity characteristics of the insurance contracts, the risk-free yield curves are adjusted by an illiquidity premium. Illiquidity premiums are determined by setting up a reference portfolio of Sony’s assets. Sony identifies the investment component of an insurance contract by determining the amount that it would be required to repay to the policyholder in all circumstances, regardless of whether an insured event occurs or not. These include circumstances in which an insured event occurs or the contract matures or is terminated without an insured event occurring. Investment components are excluded from insurance revenue and insurance service expenses. | vi) | Determination of coverage units |
The amount of the CSM of a group of insurance contracts that is recognized as insurance revenue in each year is determined by identifying the coverage units in the group and recognizing in profit or loss the amount of the CSM allocated to the coverage units provided during the year. The number of coverage units is determined by considering for each contract the quantity of benefits provided and its expected coverage period. To be specific, Sony determines the quantity of benefits based on: the death benefit amount in the case of contracts for which the death benefit amount increases or decreases based on the period (e.g., whole life, term life and variable life insurance contracts); the premium amount proportionate to the insurance period in the case of contracts whose host contract and riders have different coverage types (e.g., disease and health insurance contracts); and the cash surrender value (or the premium reserve during the annuity payment period) in the case of annuity contracts with investment-related services (e.g., individual variable annuity contracts). Sony considers the characteristics of insurance contracts and aggregates quantities of benefits related to insurance coverage, investment-return services and investment-related services when determining the relative weighting of the benefits provided to the policyholder by these services. | Disclosure of transition to IFRS 17 |
Upon transition to IFRS 17 as of April 1, 2022, Sony determined that it was impracticable to apply the full retrospective approach to certain groups of insurance contracts, as the necessary information was unavailable due to restrictions of contract data and systems in the past or it was impossible to recreate past estimation without the use of hindsight. Sony will apply alternative transition methods (the modified retrospective approach or the fair value approach) to groups of insurance contracts for which the full retrospective approach is impracticable as of the date of the transition.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Sony will apply the following approaches on transition to | | | Year of issue (fiscal year) | | Transition approach | 2015 and thereafter | | For all groups of insurance contracts: Full retrospective approach | 1993 – 2014 | | For groups of insurance contracts with direct participation features and certain groups of insurance contracts without direct participation features: Fair value approach | | For other groups of insurance contracts: Modified retrospective approach | In and before 1992 | | For all groups of insurance contracts: Fair value approach |
Modified retrospective approach The objective of the modified retrospective approach is to achieve the closest outcome to retrospective application possible using reasonable and supportable information available without undue cost or effort. Sony will apply each of the following modifications only to the extent that it does not have reasonable and supportable information to apply IFRS 17 retrospectively. Sony will apply the following modifications to certain groups of insurance contracts: For groups of contracts issued,initiated or acquired from April 1, 1993 to March 31, 2015, the future cash flows on initial recognition are estimated by adjusting the amount as of April 1, 2015, which can be determined retrospectively, for the cash flows that are known to have occurred before that date; For groups of contracts issued, initiated or acquired from April 1, 1993 to March 31, 2013, the illiquidity premiums applied to the observable risk-free yield curves on initial recognition are estimated by determining an average spread between the observable risk-free yield curves and the discount rates, which can be determined retrospectively, for the period from April 1, 2013 to March 31, 2022. The amount of insurance finance income or expenses recognized in accumulated other comprehensive income as of April 1, 2022 is calculated by using this discount rate; and
The risk adjustment fornon-financial risk on initial recognition is determined by adjusting the amount as of April 1, 2022 for the expected release of risk before April 1, 2022. After applying such modifications to fulfillment cash flows, the CSM (or the loss component) on initial recognition is determined as follows: the amount of the CSM recognized as profit or loss before April 1, 2022 is determined by comparing the remaining coverage units as of the date of the transition and the coverage units provided based on groups of insurance contracts before the date of the transition; and the amount allocated to the loss component before April 1, 2022 is determined using the proportion of the loss component relative to the total estimate of the present value of the future cash outflows plus the risk adjustment fornon-financial risk on initial recognition. Under the fair value approach, the CSM (or the loss component) as of April 1, 2022 is determined as the difference between the fair value of a group of insurance contracts at that date and the fulfillment cash flows at that date. For all insurance contracts measured under the fair value approach, Sony uses reasonable and supportable information available as of April 1, 2022 to determine the following matters: how to identify groups of contracts; whether a contract meets the definition of an insurance contract with direct participation features; and how to identify discretionary cash flows for contracts without direct participation features. For groups of contracts measured under the fair value approach, the discount rates on initial recognition are determined as of April 1, 2022 instead of at the date of initial
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES For all insurance contracts measured under the fair value approach, the amount of insurance finance income or expenses recognized in accumulated other comprehensive income as of April 1, 2022 is determined to be zero. Amendments to IAS 1 “Presentation of Financial Statements” In August 2018,January 2020, the FASBIASB issued ASU“Classification of Liabilities as Current or2018-12,Non-current”
which revises(“Amendments to IAS 1”). The amendments clarify the accounting for certain long-duration insurance contracts, and in November 2019, the FASB issued ASU2019-09 right to defer settlement, which is one of the effective date of ASU2018-12 existing requirements when classifying a liability to January 1, 2022. current ornon-current. The ASU prescribes comprehensive changes to recognition and measurement of certain long-duration insurance contracts and assumptions and introduces certain financial statement presentation requirements, as well as significant additional qualitative and quantitative disclosures. This ASUamendments will be effective for Sony as of April 1, 2022.2024. The impact of this ASUthe amendments on Sony’s results of operations and financial position is being evaluated. Disclosures for Fair Value Measurement -
In August 2018,October 2022, the FASBIASB issued ASU“A2018-13,Non-current
which amends disclosure requirements relatedLiability with Covenants” (“Amendments to fair value measurement. This ASU is effective for Sony as of April 1, 2020. Since this ASU only impacts disclosures,IAS 1”). The amendments were issued to improve the adoption will have no impact on Sony’s results of operations and financial position.Disclosures for Defined Benefit Plans -
In August 2018,information a company provides about long-term debt with covenants by enabling investors to understand the FASB issued ASU2018-14,
which amends disclosure requirements related to defined benefit pension and other postretirement plans. This ASU is effective for Sony as of April 1, 2020 and will be applied on a retrospective basis. Since this ASU only impacts disclosures, the adoption will have no impact on Sony’s results of operations and financial position.In December 2019, the FASB issued ASU 2019-12, which simplifies the accounting requirements for income taxes. This ASUrisk that such debt could become repayable within twelve months. The amendments will be effective for Sony as of AprilApr il 1, 2021 and amendments within this ASU are required to be applied on a prospective basis, except certain amendments must be applied on a retrospective or modified retrospective basis.2024. The impact of this ASUthe amendments on Sony’s results of operations and financial position is being evaluated. | Business segment information |
The reportable segments presented below are the segments of Sony for which separate financial information is available and for which operating income 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 Chairman, President and Chief Executive Officer. Reference Rate Reform -
In March 2020, the FASB issued ASU 2020-04, which provides optional relief for certain contracts impacted by reference rate reform. The relief provided by the amendments is permitted to be adopted any time through December 31, 2022. Sony is still evaluating the impact of reference rate reform and whether to apply the optional relief.Certain reclassifications of the financial statements and accompanying footnotes for the fiscal years ended March 31, 2018 and 2019 have been made to conform to the presentation for the fiscal year ended March 31, 2020.
Inventories are comprised of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Raw materials, purchased components and supplies | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
F-28 The former Electronics Products & Solutions segment has been renamed the Entertainment, Technology & Services (ET&S) segment effective from April 2022. This change has not resulted in any reclassification of businesses across segments.The G&NS segment includes the network services businesses, the manufacture and sales of home gaming products and the production and sales of software. The Music segment includes the Recorded Music, Music Publishing and Visual Media and Platform businesses. The Pictures segment includes the Motion Pictures, Television Productions and Media Networks businesses. The ET&S segment includes the Televisions business, the Audio and Video business, the Still and Video Cameras business, the smartphone business and the internet-related service business. The I&SS segment includes the image sensors business. The Financial Services segment primarily represents individual life insurance andnon-life insurance businesses in the Japanese market and the banking business in Japan. All Other consists of various operating activities, including the disc manufacturing and recording media businesses. Sony’s products and services are generally unique to a single operating segment.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Film costs are comprised of the following:
| | | | | | | | | | | | | | | | | | | | | | | | Motion picture productions: | | | | | | | | | | | | | | | | | | Completed and not released | | | | | | | | | In production and development | | | | | | | | | | | | | | | | | | | | | | | | | | | In production and development | | | | | | | | | | | | | | | | | | Less: current portion included in inventories | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Sony estimates that approximately 92% of the unamortized film costs of released motion picture and television productions at March 31, 2020 will be amortized within the next three years. Approximately 217 billion yen of completed film costs are expected to be amortized during the next twelve months. Approximately 163 billion yen of accrued participation liabilities included in accounts payable, other and accrued expenses are expected to be paid during the next twelve months.
5. | Investments in affiliated companies
|
The summarized combined financial information that is based on information provided by the equity investees including information for significant equity affiliates and the reconciliation of such information to the consolidated financial statements is shown below:
Balance SheetsSegment sales and financial services revenue:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Noncurrent liabilities and noncontrolling interests | | | | | | | | | Percentage of ownership in equity investees | | | | % | | | | % |
| | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | Sales and financial services revenue: | | | | | | | | | | | | | Game & Network Services — | | | | | | | | | | | | | | | | 2,604,713 | | | | 2,674,356 | | | | 3,538,533 | | | | | 51,565 | | | | 65,407 | | | | 106,065 | | | | | | | | | | | | | | | | | | 2,656,278 | | | | 2,739,763 | | | | 3,644,598 | | | | | | | | | | | | | | | | | | 927,250 | | | | 1,100,532 | | | | 1,364,815 | | | | | 12,617 | | | | 16,417 | | | | 15,817 | | | | | | | | | | | | | | | | | | 939,867 | | | | 1,116,949 | | | | 1,380,632 | | | | | | | | | | | | | | | | | | 751,800 | | | | 1,236,399 | | | | 1,364,887 | | | | | 1,187 | | | | 2,512 | | | | 4,535 | | | | | | | | | | | | | | | | | | 752,987 | | | | 1,238,911 | | | | 1,369,422 | | Entertainment, Technology & Services — | | | | | | | | | | | | | | | | 2,016,887 | | | | 2,297,886 | | | | 2,436,739 | | | | | 51,200 | | | | 41,300 | | | | 39,286 | | | | | | | | | | | | | | | | | | 2,068,087 | | | | 2,339,186 | | | | 2,476,025 | | Imaging & Sensing Solutions — | | | | | | | | | | | | | | | | 937,859 | | | | 992,200 | | | | 1,301,481 | | | | | 74,638 | | | | 84,224 | | | | 100,706 | | | | | | | | | | | | | | | | | | 1,012,497 | | | | 1,076,424 | | | | 1,402,187 | | | | | | | | | | | | | | | | | | 1,664,991 | | | | 1,524,811 | | | | 1,443,996 | | | | | 9,011 | | | | 9,018 | | | | 10,550 | | | | | | | | | | | | | | | | | | 1,674,002 | | | | 1,533,829 | | | | 1,454,546 | | | | | | | | | | | | | | | | | | 84,202 | | | | 82,264 | | | | 72,338 | | | | | 16,534 | | | | 16,519 | | | | 15,285 | | | | | | | | | | | | | | | | | | 100,736 | | | | 98,783 | | | | 87,623 | | Corporate and elimination | | | (205,793 | ) | | | (222,332 | ) | | | (275,196 | ) | | | | | | | | | | | | | | | | | 8,998,661 | | | | 9,921,513 | | | | 11,539,837 | | | | | | | | | | | | | | |
G&NS intersegment amounts primarily consist of transactions with the ET&S segment. ET&S intersegment amounts primarily consist of transactions with the G&NS segment. I&SS intersegment amounts primarily consist of transactions with the G&NS segment and the ET&S segment. Corporate and elimination includes certain brand and patent royalty income.
| | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income attributable to controlling interests | | | | | | | | | | | | | Percentage of ownership in equity investees | | | | % | | | | % | | | | % |
Contents On November 14, 2018, Sony Corporation of America, Sony’s wholly-owned subsidiary, completed the acquisition of the entirety of the approximately 60% equity interest held by the investor consortium led by the Mubadala Investment Company in DH Publishing, L.P. (“EMI”), which owned and managed EMI Music Publishing. As a result of this acquisition, EMI became a wholly-owned subsidiary of Sony as described in Note 25.F-29SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 341,718 | | | | 346,089 | | | | 250,006 | | | | | 184,786 | | | | 210,933 | | | | 263,107 | | | | | 79,851 | | | | 217,393 | | | | 119,255 | | Entertainment, Technology & Services | | | 127,859 | | | | 212,942 | | | | 179,461 | | Imaging & Sensing Solutions | | | 145,884 | | | | 155,597 | | | | 212,214 | | | | | 154,765 | | | | 150,111 | | | | 223,935 | | | | | 7,178 | | | | 17,981 | | | | 16,849 | | | | | | | | | | | | | | | | | | 1,042,041 | | | | 1,311,046 | | | | 1,264,827 | | Corporate and elimination | | | (86,786 | ) | | | (108,707 | ) | | | (56,621 | ) | | | | | | | | | | | | | | Consolidated operating income | | | 955,255 | | | | 1,202,339 | | | | 1,208,206 | | | | | 83,792 | | | | 19,304 | | | | 31,058 | | | | | (41,082 | ) | | | (104,140 | ) | | | (58,951 | ) | | | | | | | | | | | | | | Consolidated income before income taxes | | | 997,965 | | | | 1,117,503 | | | | 1,180,313 | | | | | | | | | | | | | | |
Operating income (loss) is sales and financial services revenue less costs and expenses, and includes the share of profit (loss) of investments accounted for using the equity method. | | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | Share of profit (loss) of investments accounted for using the equity method: | | | | | | | | | | | | | | | | — | | | | 14 | | | | 144 | | | | | 570 | | | | 4,073 | | | | 7,063 | | | | | 123 | | | | (664 | ) | | | 515 | | Entertainment, Technology & Services | | | 57 | | | | 1,103 | | | | 1,076 | | Imaging & Sensing Solutions | | | (123 | ) | | | (603 | ) | | | (1,128 | ) | | | | — | | | | — | | | | — | | | | | 10,924 | | | | 19,723 | | | | 16,779 | | | | | | | | | | | | | | | | | | 11,551 | | | | 23,646 | | | | 24,449 | | | | | | | | | | | | | | | Depreciation and amortization: | | | | | | | | | | | | | | | | 52,987 | | | | 61,219 | | | | 87,201 | | | | | 46,217 | | | | 61,465 | | | | 67,240 | | | | | 290,895 | | | | 396,251 | | | | 506,697 | | Entertainment, Technology & Services | | | 82,174 | | | | 91,759 | | | | 97,448 | | Imaging & Sensing Solutions | | | 159,469 | | | | 172,842 | | | | 196,674 | | Financial Services, including deferred insurance acquisition costs | | | 68,598 | | | | 94,169 | | | | 110,856 | | | | | 7,686 | | | | 4,300 | | | | 4,376 | | | | | | | | | | | | | | | | | | 708,026 | | | | 882,005 | | | | 1,070,492 | | | | | 24,085 | | | | 22,465 | | | | 18,621 | | | | | | | | | | | | | | | | | | 732,111 | | | | 904,470 | | | | 1,089,113 | | | | | | | | | | | | | | |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Sales to customers by product category: The carrying valuefollowing table is a breakdown of Sony’s investment in M3, Inc. (“M3”)sales and financial services revenue to external customers by product category for each segment. Sony management views each segment as a single operating segment. exceeded its proportionate share in | | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | Sales and financial services revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | Digital Software and Add-on Content | | | 1,454,654 | | | | 1,424,459 | | | | 1,523,045 | | | | | 382,950 | | | | 409,355 | | | | 464,676 | | | | | 767,109 | | | | 840,542 | | | | 1,550,812 | | | | | | | | | | | | | | | | | | 2,604,713 | | | | 2,674,356 | | | | 3,538,533 | | | | | | | | | | | | | | | Recorded Music — Streaming | | | 337,100 | | | | 462,368 | | | | 598,868 | | | | | 179,167 | | | | 206,412 | | | | 286,270 | | | | | 156,862 | | | | 200,334 | | | | 276,665 | | Visual Media and Platform | | | 254,121 | | | | 231,418 | | | | 203,012 | | | | | | | | | | | | | | | | | | 927,250 | | | | 1,100,532 | | | | 1,364,815 | | | | | | | | | | | | | | | | | | 265,301 | | | | 518,840 | | | | 464,043 | | | | | 267,123 | | | | 419,494 | | | | 536,250 | | | | | 219,376 | | | | 298,065 | | | | 364,594 | | | | | | | | | | | | | | | | | | 751,800 | | | | 1,236,399 | | | | 1,364,887 | | Entertainment, Technology & Services | | | | | | | | | | | | | | | | 709,007 | | | | 858,837 | | | | 733,251 | | | | | 313,975 | | | | 326,704 | | | | 391,608 | | | | | 338,694 | | | | 414,898 | | | | 565,018 | | | | | 358,580 | | | | 365,864 | | | | 356,771 | | | | | 296,631 | | | | 331,583 | | | | 390,091 | | | | | | | | | | | | | | | | | | 2,016,887 | | | | 2,297,886 | | | | 2,436,739 | | Imaging & Sensing Solutions | | | 937,859 | | | | 992,200 | | | | 1,301,481 | | | | | 1,664,991 | | | | 1,524,811 | | | | 1,443,996 | | | | | 84,202 | | | | 82,264 | | | | 72,338 | | | | | 10,959 | | | | 13,065 | | | | 17,048 | | | | | | | | | | | | | | | | | | 8,998,661 | | | | 9,921,513 | | | | 11,539,837 | | | | | | | | | | | | | | |
In the underlying net assetsG&NS segment, Digital Software andAdd-on Content includes distribution of M3software titles andadd-on content through the network by 56,140 million yen at March 31, 2020. The excess is substantially attributableSony Interactive Entertainment; Network Services includes network services relating to game, video and music content; Hardware and Others includes home gaming consoles, packaged software, game software sold bundled with home gaming consoles, peripheral devices and first-party software for third-party platforms. In the remeasurement to fair valueMusic segment, Recorded Music — Streaming includes the distribution of digital recorded music by streaming; Recorded Music — Others includes the distribution of recorded music by physical media and digital download as well as revenue derived from artists’ live performances; Music Publishing includes the management and licensing of the remaining shareswords and music of M3,songs; Visual Media and allocated to identifiable tangiblePlatform includes the production and intangible assets. The intang ible assets relate primarily to M3’s medicalweb-portal.
The unassigned residual valuedistribution of animation titles and game applications, and various service offerings for music and visual products. In the excess is recognized as goodwill as a componentPictures segment, Motion Pictures includes the worldwide production, acquisition and distribution of live-action and animated motion pictures; Television Productions includes the investment balance. The amounts allocated to intangible assets are amortized netproduction, acquisition and distribution of television programming; Media Networks includes the related tax effects to equity in net income (loss)operation of affiliated companies over their respective estimated useful lives, principally 10 years, usingtelevision networks and DTC streaming services worldwide. In the straight-line method.With the exception of M3 as described above, there was no significant difference between Sony’s proportionate share in the underlying net assets of the investeesET&S segment, Televisions includes LCD and the carrying value of investments in affiliated companies at March 31, 2019OLED televisions; Audio and 2020.Video includesBlu-ray On December 19, 2019, SRE Holdings Corporation (“SRE”), Sony’s consolidated subsidiary, became a publicly listed company on the Tokyo Stock Exchange Mothers market (the “Listing”). Upon the Listing, Sony sold a portion of its shares of SRE,disc players and shares issued by SRE were publicly offered (collectively, the “Sale”). Sony’s ownership of SRE’s total shares, which was 56.3% before the Sale, has decreased to 44.5% after the Sale. As a result, SRE has become an affiliate accounted for under the equity method of Sony. In connection with the Sale, Sony recorded a gain of 17,266 million yen, which consisted of both a remeasurement gain based on fair value for the shares Sony continues to hold after the Sale, and a realized gain for the sold shares, in other operating (income) loss, net in the consolidated statements of income for the fiscal year ended March 31, 2020.
On January 29, 2020, Sony Life Insurance Co., Ltd.(“Sony Life”), Sony’s consolidated subsidiary, completed the acquisition of the entirety of 50% equity interest held by AEGON International B.V. in AEGON Sony Life Insurance Co., Ltd. and SA Reinsurance Ltd. (collectively, the “JVs”). As a result of this acquisition, the JVs became consolidated subsidiaries of Sony as described in Note 25. AEGON Sony Life Insurance Co., Ltd. has changed its name to “Sony Life With Insurance Co., Ltd.,”April 1, 2020.recorders, home audio, headphones Several affiliated companies are listed on the Tokyo Stock Exchange and Sony’s investments in these companies have an aggregate carrying value and fair value of 141,508 million yen and 756,073 million yen, respectively, as of March 31, 2020.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Account balances and transactions with affiliated companies accounted for under the equity method are presented below. There are no other material transactions or account balances with any other related parties.
| | | | | | | | | | | | | | | | | | | | | | | | Accounts receivable, trade | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Finance lease liabilities and other* | | | | | | | | | Operating lease liabilities | | | | | | | | |
and memory-based portable audio devices; Still and Video Cameras includes interchangeable lens cameras, compact digital cameras, consumer video cameras and video cameras for broadcast; Mobile Communications includes smartphones and an internet-related service business; Other includes display products such as projectors and medical equipment. | * | Finance lease liabilities and other were represented as Capital lease obligations as of the fiscal year ended March 31, 2019. |
| | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Sony entered into saleGeographic Information:
Sales and leaseback transactions regarding certain machineryfinancial services revenue attributed to countries and equipment with SFI Leasing Company, Limited (“SFIL”), a leasing company in Japan, inareas based on location of external customers for the fiscal years ended March 31, 20182021, 2022 and 2023 andnon-current assets (property, plant and equipment, ROU assets, goodwill, content assets and other intangible assets) as of March 31, 2022 and 2023 are as follows: | | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | Sales and financial services revenue: | | | | | | | | | | | | | | | | 2,965,936 | | | | 2,764,321 | | | | 2,691,972 | | | | | 2,147,686 | | | | 2,766,021 | | | | 3,401,402 | | | | | 1,817,854 | | | | 1,870,091 | | | | 2,190,311 | | | | | 762,766 | | | | 771,006 | | | | 855,437 | | | | | 861,623 | | | | 1,149,261 | | | | 1,563,414 | | | | | 442,796 | | | | 600,813 | | | | 837,301 | | | | | | | | | | | | | | | | | | 8,998,661 | | | | 9,921,513 | | | | 11,539,837 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-current assets (property, plant and equipment, assets, goodwill, content assets and other intangible assets): | | | | | | | | | | | | | | | | | | | | 1,592,981 | | | | 1,875,354 | | | | | | | | | 1,830,602 | | | | 2,417,228 | | | | | | | | | 565,044 | | | | 603,338 | | | | | | | | | 34,029 | | | | 34,322 | | | | | | | | | 158,030 | | | | 186,359 | | | | | | | | | 91,001 | | | | 107,162 | | | | | | | | | | | | | | | | | | | | | | 4,271,687 | | | | 5,223,763 | | | | | | | | | | | | | | |
Major countries and 2019. SFIL is accounted for under the equity methodareas in each geographic segment excluding Japan, United States and is 34% owned by Sony.China are as follows: | | | | | United Kingdom, France, Germany, Russia, Spain and Italy | | | India, South Korea, Oceania, Thailand and Malaysia | | | The Middle East/Africa, Brazil, Mexico and Canada |
There are no individually material countries with respect to sales and financial services revenue ornon-current assets (property, plant and equipment, ROU assets, goodwill, content assets and other intangible assets) included in Europe, Asia-Pacific and Other Areas. As of March 31, 2023, Sony has suspended its business in Russia. Transfers between reportable business segments or geographic areas are made at individually negotiated prices that are intended to reflect a market-based transfer price. There were no sales or financial services revenue with any single major external customer for the fiscal years ended March 31, 2021, 2022 and 2023.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES MITSUI-SOKO Supply Chain Solutions, Inc. is accounted for under the equity method and is 34% owned by Sony as a result of the sale of the logistics business on April 1, 2015. As of the fiscal years ended March 31, 2019 and 2020, account balances with MITSUI-SOKO Supply Chain Solutions, Inc. and its subsidiaries were 3,435 million yen and 1,181 million yen, respectively, which are mainly included in accrued expenses. For the fiscal years ended March 31, 2019 and 2020, transactions were 10,606 million yen and 6,069 million yen, respectively, which are mainly included in general and administrative expenses.
Dividends from affiliated companies accounted for under the equity method for the fiscal years ended March 31, 2018, 2019 and 2020 were 5,613 million yen, 4,948 million yen and 4,523 million yen, respectively.
6. | Transfer of financial assetsFinancial instruments
|
Sony has established several accounts receivable sales programs mainly within the EP&S segment. Through these programs, Sony can sell receivables to a commercial bank or a special purpose entity associated with a sponsor bank. Total receivables sold during the fiscal years ended March 31, 2018, 2019 and 2020 were 84,718 million yen, 81,947 million yen and 65,214 million yen, respectively. These transactions are accounted for as sales in accordance with the accounting guidance for transfers of financial assets, because Sony has relinquished control of the receivables. Sony includes the sales proceeds from these receivables as cash flows within operating activities in the consolidated statement of cash flows because the receivables are the result of operating activities and are short term in nature. Gains and losses from these transactions were insignificant. Although Sony continues servicing the receivables subsequent to being sold or contributed, no servicing assets or liabilities are recorded as the costs of collection of the sold receivables and the income from servicing such receivables are insignificant.
Certain accounts receivable sales programs above also involve VIEs. Refer to Note 24.
7. | Marketable securities and securities investmentsFinancial instruments by measurement method
|
Marketable securities
The carrying amount of Sony’s assets and securities investments, primarily held in the Financial Services segment, include debt securities for which the aggregate cost, gross unrealized gainsliabilities by measurement method as of March 31, 2022 and losses and fair value pertaining toavailable-for-sale
securities andheld-to-maturity
securities2023 are as followsfollows:
. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Financial assets required to be measured at amortized cost (“AC”) | | | | | | | | | Investments and advances in the Financial Services segment | | | | | | | | | | | | 358,238 | | | | 422,025 | | Housing loans in the banking business | | | 2,752,985 | | | | 3,129,393 | | | | | 230,516 | | | | 229,666 | | Trade and other receivables * | | | | | | | | | | | | 1,617,323 | | | | 1,761,025 | | | | | 2,736 | | | | 2,712 | | | | | | | | | | | | | | 39,223 | | | | 36,671 | | | | | 121,856 | | | | 95,813 | | Non-current other receivables in the Pictures segment | | | 166,279 | | | | 152,619 | | | | | 16,425 | | | | 19,582 | | Financial assets required to be measured at fair value through profit or loss (“FVPL”) | | | | | | | | | Investments and advances in the Financial Services segment | | | | | | | | | | | | 1,012,057 | | | | 1,059,718 | | | | | 1,798,536 | | | | 2,123,062 | | | | | | | | | | | | | | 16,013 | | | | 20,905 | | | | | 120,274 | | | | 125,590 | | | | | 61,023 | | | | 70,144 | | Financial assets designated to be measured at FVPL | | | | | | | | | Investments and advances in the Financial Services segment | | | | | | | | | | | | 267,169 | | | | 188,906 | | Financial assets required to be measured at fair value through other comprehensive income (“FVOCI”) | | | | | | | | | Investments and advances in the Financial Services segment | | | | | | | | | | | | 12,378,244 | | | | 11,615,862 | | | | | | | | | | | | | | 522 | | | | 125 | | Financial assets designated to be measured at FVOCI | | | | | | | | | Investments and advances in the Financial Services segment | | | | | | | | | | | | 8,016 | | | | 5,453 | | | | | | | | | | | | | | 303,992 | | | | 421,845 | | | | | | | | | | | | | | 21,271,427 | | | | 21,481,116 | | | | | | | | | | | | | | 2,130,033 | | | | 2,203,044 | | | | | 19,141,394 | | | | 19,278,072 | |
* | The amounts of trade and other receivables exclude contract assets within trade and other receivables, and contract assets in the consolidated statements of financial position. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Available-for-sale securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Japanese national government bonds | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Japanese local government bonds | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Held-to-maturity securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Japanese national government bonds | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Japanese local government bonds | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES The following table presents the cost and fair value of debt securities classified asavailable-for-sale
securities andheld-to-maturity
securities by contractual maturity: | | | | | | | | | | | | | | | | | | | | | | | | | | | Available-for-sale securities | | | Held-to-maturity securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Due after one year through five years | | | | | | | | | | | | | | | | | Due after five years through ten years | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Proceeds from sales ofavailable-for-sale
securities were 39,982 million yen, 66,906 million yen and 84,362 million yen for the fiscal years ended March 31, 2018, 2019 and 2020, respectively. On these sales, gross realized gains were 1,257 million yen, 240 million yen and 354 million yen and gross realized losses were 2 million yen, 475 million yen and 128 million yen, respectively, for the fiscal years ended March 31, 2018, 2019 and 2020. Sony adopted ASU2016-01
from April 1, 2018, and as a result, theavailable-for-sale
classification is eliminated for equity securities for the fiscal years
ended March 31, 2019 and 2020.Marketable securities classified as trading securities, which are held primarily in the Financial Services segment, totaled 234,117 million yen and 270,120 million yen as of March 31, 2019 and 2020, respectively. Sony recorded net unrealized gains of 48,047 million yen, net unrealized gains of 3,610 million yen, and net
unrealized gains of 1,705 million yen for the fiscal years ended March 31 2018, 2019 and 2020, respectively. Changes in the fair value of trading securities are primarily recognized in financial services revenue in the consolidated statements of income. Sony adopted ASU 2016-01 from April 1, 2018, and as a result, the trading classification is eliminated for equity securities for the fiscal years ended March 31, 2019 and 2020.
The following tables present the gross unrealized losses on, and fair value of, Sony’s investment securities with unrealized losses, aggregated by investment category and the length of time that individual investment securities have been in a continuous unrealized loss position, at March 31, 2019 and 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Available-for-sale securities: | | | | | | | | | | | | | | | | | | | | | | | | | Japanese national government bonds | | | | | | | | | | | | | | | | ) | | | | | | | | ) | Japanese local government bonds | | | | | | | | ) | | | | | | | | ) | | | | | | | | ) | | | | | | | | | ) | | | | | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | | | | ) | | | | | | | | ) | | | | | | | | | ) | | | | | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Held-to-maturity securities: | | | | | | | | | | | | | | | | | | | | | | | | | Japanese national government bonds | | | | | | | | | | | | | | | | | | | | | | | | | Japanese local government bonds | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | |
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Available-for-sale securities: | | | | | | | | | | | | | | | | | | | | | | | | | Japanese national government bonds | | | | | | | | ) | | | | | | | | ) | | | | | | | | ) | Japanese local government bonds | | | | | | | | ) | | | | | | | | ) | | | | | | | | ) | | | | | | | | | ) | | | | | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | | | | ) | | | | | | | | ) | | | | | | | | | ) | | | | | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Held-to-maturity securities: | | | | | | | | | | | | | | | | | | | | | | | | | Japanese national government bonds | | | | | | | | ) | | | | | | | | | | | | | | | | ) | Japanese local government bonds | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | |
At March 31, 2020, Sony determined that the decline in value for securities with unrealized losses shown in the above table is not other-than-temporary in nature.
For the
years
ended March 31, 2019Cash and 2020, with respect to equity securities included in marketable securities and securities investments, Sony recorded net realized gains of 77,495 million yen and 20,176 million yen due to the sale of equity securities and net unrealized gains of 104,168 million yen and netunrealized
loss of 134,831 million yen due to revaluation of equity securities held as of March 31, 2019 and 2020, respectively. Gains or losses arising from equity securities held in the Financial Services segmentcash equivalents are recorded in financial services revenue, and gains or losses arising from equity securities held in all segments other than the Financial Services segment are recorded in gain (loss)
on equity securities, net in the consolidated statement of income. Included in thegains and (losses)
noted above were
gains and (losses)
recorded by Sony with respect to the equity securities held by Sony in Spotify Technology S.A. (“Spotify”).
On April 3, 2018, Spotify was publicly listed for trading on the New York Stock Exchange. Sony owned 5.707% of Spotify’s shares at the time of the public listing.
During the fiscal year ended March 31, 2019, Sony sold a portion of the Spotify shares that it owned for aggregate consideration of 82,616 million yen (768 million U.S. dollars) in cash proceeds. The sale of such shares, offset by costs to be paid to Sony’s artists and distributed labels and other transaction costs which directly related to the gains recognizedexcluded from the sale of Spotify shares, resulted in a netpre-tax
realized gain of 54,179 million yen (504 million U.S. dollars) recorded in gain on equity securities, net in the consolidated statement of income. The payments to Sony’s artists and distributed labels are included within Other in the cash flows from investing activities of the consolidated statement of cash flows.The remaining Spotify shares retained as of March 31, 2019 had a gross fair value of 78,947 million yen (711 million U.S. dollars), and the revaluation of such shares resulted in apre-tax
unrealized gain, net of costs to be paid to Sony’s artists and distributed labels and other costs which directly related to the gains recognized from the revaluation of Spotify shares, of 47,543 million yen (449 million U.S. dollars) recorded in gain on equity securities, net in the consolidated statement of income.During the fiscal year ended March 31, 2020,Sony did 0t sell any portion of the Spotify shares that it owned. The
revaluation of the remaining Spotify shares retained as of March 31, 2020 resulted in apre-tax
unrealized loss, net ofa decrease in
costs to be paid to Sony’s artists and distributed labels, of 6,063 million yen (57 million U.S. dollars) recorded in loss on equity securities, net in the consolidated statements of income.
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
The aggregate carrying amounts of securities that do not have readily determinable fair values
as of March 31, 2019 and 2020 totaled 25,720 million yen and 30,120 million yen, respectively. Sony recorded no upward adjustmentsfor securities that do not have readily determinable fair values
the fiscal year ended March 31, 2019, and
upward adjustments of 1,070 million yenfor securities that do not have readily determinable fair values
the fiscal year ended March 31, 2020. Sony recorded downward adjustments (including impairments) of 4,285 million yen and 9,075 million yen for securities that do not have readily determinable fair values for the fiscal years
ended March 31, 2019 and 2020, respectively.Sony leases certain communication and commercial equipment, plant, office space, warehouses, employees’ residential facilities and other assets under both finance and operating leases.
The components of lease cost are as follows:
| | | | | | | | | | | Fiscal year ended March 31
| | | | | | | | | | | Amortization ofright-of-use
assets | | | | | Interest on lease liabilities
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | |
(2) | Supplementalconsolidated
balance sheet information related to leases |
Supplemental consolidated balance sheet information related to leases is as follows:
| | | | | | | | | | | | | | | | | | | | | | Current portion of long-term debt
| | | | | | | | | | | | | | | Total finance lease liabilities
| | | | | | | | | | | | | | | Weighted average remaining lease term
| | | | | | | | | | | | | | | | | | | | Weighted average discount rate
| | | | | | | | | % | | | | | % |
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
| Rental payments and sublease rentals under operating leases
|
The minimum rental payments required under operating leases that have initial or remaining
noncancelablelease terms in excess of one year at March
31,
2019are as follows:
| | | | | Fiscal year ending March 31 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total minimum future rentals | | | | | | | | | |
Rental expenses under operating leases for the fiscal years ended March 31, 2018 and 2019 were 77,950 million yen and 71,516 million yen, respectively. Sublease rentals received under operating leases for the fiscal years ended March 31, 2018 and 2019 were 1,325 million yen and 1,013 million yen, respectively. The total minimum rentals to be received in the future under noncancelable subleases for operating leases as of March 31, 2019 were 1,598 million yen.
(4) | Maturities of lease liabilities |
Maturities of lease liabilitiesas of March 31, 2020
are as follows: | | | | | | | | | | | | | Fiscal year ending March 31 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other information related to leases is as follows:
| | | | | | | | | | | Fiscal year ended March 31
| | | | | | Cash paid for amounts included in the measurement of lease liabilities
| | | | | Payments for operating leases, included in cash flows from operating activities
| | | | | Payments for finance leases, included in cash flows from financing activities
| | | | | Right-of-use
assets obtained in exchange for new operating lease liabilities | | | | |
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
9. | Goodwill and other intangible assets
|
Intangible assets other than goodwill acquired during the fiscal year ended March 31, 2020 totaled 146,023 million yen, of which 145,596 million yen is subject to amortization, and are comprised of the following:
| | | | | | | | | | | | | | Weighted-average amortization period | | | | | | | | | Patent rights, know-how and license agreements | | | | | | | | | Software to be sold, leased or otherwise marketed | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In the fiscal year ended March 31, 2020, additions tointernal-use
software primarily related to the capitalization of new software across several business platforms.Intangible assets subject to amortization are comprised of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Patent rights, know-how and license agreements | | | | | | | | ) | | | | | | | | ) | | | | | | | | | ) | | | | | | | | ) | | | | | | | | | ) | | | | | | | | ) | Software to be sold, leased or otherwise marketed | | | | | | | | ) | | | | | | | | ) | | | | | | | | | ) | | | | | | | | ) | | | | | | | | | ) | | | | | | | | ) | | | | | | | | | ) | | | | | | | | ) | Television carriage contracts (broadcasting agreements) | | | | | | | | ) | | | | | | | | ) | | | | | | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | | | | |
The aggregate amortization expense for intangible assets for the fiscal years ended March 31, 2018, 2019 and 2020 was 123,450 million yen, 109,452 million yen and 110,819 million yen, respectively. The estimated aggregate amortization expense for intangible assets for the next five fiscal years is as follows:
| | | | | Fiscal year ending March 31 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Total carrying amount of intangible assets having an indefinite lifeis
comprised of the following:The changes in the carrying amount of goodwill by segment for the fiscal years ended March 31, 2019 and 2020 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | ) | | | | ) | | | | | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Increase (decrease) due to: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | ) | | | | ) | | | | | | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | ) | | | | ) | | | | | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Increase (decrease) due to: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | ) | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | ) | | | | | | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | ) | | | | ) | | | | | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Sony realigned its business segments from the first quarter of the fiscal year ended March 31, 2020. As a result of this realignment, the former HE&S, IP&S and MC segments have been realigned as the EP&S segment. In connection with this realignment, the carrying amounts of associated goodwill for the former HE&S, IP&S and MC segments have been reclassified to the EP&S segment for the fiscal years ended March 31, 2018 and 2019.table above. Refer to Note 29. 27. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Financial liabilities required to be measured at AC | | | | | | | | | | | | 1,976,553 | | | | 1,914,934 | | Current portion of long-term debt | | | 171,409 | | | | 187,942 | | | | | | | | | | | | | | 1,716,316 | | | | 1,701,598 | | | | | 126,926 | | | | 162,475 | | Deposits from customers in the banking business *1 | | | 3,004,215 | | | | 3,306,981 | | | | | 1,203,646 | | | | 1,767,696 | | Deferred consideration *2 | | | — | | | | 87,937 | | Other financial liabilities | | | 63,281 | | | | 61,128 | | Financial liabilities required to be measured at FVPL | | | | | | | | | Other financial liabilities | | | | | | | | | | | | 72,120 | | | | 34,123 | | | | | 21,552 | | | | 51,512 | | Financial liabilities designated to be measured at FVPL | | | | | | | | | Other financial liabilities | | | | | | | | | Redeemable noncontrolling interests | | | 34,995 | | | | 47,326 | | | | | | | | | | | | | | 8,391,013 | | | | 9,323,652 | | | | | | | | | | | | | | 6,975,408 | | | | 7,205,678 | | | | | 1,415,605 | | | | 2,117,974 | |
* | Acquisitions for the fiscal year ended March 31, 2019 relate mainly to the acquisition of EMI Music Publishing in the Music segment. Acquisitions for the fiscal year ended March 31, 2020 relate mainly to the acquisition of Insomniac Games, Inc. in the G&NS segment, Silvergate Media in the Pictures segment and AEGON Sony Life Insurance Co., Ltd. and SA Reinsurance Ltd. in the Financial Services segment. Refer to Note 25. |
10.1 | Insurance-related accounts
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Sony’s Financial Services segment subsidiaries in Japan maintain their accounting records as described in Note 2 in accordance with the accounting principles and practices generally accepted in Japan, which vary in some respects from U.S. GAAP.
Those differences are mainly that insurance acquisition costs for life andnon-life
insurance contracts are charged to income when incurred in Japan whereas in the United States those costs are deferred and amortized
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
generally over the premium-paying period of the related insurance policies, and that future policy benefits for life insurance contracts calculated locally under the authorization of the supervisory administrative agencies are comprehensively adjusted using mainly the net level premium method with certain adjustments of actuarial assumptions for U.S. GAAP purposes. For the purpose of preparing the consolidated financial statements, appropriate adjustments have been made to reflect the accounting for these items in accordance with U.S. GAAP.
The combined amounts of statutory net equity of the insurance subsidiaries, which is not measured in accordance with U.S. GAAP, as of March 31, 2019 and 2020 were 548,730 million yen and 586,983 million yen, respectively.
Life insurance policies that subsidiaries in the Financial Services segment underwrite, most of which are categorized as long-duration contracts, mainly consist of whole life, term life and accident and health insurance contracts. The life insurance revenues for the fiscal years ended March 31, 2018, 2019 and 2020 were 857,766 million yen, 910,011 million yen and 1,052,316 million yen, respectively. Property and casualty insurance policies that a subsidiary in the Financial Services segment underwrites are primarily automotive insurance contracts, which are categorized as short-duration contracts. Thenon-life
insurance revenues for the fiscal years ended March 31, 2018, 2019 and 2020 were 105,497 million yen, 111,392 million yen and 115,730 million yen, respectively.(2) | Deferred insurance acquisition costs |
Amortization of deferred insurance acquisition costs charged to income for the fiscal years ended March 31, 2018, 2019 and 2020 amounted to 68,137 million yen, 79,906 million yen and 93,734 million yen, respectively.
At March 31, 2019 and 2020, the balances of deferred insurance acquisition costs of non-traditional life insurance contracts were
209,897 million yen and 206,363 million yen, respectively.
(3) | Future insurance policy benefits |
Liabilities for futureinsurance
policy benefits, except the portion of liabilities for minimum guaranteebenefits which is described below, which mainly relate to individual life insurance policies, are established in amounts adequate to meet the estimated future obligations of policies in force. These liabilities, which require significant management judgment and estimates, are computed by the net level premium method based upon the assumptions as to future investment yield, morbidity, mortality, withdrawals and other factors. Future policy benefits are computed using interest rates ranging from 0.5% to 4.5% and are based on factors such as market conditions and expected investment returns. Morbidity, mortality and withdrawal assumptions for all policies are based on either the subsidiary’s own experience or various actuarial tables. Generally these assumptions arelocked-in
throughout the life of the contract upon the issuance of new insurance, although significant changes in experience or assumptions may require Sony to provide for expected future losses. Liabilities for future policy benefits includes the liabilities for the minimum guarantee benefits of variable annuities and variable life insurance contracts. The details regarding the minimum guarantee benefits are presented in (5) below. Sony elected the fair value option for certain of these liabilities for future insurance policy benefits. Refer to Note 13.
At March 31, 2019 and 2020, future insurance policy benefits amounted to 5,633,865 million yen and 6,237,048 million yen, respectively.
(4) | Policyholders’ account in the life insurance business |
Policyholders’ account in the life insurance business represents an accumulation of account deposits plus credited interest less withdrawals, expenses and mortality charges. Policyholders’ account includes universal life insurance and investment contracts. Universal life insurance includes interest sensitive whole life contracts and
life
insurance
contracts. The credited rates associated with interest sensitive whole life contracts range from 1.7% to 2.0%. For variable
contracts, policy values are expressed in terms of investment units. Each unit is linked to an asset portfolio. The value of a unit increases or decreases based on the value of the linked asset portfolio. Investment contracts mainly include single payment endowment contracts, single payment educational endowment contracts, individual variable annuities and policies after the start of annuity payments.
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
The credited rates associated with investment contracts, except for individual variable annuities, range from 0.01% to 6.3%. For individual variable annuities, policy values are expressed in terms of investment units. Each unit is linked to an asset portfolio. The value of a unit increases or decreases based on the value of the linked asset portfolio. The liabilities for policyholders’ account in the life insurance business includes the liabilities related to the variable annuities and variable life insurance contracts with minimum guarantee benefits. Sony elected the fair value option for certain of these liabilities for policyholders’ account in the life insurance business. Refer to Note 13.
Policyholders’ account in the life insurance business is comprised of the following:
(5) | Minimum guarantee benefit for variable annuities and variable life insurance contracts |
Regarding variable annuities and variable life insurance contracts, minimum guarantee benefits (minimum death benefit, minimum accumulation benefit, etc.) are provided, and Sony bears the risk of fulfilling the minimum guarantee benefits prescribed in the contracts to policyholders. The fair value option is applied to the portion of the liability for variable annuity contracts with minimum guarantee benefits. Refer to Note 13. Excluding the portion of the liability measured at fair value, the liability for the minimum guarantee benefit is calculated based on the ratio of the present value of expected total excess payments divided by the present value of expected total assessments over the life of the contract. Mortality rates, lapse rates, discount rates and investment yield are used as significant assumptions for this calculation.
The policyholders’ account value, net amount at risk, liability for the minimum guarantee benefit, and average attained age at March 31, 2019 and 2020 are as follows. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Policyholder s ’ account value | | | | | | | | | | | | | | | | | | | | | | | | | | Liability for minimum guarantee benefit | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Policyholder s ’ account value | | | | | | | | | | | | | | | | | | | | | | | | | | Liability for minimum guarantee benefit | | | | | | | | | | | | |
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
| Short-term borrowings and long-term debt
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Short-term borrowings are comprised of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | with a weighted-average interest rate of 2.52% | | | | | | | | | with a weighted-average interest rate of 0.86% | | | | | | | | | | | | | | | | | | with a weighted-average interest rate of 0.56% | | | | | | | | | with a weighted-average interest rate of 0.93% | | | | | | | | | | | | | | | | | | with a weighted-average interest rate of 0.18% | | | | | | | | | with a weighted-average interest rate of 0.13% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
At March 31, 2020, certain subsidiaries in the Financial Services segment pledged marketable securities and securities investments with a book value of 474,644 million yen as collateral for 567,194 million yen of short-term repurchase agreements. The repurchase agreement provides for net settlement upon a termination event.
At March 31, 2020, certain subsidiaries in the Financial Services segment pledged marketable securities and securities investments with a book value of 42,576 million yen as collateral for 151,257 million yen of secured call money.
In addition, certain subsidiaries in the Financial Services segment pledged marketable securities and securities investments with an aggregate book value of 12,445 million yen as collateral for cash settlements, variation margins of futures markets and certain other purposes.
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Long-term debt is comprised of the following:
| | | | | | | | | | | | | | | | | | | | | | | | Unsecured loans, representing obligations principally to banks: | | | | | | | | | Due 2019 to 2024, with interest rates ranging from 0.01 % to 7.89 % per annum | | | | | | | | | Due 2020 to 2029, with interest rates ranging from 0.01 % to 5.10 % per annum | | | | | | | | | Unsecured 0.05% bonds, due 2019 | | | | | | | | | Unsecured 2.07% bonds, due 2019 | | | | | | | | | Unsecured 0.23% bonds, due 2021 | | | | | | | | | Unsecured 0.11% bonds, due 2022 | | | | | | | | | Unsecured 1.41% bonds, due 2022 | | | | | | | | | Unsecured 0.28% bonds, due 2023 | | | | | | | | | Unsecured 0.13% bonds, due 2024 | | | | | | | | | Unsecured 0.22% bonds, due 2025 | | | | | | | | | Unsecured 0.42% bonds, due 2026 | | | | | | | | | Unsecured 0.18% bonds, due 2026 | | | | | | | | | Unsecured 0.30% bonds, due 2029 | | | | | | | | | Unsecured zero coupon convertible bonds, due 2022: | | | | | | | | | Conversion price 5,008.0 yen per common share | | | | | | | | | Conversion price 4,996.0 yen per common share | | | | | | | | | Secured 0.00% loans, due 2020 to 2023 | | | | | | | | | Finance lease liabilities and other*: | | | | | | | | | Due 2019 to 2048, with interest rates ranging from 0.36% to 9.14% per annum | | | | | | | | | Due 2020 to 2050, with interest rates ranging from 0.01% to 12.59% per annum | | | | | | | | | Guarantee deposits received | | | | | | | | | | | | | | | | | | | | | | | | | | | Less — Portion due within one year | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
* | Finance lease liabilities and other were represented as Capital lease obligations and other as of the fiscal year ended March 31, 2019. |
At March 31, 2020, certain subsidiaries in the Financial Services segment pledged marketable securities and securities investments with a book value of 52,942 million yen and housing loans with a book value of 378,241 million yen as collateral for a 200,000 million yen long-term secured loan.
On July 21, 2015, Sony issued 120,000 million yen of 130% callable unsecured zero coupon convertible bonds with stock acquisition rights due 2022 (the “Zero Coupon Convertible Bonds”). The bondholders are entitled to stock acquisition rights effective from September 1, 2015 to September 28, 2022. The initial conversion price was 5,008.0 yen per common share. In addition to the standard anti-dilution provisions, the conversion price is reduced for a certain period before an early redemption triggered upon the occurrence of certain corporate events including a merger, corporate split and delisting event. The reduced amount of the conversion price will be determined by a formula that is based on the effective date of the reduction and Sony’s common stock price. The reduced conversion price ranges from 3,526.5 yen to 5,008.0 yen per common share. The conversion price is also adjusted for dividends in excess of 25 yen per common share per fiscal year. The conversion price has been adjusted to 4,982.5 yen per common share since June 10, 2020 because the payment of the total annual dividend per common share for the fiscal year ended March 31, 2020 was 45 yen, which is in excess of 25 yen. Sony has the option to redeem all of the Zero Coupon Convertible Bonds outstanding at 100% of the principal amount after July 21, 2020, if the closing sales price per share of Sony’s common stock on the Tokyo Stock Exchange is 130% or more of the conversion price of the Zero Coupon Convertible Bonds for 20 consecutive trading days. Sony was not required to bifurcate any of the embedded features contained in the Zero Coupon Convertible Bonds for accounting purposes. There are no significant adverse debt covenants under the Zero Coupon Convertible Bonds.
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
In October 2019, Sony issued unsecured straight bonds in the aggregate principal amount of 100,000 million yen. Sony used all of the proceeds of the issued bonds for the repayment of debt.
There are no significant adverse debt covenants or cross-default provisions related to the other short-term borrowings and long-term debt.
Aggregate amounts of annual maturities of long-term debt are as follows:
| | | | | Fiscal year ending March 31 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
At March 31, 2020, Sony had unused committed lines of credit amounting to 518,147 million yen and can generally borrow up to 180 days from the banks with whom Sony has committed line contracts. Furthermore, at March 31, 2020, Sony had
commercial paper programs totaling 1,044,150 million yen. Sony can issue commercial paper for a period generally not in excess of 270 days up to the size of the programs.12. | Housing loans and deposits from customers in the banking business
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(1) | Housing loans in the banking business |
Sony acquires and holds certain financial receivables in the normal course of business. The majority of financing receivables held by Sony consists of housing loans in the banking business and no other significant financial receivables exist.
A subsidiary in the banking business monitors the credit quality of housing loans based on the classification set by the financial conditions and the past due status of individual obligors. Past due status is monitored on a daily basis and the aforementioned classification is reviewed on a quarterly basis.
The allowance for the credit losses is established based on the aforementioned classifications and the evaluation of collateral. The amount of housing loans in the banking business and the corresponding allowance for credit losses as of March 31, 2019 were 1,685,504 million yen and 829 million yen, respectively, and as of March 31, 2020 were 1,927,054 million yen and 780 million yen, respectively. During the fiscal years ended March 31, 2019 and 2020, charge-offs on housing loans in the banking business and changes in the allowance for credit losses were not significant.
The balance of housing loans placed on nonaccrual status or past due status were not significant as of March 31, 2019 and 2020.
(2) | Deposits from customers in the banking business include the non-current portion that is recorded within other financial liabilities in the consolidated statements of financial position. |
All deposits from customers in the banking business within the Financial Services segment are interest bearing deposits. At March 31, 2019 and 2020, the balances of time deposits issued in amounts of 10 million yen or more were 292,968 million yen and 306,449 million yen, respectively. These amounts have been classified as current liabilities mainly due to the ability of the customers to make withdrawals prior to maturity.
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
At March 31, 2020, aggregate amounts of annual maturities of time deposits with a remaining term of more than one year are as follows:
| | | | | Fiscal year ending March 31 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
13.*2 | Fair value measurementsDeferred consideration is recorded within other financial liabilities or trade and other payables in the consolidated statements of financial position.
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As discussed in Note 2, assets and liabilities subject to the accounting guidance for fair value measurements held by Sony are classified and accounted for as described below.
(1) | Assets and liabilities that areFinancial instruments measured at fair value on a recurring basis |
The following section describes the valuation techniques used by Sony to measure different financial instruments at fair value, including an indication of the level in the fair value hierarchy in which each instrument is generally classified. Debt securities,instruments and equity securities, and other investmentsinstruments Where quoted prices of financial instruments are available in an active market, securitiesthese instruments are classified in levelLevel 1 of the fair value hierarchy. Level 1 securitiesfinancial instruments include exchange-traded equities.equity instruments. If quoted market prices are not available for the specific securityfinancial instruments or the market is inactive, then fair values are estimated by using pricing models, quoted prices of securitiesfinancial instruments with similar characteristics or discounted cash flows and mainly classified in levelLevel 2 of the fair value hierarchy. Level 2 securitiesfinancial instruments include debt securitiesinstruments with quoted prices that are not traded less frequently thanas actively as exchange-traded instruments, such as the majority of government bonds and corporate bonds. In certain cases where there is limited activity or less transparency around inputs to the valuation, securitiesthese instruments are classified within levelLevel 3 of the fair value hierarchy. Level 3 securitiesfinancial instruments primarily include certain securitized products, certain hybrid financial instruments, certain private equity investments, investment funds, securitized products which are not classified within Level 1 or Level 2 and certain domestic and foreign corporate bonds for which quoted prices are not available in a market and where there is less transparency around inputs. Sony estimates the fair value for private equity investments primarily by using comparable company analysis and discounted cash flow method. The price bo ok-value ratio and price earnings ratio of comparable companies, as well as cost of capital and EBITDA multiples for the terminal value used in
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES discounted cash flow method, are primarily used as significant unobservable inputs in the fair value measurement of equity securities classified within level 1as Level 3. The fair value increases (decreases) as the price book-value ratio and price earnings ratio of comparable companies rise (decline). In addition, the fair value increases (decreases), as the cost of capital declines (rises) and EBITDA multiples rise (decline), both of which are used in discounted cash flow. Sony estimates the fair value for certain investment funds by using the net asset value. Sony estimates the fair value for securitized products and domestic and foreign corporate bonds for which quoted prices are not available in a market and where there is less transparency around inputs by using third-party information such as indicative quotes from dealers without adjustment or level 2.discounted cash flows. For validating the fair values of Level 3 financial instruments, Sony primarily uses internal models which include management judgment or estimation of assumptions that market participants would use in pricing the asset. Exchange-traded derivatives valued using quoted prices are classified within levelLevel 1 of the fair value hierarchy. However, few classes of derivative contracts are listed on an exchange; thus, the majority of Sony’s derivative positions are valued using internally developed models that use as their basis readily observable market parameters, — i.e.,meaning parameters that are actively quoted and can be validated to external sources, including industry pricing services. Depending on the types and contractual terms of derivatives, fair value can be modeled using a series of techniques, such as the Black-Scholes option pricing model, which are consistently applied. WhereFor derivative products that have been established for some time, Sony uses models that are widely accepted in the financial services industry. These models reflect the contractual terms of the derivatives, including the period to maturity, and market-based parameters such as interest rates, volatility, and the credit rating of the counterparty. Further, many of these models do not contain a high level of subjectivity as the techniques used in the models do not require significant judgment, and inputs to the model are readily observable from actively quoted markets. Such instruments are generally classified within levelLevel 2 of the fair value hierarchy. In determining the fair value of Sony’s interest rate swap derivatives, Sony uses the present value of expected cash flows based on market observable interest rate yield curves commensurate with the term of each instrument. For foreign currency derivatives, Sony’s approach is to use forward contract and option valuation models employing market observable inputs, such as spot currency rates and time value and option volatilities.value. These derivatives are classified within levelLevel 2 since Sony primarily uses observable inputs in its valuation of its derivative assets and liabilities.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES The fair value of Sony’s assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2022 and 2023 is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Presentation in the consolidated statements of
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Financial assets required to be measured at FVPL | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Japanese national government bonds | | | — | | | | 368,273 | | | | — | | | | 368,273 | | | | — | | | | — | | | | 368,273 | | | | — | | Japanese local government bonds | | | — | | | | 600 | | | | — | | | | 600 | | | | — | | | | — | | | | 600 | | | | — | | | | | — | | | | 15,350 | | | | 18 | | | | 15,368 | | | | — | | | | — | | | | 15,317 | | | | 51 | | | | | 29,237 | | | | 185,238 | | | | — | | | | 214,475 | | | | — | | | | — | | | | 214,475 | | | | — | | | | | — | | | | — | | | | 117 | | | | 117 | | | | — | | | | — | | | | — | | | | 117 | | | | | — | | | | — | | | | 3,713 | | | | 3,713 | | | | — | | | | — | | | | 3,713 | | | | — | | | | | — | | | | 377,004 | | | | 48,520 | | | | 425,524 | | | | 3 | | | | — | | | | 409,676 | | | | 15,845 | | | | | 1,906,244 | | | | 9,349 | | | | 3,217 | | | | 1,918,810 | | | | — | | | | — | | | | 1,798,536 | | | | 120,274 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | 26,795 | | | | — | | | | 26,795 | | | | — | | | | 32 | | | | — | | | | 26,763 | | Foreign exchange contracts | | | — | | | | 30,204 | | | | — | | | | 30,204 | | | | — | | | | 28,147 | | | | — | | | | 2,057 | | | | | — | | | | — | | | | 4,024 | | | | 4,024 | | | | — | | | | 3,669 | | | | — | | | | 355 | | Financial assets designated to be measured at FVPL | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Japanese national government bonds | | | — | | | | 48,711 | | | | — | | | | 48,711 | | | | 4,002 | | | | — | | | | 44,709 | | | | — | | Japanese local government bonds | | | — | | | | 26,612 | | | | — | | | | 26,612 | | | | 5,315 | | | | — | | | | 21,297 | | | | — | | | | | — | | | | 7,228 | | | | — | | | | 7,228 | | | | 3,907 | | | | — | | | | 3,321 | | | | — | | | | | — | | | | 17,598 | | | | — | | | | 17,598 | | | | 1,466 | | | | — | | | | 16,132 | | | | — | | | | | — | | | | 163,395 | | | | 3,625 | | | | 167,020 | | | | 33,690 | | | | — | | | | 133,330 | | | | — | | Financial assets required to be measured at FVOCI | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Japanese national government bonds | | | — | | | | 9,667,158 | | | | — | | | | 9,667,158 | | | | — | | | | — | | | | 9,667,158 | | | | — | | Japanese local government bonds | | | — | | | | 36,369 | | | | — | | | | 36,369 | | | | 12,435 | | | | — | | | | 23,934 | | | | — | | | | | — | | | | 746,223 | | | | 154,245 | | | | 900,468 | | | | 10,257 | | | | — | | | | 890,211 | | | | — | | | | | — | | | | 1,353,394 | | | | — | | | | 1,353,394 | | | | — | | | | — | | | | 1,353,277 | | | | 117 | | | | | — | | | | 318,699 | | | | 20,837 | | | | 339,536 | | | | 65,000 | | | | — | | | | 274,131 | | | | 405 | | | | | — | | | | 41,982 | | | | 39,859 | | | | 81,841 | | | | — | | | | — | | | | 81,841 | | | | — | | Financial assets designated to be measured at FVOCI | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 106,499 | | | | — | | | | 205,509 | | | | 312,008 | | | | — | | | | — | | | | 8,016 | | | | 303,992 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2,041,980 | | | | 13,440,182 | | | | 483,684 | | | | 15,965,846 | | | | 136,075 | | | | 31,848 | | | | 15,327,947 | | | | 469,976 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | Financial liabilities required to be measured at FVPL | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | 7,530 | | | | — | | | | 7,530 | | | | 471 | | | | 7,059 | | Foreign exchange contracts | | | — | | | | 36,582 | | | | — | | | | 36,582 | | | | 36,582 | | | | — | | | | | 11,903 | | | | 16,105 | | | | — | | | | 28,008 | | | | 28,008 | | | | — | | | | | — | | | | — | | | | 21,552 | | | | 21,552 | | | | 1,475 | | | | 20,077 | | Financial liabilities designated to be measured at FVPL | | | | | | | | | | | | | | | | | | | | | | | | | Redeemable noncontrolling interests | | | — | | | | — | | | | 34,995 | | | | 34,995 | | | | 2,435 | | | | 32,560 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 11,903 | | | | 60,217 | | | | 56,547 | | | | 128,667 | | | | 68,971 | | | | 59,696 | | | | | | | | | | | | | | | | | | | | | | | | | | |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Presentation in the consolidated statements of
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Financial assets required to be measured at FVPL | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Japanese national government bonds | | | — | | | | 422,739 | | | | — | | | | 422,739 | | | | — | | | | — | | | | 422,739 | | | | — | | Japanese local government bonds | | | — | | | | 600 | | | | — | | | | 600 | | | | — | | | | — | | | | 600 | | | | — | | | | | — | | | | 16,872 | | | | 38 | | | | 16,910 | | | | — | | | | — | | | | 16,872 | | | | 38 | | | | | 30,100 | | | | 173,393 | | | | — | | | | 203,493 | | | | — | | | | — | | | | 203,493 | | | | — | | | | | — | | | | 5,515 | | | | 3,377 | | | | 8,892 | | | | — | | | | — | | | | 5,515 | | | | 3,377 | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | — | | | | 367,193 | | | | 60,796 | | | | 427,989 | | | | — | | | | — | | | | 410,499 | | | | 17,490 | | | | | 2,236,646 | | | | 5,217 | | | | 6,789 | | | | 2,248,652 | | | | — | | | | — | | | | 2,123,062 | | | | 125,590 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | 43,844 | | | | — | | | | 43,844 | | | | — | | | | 438 | | | | — | | | | 43,406 | | Foreign exchange contracts | | | — | | | | 21,318 | | | | — | | | | 21,318 | | | | — | | | | 19,978 | | | | — | | | | 1,340 | | | | | 290 | | | | — | | | | 4,692 | | | | 4,982 | | | | — | | | | 4,982 | | | | — | | | | — | | Financial assets designated to be measured at FVPL | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Japanese national government bonds | | | — | | | | 8,830 | | | | — | | | | 8,830 | | | | 1,001 | | | | — | | | | 7,829 | | | | — | | Japanese local government bonds | | | — | | | | 16,038 | | | | — | | | | 16,038 | | | | 2,010 | | | | — | | | | 14,028 | | | | — | | | | | — | | | | 3,315 | | | | — | | | | 3,315 | | | | — | | | | — | | | | 3,315 | | | | — | | | | | — | | | | 15,325 | | | | — | | | | 15,325 | | | | — | | | | — | | | | 15,325 | | | | — | | | | | — | | | | 141,857 | | | | 3,541 | | | | 145,398 | | | | 21,227 | | | | — | | | | 124,171 | | | | — | | Financial assets required to be measured at FVOCI | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Japanese national government bonds | | | — | | | | 9,095,550 | | | | — | | | | 9,095,550 | | | | — | | | | — | | | | 9,095,550 | | | | — | | Japanese local government bonds | | | — | | | | 43,655 | | | | — | | | | 43,655 | | | | 1,369 | | | | — | | | | 42,286 | | | | — | | | | | — | | | | 736,204 | | | | 171,622 | | | | 907,826 | | | | 6,815 | | | | — | | | | 901,011 | | | | — | | | | | — | | | | 1,166,279 | | | | — | | | | 1,166,279 | | | | — | | | | — | | | | 1,166,154 | | | | 125 | | | | | — | | | | 307,717 | | | | 24,672 | | | | 332,389 | | | | 46,367 | | | | — | | | | 286,022 | | | | — | | | | | — | | | | 29,697 | | | | 40,591 | | | | 70,288 | | | | — | | | | — | | | | 70,288 | | | | — | | Financial assets designated to be measured at FVOCI | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 103,270 | | | | — | | | | 324,028 | | | | 427,298 | | | | — | | | | — | | | | 5,453 | | | | 421,845 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2,370,306 | | | | 12,621,158 | | | | 640,146 | | | | 15,631,610 | | | | 78,789 | | | | 25,398 | | | | 14,914,212 | | | | 613,211 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | Financial liabilities required to be measured at FVPL | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | 5,656 | | | | — | | | | 5,656 | | | | 427 | | | | 5,229 | | Foreign exchange contracts | | | — | | | | 19,876 | | | | — | | | | 19,876 | | | | 18,679 | | | | 1,197 | | | | | 3,321 | | | | 5,270 | | | | — | | | | 8,591 | | | | 8,591 | | | | — | | | | | — | | | | — | | | | 51,512 | | | | 51,512 | | | | 14,790 | | | | 36,722 | | Financial liabilities designated to be measured at FVPL | | | | | | | | | | | | | | | | | | | | | | | | | Redeemable noncontrolling interests | | | — | | | | — | | | | 47,326 | | | | 47,326 | | | | — | | | | 47,326 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3,321 | | | | 30,802 | | | | 98,838 | | | | 132,961 | | | | 42,487 | | | | 90,474 | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents are excluded from the tables above. Refer to Note 27. Transfers of debt securities from Level 2 to Level 1 were 1,953 million yen and 2,704 million yen for the fiscal years ended March 31, 2022 and 2023, respectively, as quoted prices inacti ve markets for certain debt securities became available. Transfers of debt securities from Level 1 to Level 2 were 2,523 million yen
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES 1,982 million yen for the fiscal years ended March 31, 2022 and 2023, respectively, as quoted prices in active markets for certain debt securities were not available. Transfers of equity securities from Level 2 to Level 1 were 12,276 million yen and 24,958 million yen for the fiscal years ended March 31, 2022 and 2023, respectively, as quoted prices in active markets for certain equity securities became available. The valuation techniques used to measure the fair value of assets and liabilities classified as Level 3, significant unobservable inputs, and their range are as follows: | | | | | | | | | | | | | | | | | | | | | | Significant unobservable inputs | | | | | | | | | | | | Financial assets required to be measured at FVOCI | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Discounted cash flow | | | | Credit spread * | | | | 26bp-67bp | | | | 34bp-63bp | | | | | 0bp-170bp | | | | 10bp | | | | | 100bp-160bp | | | | 150bp-190bp | |
The decrease (increase) in fair value is the result of rise (decline) of credit spreads. For the above assets classified as Level 3, the fair value would not change significantly, even if one or more of the significant unobservable inputs are changed to reflect reasonably possible alternative assumptions. The changes in fair value of Level 3 assets and liabilities for the fiscal years ended March 31, 2022 and 2023 are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fiscal year ended March 31, 2022 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Financial assets required to be measured at FVPL | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 62 | | | | — | | | | — | | | | 20 | | | | — | | | | — | | | | (34 | ) | | | (30 | ) | | | 18 | | | | | 213 | | | | 5 | | | | — | | | | 10 | | | | — | | | | — | | | | — | | | | (111 | ) | | | 117 | | | | | 6,142 | | | | — | | | | — | | | | — | | | | (2,429 | ) | | | — | | | | — | | | | — | | | | 3,713 | | | | | 37,254 | | | | 5,678 | | | | 394 | | | | 22,079 | | | | (16,885 | ) | | | — | | | | — | | | | — | | | | 48,520 | | | | | 3,172 | | | | (395 | ) | | | (15 | ) | | | 477 | | | | (22 | ) | | | — | | | | — | | | | — | | | | 3,217 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 10,176 | | | | (6,629 | ) | | | 477 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 4,024 | | Financial assets designated to be measured at FVPL | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | 337 | | | | — | | | | — | | | | — | | | | 3,288 | | | | — | | | | — | | | | 3,625 | | Financial assets required to be measured at FVOCI | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 93,288 | | | | (1 | ) | | | (13,006 | ) | | | 73,964 | | | | — | | | | — | | | | — | | | | — | | | | 154,245 | | | | | 18,066 | | | | 700 | | | | (5 | ) | | | 12,000 | | | | (9,868 | ) | | | — | | | | — | | | | (56 | ) | | | 20,837 | | | | | 9,402 | | | | 279 | | | | (82 | ) | | | 41,763 | | | | (10,625 | ) | | | 3,166 | | | | (4,044 | ) | | | — | | | | 39,859 | | Financial assets designated to be me asured a t FVOCI | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 104,541 | | | | — | | | | 25,614 | | | | 89,274 | | | | (5,825 | ) | | | 63 | | | | (7,884 | ) | | | (274 | ) | | | 205,509 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Financial liabilities required to be measured at FVPL | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 6,161 | | | | 297 | | | | 1,645 | | | | 15,221 | | | | (1,762 | ) | | | — | | | | — | | | | (10 | ) | | | 21,552 | | Financial liabilities designated to be measured at FVPL | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Redeemable noncontrolling interests | | | 8,179 | | | | 2,008 | | | | 2,978 | | | | 27,240 | | | | (5,285 | ) | | | — | | | | — | | | | (125 | ) | | | 34,995 | |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fiscal year ended March 31, 2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Financial assets required to be measured at FVPL | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 18 | | | | — | | | | — | | | | 20 | | | | — | | | | — | | | | — | | | | — | | | | 38 | | | | | 117 | | | | (14 | ) | | | — | | | | 3,434 | | | | (70 | ) | | | — | | | | — | | | | (90 | ) | | | 3,377 | | | | | 3,713 | | | | — | | | | — | | | | — | | | | (3,713 | ) | | | — | | | | — | | | | — | | | | — | | | | | 48,520 | | | | (2,541 | ) | | | 395 | | | | 17,254 | | | | (2,832 | ) | | | — | | | | — | | | | — | | | | 60,796 | | | | | 3,217 | | | | (413 | ) | | | — | | | | 4,021 | | | | (36 | ) | | | — | | | | — | | | | — | | | | 6,789 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 4,024 | | | | (393 | ) | | | 356 | | | | 705 | | | | — | | | | — | | | | — | | | | — | | | | 4,692 | | Financial assets designated to be measured at FVPL | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3,625 | | | | (84 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,541 | | Financial assets required to be measured at FVOCI | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 154,245 | | | | 6 | | | | (30,203 | ) | | | 47,574 | | | | — | | | | — | | | | — | | | | — | | | | 171,622 | | | | | 20,837 | | | | 598 | | | | — | | | | 24,362 | | | | (21,125 | ) | | | — | | | | — | | | | — | | | | 24,672 | | | | | 39,859 | | | | (389 | ) | | | 6 | | | | 13,575 | | | | (15,048 | ) | | | 6,712 | | | | (4,124 | ) | | | — | | | | 40,591 | | Financial assets designated to be measured at FVOCI | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 205,509 | | | | — | | | | (24,913 | ) | | | 143,611 | | | | (126 | ) | | | 146 | | | | (600 | ) | | | 401 | | | | 324,028 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Financial liabilities required to be measured at FVPL | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 21,552 | | | | (475 | ) | | | 1,240 | | | | 43,455 | | | | (13,951 | ) | | | — | | | | — | | | | (309 | ) | | | 51,512 | | Financial liabilities designated to be measured at FVPL | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Redeemable noncontrolling interests | | | 34,995 | | | | (1,410 | ) | | | 2,877 | | | | 13,670 | | | | (2,802 | ) | | | — | | | | — | | | | (4 | ) | | | 47,326 | |
*1 | For liability items, gains are presented as negative and losses are presented as positive. |
*2 | Gains (losses) recognized in net income are included in financ ial services revenue, other operating (income) expense, net, financial income and financial expenses in the consolidated statements of income. |
*3 | Gains (losses) recognized in other comprehensive income are included in changes in equity instruments measured at fair value through other comprehensive income, changes in debt instruments measured at fair value through other comprehensive income and exchange differences on translating foreign operations in the consolidated statements of comprehensive income. |
*4 | Certainassets were transferred to Level 3 because the observability of the inputs used decreased. |
*5 | Certainfinancial assets were transferred from Level 3 because observable market data became available. |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES The changes in unrealized gains (losses) recognized in net income for Level 3 assets and liabilities held as of March 31, 2022 and 2023 are as follows: | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | | | | | | | Financial assets required to be measured at FVPL | | | | | | | | | | | | | | | | | | | | | 5 | | | | (14 | ) | | | | 4,562 | | | | (2,420 | ) | | | | 98 | | | | (413 | ) | | | | | | | | | | | | | (6,629 | ) | | | (393 | ) | Financial assets designated to be measured at FVPL | | | | | | | | | | | | | | | | | | | | | 337 | | | | (84 | ) | Financial assets required to be measured at FVOCI | | | | | | | | | | | | | | | | | | | | | — | | | | 6 | | | | | 700 | | | | 598 | | | | | 238 | | | | (389 | ) | | | | | | | | | | Financial liabilities required to be measured at FVPL | | | | | | | | | | | | (513 | ) | | | (2,683 | ) | Financial liabilities designated to be measured at FVPL | | | | | | | | | Redeemable noncontrolling interests | | | (1,878 | ) | | | 1,410 | |
Gains (losses) recognized in net income are included in financial services revenue, other operating (income) expense, net, financial income and financial expenses in the consolidated statements of income. Sony generally elects to designate investments in equity instruments held to promote its businesses and to maintain and enhance the business relationship as financial assets measured at fair value through other comprehensive income based on the purposes of holding the investments. Equity instruments measured at fair value through other comprehensive income as of March 31, 2022 and 2023 comprise the following: | | | | | | | | | | | | | | | | | | | | | | | | Marketable equity instruments | | | 106,499 | | | | 103,270 | | Non-marketable equity instruments | | | 205,509 | | | | 324,028 | | | | | | | | | | | | | | 312,008 | | | | 427,298 | | | | | | | | | | |
Significant marketable equity instruments measured at fair value through other comprehensive income as of March 31, 2022 and 2023 are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | 54,162 | | | | 54,214 | | | | | 8,371 | | | | 10,407 | | | | | — | | | | 10,061 | | | | | 9,161 | | | | 8,017 | |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES The balances of thenon-marketable instruments measured at fair value through other comprehensive income by major sector categories as of March 31, 2022 and 2023 are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | 148,283 | | | | 259,214 | | | | | 35,406 | | | | 35,182 | | Information technology, Communication and Service *3 | | | 20,327 | | | | 27,136 | |
*1 | Major investments included Epic Games, Inc. and Scopely, Inc. |
*2 | Major investments included Nichia Corporation. |
*3 | Major investments included Semiconductor Energy Laboratory Co., Ltd. |
In order to enhance the efficiency of using assets held effectively, Sony derecognizes equity instruments measured at fair value through other comprehensive income upon the sale of the investment. Information relating to investments derecognized during the fiscal years ended March 31, 2022 and 2023 is as follows: | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | Fair value at derecognition | | | 11,015 | | | | 625 | | Cumulative amount recognized in other comprehensive income, net of tax * | | | 5,784 | | | | (298 | ) | | | | 70 | | | | 8 | |
* | The cumulative amount recognized in other comprehensive income, net of tax, was transferred to retained earnings upon derecognition of the equity instruments. |
| Financial instruments measured at amortized cost |
The fair values by fair value hierarchy level of certain financial instruments that are measured at amortized cost as of March 31, 2022 and 2023 are summarized as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Japanese national government bonds | | | — | | | | 86,622 | | | | — | | | | 86,622 | | | | 75,634 | | Japanese local government bonds | | | — | | | | 1,963 | | | | — | | | | 1,963 | | | | 1,717 | | | | | — | | | | 3,727 | | | | — | | | | 3,727 | | | | 3,583 | | | | | — | | | | 5,121 | | | | — | | | | 5,121 | | | | 5,047 | | | | | — | | | | — | | | | 269,376 | | | | 269,376 | | | | 271,308 | | | | | — | | | | 41 | | | | 909 | | | | 950 | | | | 949 | | Housing loans in the banking business | | | — | | | | — | | | | 2,837,349 | | | | 2,837,349 | | | | 2,752,985 | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | 97,474 | | | | 3,107,634 | | | | 3,205,108 | | | | 3,111,223 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Long-term debt including the current portion | | | — | | | | 841,249 | | | | 60,873 | | | | 902,122 | | | | 909,706 | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | 841,249 | | | | 60,873 | | | | 902,122 | | | | 909,706 | | | | | | | | | | | | | | | | | | | | | | |
SONY GROUP CORPORATION AND CONSOLID ATED SUBSIDIARIES | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Japanese national government bonds | | | — | | | | 83,357 | | | | — | | | | 83,357 | | | | 79,550 | | Japanese local government bonds | | | — | | | | 1,803 | | | | — | | | | 1,803 | | | | 1,618 | | | | | — | | | | 3,337 | | | | — | | | | 3,337 | | | | 3,483 | | | | | — | | | | 4,814 | | | | — | | | | 4,814 | | | | 4,796 | | | | | — | | | | — | | | | 324,153 | | | | 324,153 | | | | 331,354 | | | | | — | | | | 41 | | | | 1,173 | | | | 1,214 | | | | 1,224 | | Housing loans in the banking business | | | — | | | | — | | | | 3,184,060 | | | | 3,184,060 | | | | 3,129,393 | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | 93,352 | | | | 3,509,386 | | | | 3,602,738 | | | | 3,551,418 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Long-term debt including the current portion | | | — | | | | 1,343,077 | | | | 67,844 | | | | 1,410,921 | | | | 1,423,392 | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | 1,343,077 | | | | 67,844 | | | | 1,410,921 | | | | 1,423,392 | | | | | | | | | | | | | | | | | | | | | | |
The table above does not include financial instruments measured at amortized cost whose carrying amounts approximate their fair values mainly due to their short-term nature. The fair values of long-term debt, including the current portion classified as Level 2, were estimated mainly based on discounted future cash flows using Sony’s current rates for similar liabilities. Financial instruments classified as Level 3 mainly include housing loans in the banking business, securitized products and certain bonds issued by Sony. In determining the fair value of such financial instruments, Sony uses the present value of expected cash flows based on risk-free interest rate yield curves with certain credit risk. | Income and expenses related to financial instruments in the Financial Services segment |
Income and expenses related to financial instruments in the Financial Services segment are recorded in financial services revenue and financial services expenses in the consolidated statements of income. Income and expenses related to financial instruments in all segments other than Financial Services segment are recorded in Financial income and Financial expenses in the consolidated statements of income. Refer to Note 24. The breakdown of income and expenses related to financial instruments in the Financial Services segment for the fiscal years ended March 31, 2021, 2022 and 2023 is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Financial instruments required to be measured at FVPL | | | Financial instruments designated to be measured
| | | Financial assets measured at AC | | | Financial liabilities measured at AC | | | Debt instruments measured at FVOCI | | | Equity instruments measured at FVOCI | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net gains (losses) recognized in profit or loss | | | 412,957 | | | | 4,936 | | | | (14,069 | ) | | | (5,569 | ) | | | 51,194 | | | | — | | | | 449,449 | | | | | — | | | | — | | | | 26,141 | | | | — | | | | 169,072 | | | | — | | | | 195,213 | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2 | | | | 2 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | 4,577 | | | | — | | | | — | | | | 4,577 | | Impairment losses (gains) on financial assets | | | — | | | | — | | | | (15 | ) | | | — | | | | 18 | | | | — | | | | 3 | |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Financial instruments required to be measured at FVPL | | | Financial instruments designated to be measured
| | | Financial assets measured at AC | | | Financial liabilities measured at AC | | | Debt instruments measured at FVOCI | | | Equity instruments measured at FVOCI | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net gains (losses) recognized in profit or loss | | | 225,922 | | | | (6,673 | ) | | | 14,765 | | | | (49,110 | ) | | | 148,813 | | | | — | | | | 333,717 | | | | | — | | | | — | | | | 32,839 | | | | — | | | | 180,006 | | | | — | | | | 212,845 | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 85 | | | | 85 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | 3,838 | | | | — | | | | — | | | | 3,838 | | Impairment losses (gains) on financial assets | | | — | | | | — | | | | 19 | | | | — | | | | 24 | | | | — | | | | 43 | | | | | | | | | | | | | | Financial instruments required to be measured at FVPL | | | Financial instruments designated to be measured
| | | Financial assets measured at AC | | | Financial liabilities measured at AC | | | Debt instruments measured at FVOCI | | | Equity instruments measured at FVOCI | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net gains (losses) recognized in profit or loss | | | 47,709 | | | | (2,493 | ) | | | 14,944 | | | | (58,484 | ) | | | 140,589 | | | | — | | | | 142,265 | | | | | — | | | | — | | | | 47,054 | | | | — | | | | 198,549 | | | | — | | | | 245,603 | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 195 | | | | 195 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | 29,774 | | | | — | | | | — | | | | 29,774 | | Impairment losses (gains) on financial assets | | | — | | | | — | | | | 144 | | | | — | | | | 8 | | | | — | | | | 152 | |
| Financial risk management |
Sony uses Return on Equity (“ROE”) as an indicator for capital risk management. * | ROE is calculated using equity attributable to Sony Group Corporation’s stockholders. |
Sony manages capital separately for the Financial Services segment and the Sony Group without the Financial Services segment because certain subsidiaries in the Financial Services segment are subject to the below restrictions. Sony also refers to the ratio of stockholders’ equity to total assets of the Sony Group without the Financial Services segment to ensure financial soundness. In the Financial Services segment, Sony is required to maintain the capital adequacy ratio and net assets at a certain level or higher based on the Insurance Business Act and the Banking Act in Japan. Material requirements which Sony is subject to are as follows: Insurance business: Maintain solvency margin ratio The life insurance subsidiary and thenon-life insurance subsidiary have maintained a high solvency margin ratio, relative to the Japanese domestic minimum solvency margin ratio requirements.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Banking business: Maintain capital adequacy ratio The banking subsidiary has maintained a capital adequacy ratio relative to the Japanese domestic criteria. Accordingly, lending and borrowing between subsidiaries in the Financial Services segment and the other companies within Sony Group is strictly limited. The carrying amounts of total assets of Sony Financial Group Inc. (“SFGI”) as of March 31, 2022 and 2023 are 20,974,027 million yen and 20,805,535 million yen, respectively. Total liabilities of SFGI as of March 31, 2022 and 2023 are 18,392,874 million yen and 18,990,548 million yen, respectively.For interest rate risk inherent in the insurance business, which is included in the Financial Services segment, refer to Note 13. For interest rate risk inherent in the banking business, which is included in the Financial Services segment, refer to (7) Market risks for the banking business. Risk management policy and exposure Interest rate risk is the risk the fair value of a financial instrument or future cash flows of the financial instrument will fluctuate because of changes in market interest rates. Sony without the Financial Services segment is exposed to interest rate risk that is mainly related to its liabilities such as short-term borrowings and long-term debt as well as bonds. The amount of interest will be affected by changes in market interest rates; therefore, Sony is exposed to the interest rate risk that the future cash outflows for interest payments will fluctuate. Sony raises funds by issuing fixed-rate bonds in order to avoid an increase in future interest payments that is mainly resulting from an increase in interest rates. Also, Sony utilizes interest rate swap agreements to reduce funding costs, to diversify sources of funding, and to hedge the downside risk on borrowings and debt securities resulting from unfavorable fluctuations of interest rates and currency exchange rates, and from changes in the fair value of financial instruments. Therefore, the interest rate risk associated with cash flows of Sony without the Financial Services segment is not significant. For price risk inherent in the insurance business, which is included in the Financial Services segment, refer to Note 13. For price risk inherent in the banking business, which is included in the Financial Services segment, refer to (7) Market risks for the banking business. Risk management policy and exposure Sony is exposed to securities price risk inherent in holding of equities in other entities in Japan and overseas countries. Sony periodically assesses fair values of equity instruments and the financial conditions of the issuers of such equity instruments, and reviews its portfolio on a regular basis. Price sensitivity analysis The table below shows the effects on income before income taxes and other comprehensive income (before considering the tax effects) as of March 31, 2022 and 2023 if market prices of marketable equity instruments (e.g., stocks) had decreased by 10%. | | | | | | | | | | | | | | | | | | | | | | | | Income before income taxes | | | (11,604 | ) | | | (11,734 | ) | Other comprehensive income (before considering the tax effects) | | | (9,871 | ) | | | (9,800 | ) |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES For liquidity risk inherent in the insurance business, which is included in the Financial Services segment, refer to Note 13. This section does not include information regarding the insurance business other than maturity analysis for financial liabilities. The description below covers basic financial policy and figures for Sony’s consolidated operations except for the Financial Services segment and certain subsidiaries, which secure liquidity on their own. Furthermore, the banking business in the Financial Services segment is described separately at the end of this section. Liquidity Management and Market Access An important financial objective of Sony is to maintain the strength of its financial condition, while securing adequate liquidity for business activities. Sony defines its liquidity sources as the amount of cash and cash equivalents (“cash balance”) (excluding restrictions on capital transfers mainly due to national regulations) and the unused amount of committed lines of credit. Funding requirements that arise from maintaining liquidity are principally covered by cash flow from operating and investing activities (including asset sales) and by the available cash balance; however, Sony also raises funds as needed from financial and capital markets through means such as corporate bonds, commercial paper (“CP”) and bank loans. Sony Group Corporation, Sony Global Treasury Services Plc (“SGTS”), a finance subsidiary in the U.K. and Sony Capital Corporation (“SCC”), a finance subsidiary in the U.S., maintain CP programs with access to the Japanese, U.S. and European CP markets. The borrowing limits under these CP programs, translated into yen, were 1,166.3 billion yen in total for Sony Group Corporation, SGTS and SCC as of March 31, 2023. There were no amounts outstanding under the CP programs as of March 31, 2023. If disruption and volatility occur in financial and capital markets and Sony becomes unable to 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 641.5 billion yen in unused committed lines of credit, as of March 31, 2023. Details of those committed lines of credit are: a 275.0 billion yen committed line of credit contracted with a syndicate of Japanese banks, a 1.7 billion U.S. dollarmulti-currency committed line of credit also contracted with a syndicate of Japanese banks and a 1,050 million U.S. dollar multi-currency committed line of credit contracted with a syndicate of foreign banks. Sony currently believes that it can sustain sufficient liquidity through access to committed lines of credit with financial institutions, together with its available cash balance, even in the event that financial and capital markets become illiquid. Sony considers one of management’s top priorities to be the maintenance of stable and appropriate credit ratings in order to ensure financial flexibility for liquidity and capital management and continued adequate access to sufficient funding resources in the financial and capital markets. However, in the event of a downgrade in Sony’s credit ratings, there are no financial covenants in any of Sony’s material financial agreements with financial institutions that would cause an acceleration of the obligation. Even though the cost of borrowing for some committed lines of credit could change according to Sony’s credit ratings, there are no financial covenants that would cause any impairment on the ability to draw down on unused facilities. Sony manages its global cash management activities primarily through Sony Group Corporation in Japan, SCC in the U.S. and SGTS in other regions. The excess or shortage of cash at most of Sony’s subsidiaries is invested or funded by Sony Group Corporation, SGTS and SCC on a net basis, although Sony recognizes that fund transfers are limited in certain countries and geographic areas due to restrictions on capital transactions. In order to pursue more efficient cash management, cash surpluses among Sony’s subsidiaries are deposited with Sony Group Corporation, SGTS and SCC, and cash shortfalls among subsidiaries are covered by loans through Sony Group Corporation, SGTS and SCC, so that Sony can make use of excess cash balances and reduce third-party borrowings. Where local restrictions prevent an efficient intercompany transfer of funds, Sony’s intent is that cash balances remain outside of Sony Group Corporation, SGTS and SCC and that Sony meets its liquidity needs through ongoing cash flows, external borrowings, or both. Sony does not expect restrictions of capital transactions on amounts held outside of Japan to have a material effect on Sony’s overall liquidity, financial condition or results of operations.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Banking business in the Financial Services segment In the banking business in the Financial Services segment, by formulating and conforming with liquidity risk management policies, Sony manages a variety of liquidity risks. Sony defines liquidity risk as cash flow risk and market liquidity risk. Cash flow risk is the risk associated with losses due to Sony’s inability to make cash payments because of a failure to maintain sufficient cash reserves at settlement, as well as risks associated with losses if Sony is forced to raise funds under unfavorable conditions in order to fulfill cash payment obligations. The levels of cash flow risks are classified into phases based on the degree of pressure, and methods of risk management and reporting are set out for each phase, while guidelines are formulated and reviewed as necessary. Market liquidity risk is the risk associated with losses due to Sony’s inability to conduct market transactions, in particular due to an inability to unwind its market position at a given time, or due to Sony being forced to complete transactions under unfavorable market conditions, due to market turmoil or other factors. To manage market liquidity risk, Sony works to understand market liquidity conditions that pertain to the types of products it handles. Sony formulates and revises guidelines on abasis, as necessary. To manage liquidity risk and ensure a robust liquidity buffer, Sony carries out stress tests regularly. Sony estimates potential cash outflow and determines the required buffer, if the liquidity stress scenario would happen. The liquidity buffer consists of highly liquid assets, such as cash and government bonds, which can be immediately converted to cash even in a liquidity crisis. The aforementioned liquidity risk management is carried out by the risk management division. The division periodically reports risk management conditions to the banking subsidiary’s Board of Directors and Executive Committee. In addition, the banking subsidiary’s internal audit division conducts regular audits. The following table summarizes Sony’s financial liabilities as of March 31, 2022 and 2023. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | | | | Deposits from customers in the banking business *1 | | | 3,004,215 | | | | 3,004,215 | | | | 2,886,361 | | | | 48,676 | | | | 15,860 | | | | 3,038 | | | | 1,186 | | | | 49,094 | | | | | 216,103 | | | | 218,676 | | | | 36,976 | | | | 25,363 | | | | 40,326 | | | | 20,303 | | | | 35,243 | | | | 60,465 | | | | | 2,670,156 | | | | 2,687,135 | | | | 2,053,340 | | | | 58,767 | | | | 76,434 | | | | 115,460 | | | | 23,813 | | | | 359,321 | | | | | — | | | | 33,587 | | | | 33,587 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | 72,120 | | | | 72,118 | | | | 66,017 | | | | 688 | | | | 718 | | | | 753 | | | | 721 | | | | 3,221 | | Guarantee deposits received | | | 39,296 | | | | 39,296 | | | | 28,872 | | | | 345 | | | | 27 | | | | 8 | | | | 8 | | | | 10,036 | | Redeemable noncontrolling interests | | | 34,995 | | | | 37,046 | | | | 2,435 | | | | 19,927 | | | | 9,046 | | | | 2,381 | | | | — | | | | 3,257 | |
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| | | | 465,349 | | | 511,883 | | | | 81,421 | | | | 69,791 | | | | 59,214 | | | | 45,063 | | | | 37,363 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 35,841 | | | | 32,369 | | | | 30,593 | | | | 27,864 | | | | 19,913 | | | | 72,451 | |
*1 | Demand deposits are included in the “Within 1 year” category. |
*2 | Breakdown of net settlements and gross settlements in the derivative liabilities are presented below. |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 72,118 | | | | 66,017 | | | | 688 | | | | 718 | | | | 753 | | | | 721 | | | | 3,221 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
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| | | | | Deposits from customers in the banking business *1 | | | 3,306,981 | | | | 3,316,556 | | | | 3,171,377 | | | | 30,215 | | | | 14,933 | | | | 1,060 | | | | 2,410 | | | | 96,561 | | | | | 349,332 | | | | 354,169 | | | | 26,039 | | | | 40,986 | | | | 110,862 | | | | 35,591 | | | | 80,416 | | | | 60,275 | | | | | 2,988,994 | | | | 3,025,480 | | | | 1,998,315 | | | | 70,690 | | | | 147,447 | | | | 270,268 | | | | 62,571 | | | | 476,189 | | | | | — | | | | 35,831 | | | | 35,831 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | 34,123 | | | | 33,766 | | | | 28,886 | | | | 623 | | | | 1,041 | | | | 912 | | | | 918 | | | | 1,386 | | Guarantee deposits received | | | 40,568 | | | | 40,568 | | | | 31,085 | | | | 272 | | | | 19 | | | | 58 | | | | 13 | | | | 9,121 | | Redeemable noncontrolling interests | | | 47,326 | | | | 48,616 | | | | — | | | | 24,844 | | | | 10,397 | | | | 4,572 | | | | 198 | | | | 8,605 | |
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| | | | 532,246 | | | 593,967 | | | | 90,244 | | | | 80,476 | | | | 68,143 | | | | 55,189 | | | | 47,665 | | |
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| | | | | | | 56,603 | | | | 37,539 | | | | 34,588 | | | | 25,798 | | | | 18,384 | | | | 79,338 | |
*1 | Demand deposits are included in the “Within 1 year” category. |
*2 | Breakdown of net settlements and gross settlements in the derivative liabilities are presented below. |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 32,881 | | | | 27,820 | | | | 769 | | | | 1,076 | | | | 912 | | | | 918 | | | | 1,386 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 29,092 | | | | 25,894 | | | | 156 | | | | 3,042 | | | | — | | | | — | | | | — | | | | | 29,977 | | | | 26,960 | | | | 10 | | | | 3,007 | | | | — | | | | — | | | | — | |
For foreign exchange risk inherent in the insurance business, which is included in the Financial Services segment, refer to Note 13. For foreign exchange risk inherent in the banking business, which is included in the Financial Services segment, refer to (7) Market risks for the banking business. Risk management policy and exposure Costs and prices of products and services in transactions denominated in foreign currencies are affected by currency exchange rate fluctuation, which may have adverse impacts on Sony’s business, operating results, and
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES financial condition. Sony seeks to reduce its exposure to foreign exchange risk mainly by using derivatives such as currency forward contracts or investing in securities denominated in the same currency.
The net amount of Sony’s exposure to foreign exchange risk mainly includes the following. Foreign exchange risk exposures that are mitigated by the use of derivatives are excluded. | | | | | | | | | | | | | | | | | | | | | | | | | | | (6,384 | ) | | | 45,316 | | | | | (22,713 | ) | | | 1,459 | |
* | Net exposures resulting in a liability are presented as negative and net exposures resulting in an asset are presented as positive. |
The table below shows the effects on the income before income taxes regarding the financial instruments denominated in foreign currencies held by Sony as of March 31, 2022 and 2023 if the Japanese yen had strengthened by 10% against the U.S. dollar or euro. If the Japanese yen had weakened by 10% against the U.S. dollar or euro, there would be an opposite impact on income before income taxes in the same amount. This analysis was performed based on the assumption that all other variables stay the same. Risk management policy and exposure Sony is exposed to credit risk in relation to its customers with outstanding trade receivables and the financial institutions who are the counterparties of derivative instruments that Sony holds to hedge the foreign exchange risk related to such trade receivables. In order to manage risks inherent in trade receivables, Sony assesses management conditions and creditworthiness of prospective customers and sets credit limits before commencement of business in accordance with Sony’s internal rules regarding credit management. After commencement of business, in accordance with Sony’s internal rules regarding receivable management, Sony seeks to promptly identify and mitigate the risk of uncollectible receivables due to deterioration in the financial conditions of customers by managing payment due dates and outstanding balances by customer, consistently reviewing the status of transactions, payment history, and trends in the outstanding balance of customers, and actively monitoring their management and business conditions. Sony makes judgments about the creditworthiness of customers based on past collection experience, the current conditions, forecasts of future economic conditions and ongoing credit risk evaluations when calculating the loss allowances for the expected credit losses from trade receivables. In addition, the credit risk inherent in derivative transactions is considered low since Sony enters into derivative transactions only with financial institutions with high creditworthiness or central clearing house counterparties, and such derivative transactions are collateralized. The Financial Services segment formulates Fundamental Principles for Risk Management and manages risks depending on its subsidiaries’ size, characteristics and business. Risk Management Guidelines in the Financial Services segment establish a detailed framework for risk management, and each of the subsidiaries in the Financial Services segment has developed a framework for risk management on its own depending on the
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES characteristics of financial assets, including issuer credit risk on debt securities, counterparty risks, credit screenings, the management of credit information, credit ratings, the setting of guarantees or collateral and handling of problem assets on abasis. Relevant departments of subsidiaries in the Financial Services segment periodically report risk management conditions to their Boards of Directors and their Executive Committees. (a) | Changes in the loss allowances |
Trade and other receivables, and contract assets includingnon-current other receivables in the Pictures segment | | | | | | | | | | | | | | | Lifetime expected credit losses | | | | Fiscal year ended March 31 | | | | | | | | | Balance at beginning of the fiscal year | | | 30,066 | | | | 31,341 | | | | | | | | | | | Changes due to financial assets recognized at beginning of the fiscal year: | | | | | | | | | — Financial assets that have been derecognized | | | (935 | ) | | | (4,568 | ) | New financial assets originated or purchased | | | 5,998 | | | | 6,401 | | | | | (9,501 | ) | | | (6,647 | ) | Changes in models/risk parameters | | | 4,269 | | | | (1,409 | ) | Foreign exchange and other movements | | | 1,444 | | | | 2,416 | | | | | | | | | | | Balance at end of the fiscal year | | | 31,341 | | | | 27,534 | | | | | | | | | | | | | | | | | | | | | | | | | | 12-month expected credit losses * | | | | Fiscal year ended March 31 | | | | | | | | | Balance at beginning of the fiscal year | | | 29 | | | | 53 | | | | | | | | | | | Changes due to financial assets recognized at beginning of the fiscal year: | | | | | | | | | — Financial assets that have been derecognized | | | (6 | ) | | | (4 | ) | New financial assets originated or purchased | | | 44 | | | | 13 | | Changes in models/risk parameters | | | (14 | ) | | | (1 | ) | Foreign exchange and other movements | | | — | | | | — | | | | | | | | | | | Balance at end of the fiscal year | | | 53 | | | | 61 | | | | | | | | | | |
* | For all debt securities, Sony considers that the credit risk has not increased significantly since initial recognition, and therefore the loss allowance is measured at an amount equal to12-months of expected credit losses. |
Substantially all of the loss allowances for debt securities are for debt securities measured at fair value through other comprehensive income as of March 31, 2022 and 2023.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES | | | | | | | | | | | | | | | | | | | 12-month expected credit losses | | | Lifetime expected credit losses | | | | | Balance as of April 1, 2021 | | | 122 | | | | 946 | | | | 1,068 | | Changes due to financial assets recognized as of April 1, 2021: | | | | | | | | | | | | | — Transfer to lifetime expected credit losses | | | (1 | ) | | | 1 | | | | — | | — Transfer to 12-month expected credit losses | | | 103 | | | | (103 | ) | | | — | | — Financial assets that have been derecognized | | | (59 | ) | | | (97 | ) | | | (156 | ) | New financial assets originated or purchased | | | 33 | | | | 17 | | | | 50 | | Changes in models/risk parameters | | | (34 | ) | | | 163 | | | | 129 | | Foreign exchange and other movements | | | — | | | | — | | | | — | | | | | | | | | | | | | | | Balance as of March 31, 2022 | | | 164 | | | | 927 | | | | 1,091 | | | | | | | | | | | | | | | Changes due to financial assets recognized as of March 31, 2022: | | | | | | | | | | | | | — Transfer to lifetime expected credit losses | | | (1 | ) | | | 1 | | | | — | | — Transfer to 12-month expected credit losses | | | 80 | | | | (80 | ) | | | — | | — Financial assets that have been derecognized | | | (6 | ) | | | (285 | ) | | | (291 | ) | New financial assets originated or purchased | | | 51 | | | | 20 | | | | 71 | | Changes in models/risk parameters | | | 25 | | | | 241 | | | | 266 | | Foreign exchange and other movements | | | — | | | | — | | | | — | | | | | | | | | | | | | | | Balance as of March 31, 2023 | | | 313 | | | | 824 | | | | 1,137 | | | | | | | | | | | | | | |
Loans that are credit-impaired as of March 31, 2022 and 2023 were not significant. (b) | Description of collateral held as security and other credit enhancements |
Sony assesses creditworthiness of each customer on an individual project basis. When it is determined to extend credit to a customer, the amount of collateral to be obtained will be based on the credit assessment for the customer by management. Collateral held as security includes, but is not limited to the following: Floating charges on all assets and businesses of the customer Specific or related guarantees Debt guarantees from customers and loan agreements with favorable and unfavorable covenant terms The carrying amount of the financial assets, without taking into account any collateral held or credit enhancements, represents Sony’s maximum exposure to credit risk on these assets. For maximum exposure to credit risk of securities to which impairment requirements in IFRS 9 are not applied without taking into account any collateral held or other credit enhancements, refer to Note 5. In the Financial Services segment, housing loans have sufficient collateral, which results in no significant loss allowance being recognized. In addition, certain securities received as collateral for short-term lending transactions are permitted to be sold or repledged. The fair value of the securities which were not sold or repledged as collateral was 530,589 million yen and 4,691 million yen as of March 31, 2022 and 2023, respectively. None of the securities were sold or repledged as collateral as of March 31, 2022 or 2023. The securities are not recognized in the consolidated statements of financial position until being sold or repledged as collateral.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES (c) | Credit risk exposure by risk rating grades |
Credit risk exposure by risk rating grades as of March 31, 2022 and 2023, is as follows: Trade and other receivables, and contract assets includingnon-current other receivables in the Pictures segment | | | | | | | | | | | | | | | | | | | | | | | | Outstanding receivables by overview period of overdue (Gross carrying amount) | | | | | | | | | Not past due or due within 30 days | | | 1,732,371 | | | | 1,849,112 | | | | | 52,895 | | | | 46,332 | | | | | 45,269 | | | | 63,519 | | | | | | | | | | | | | | 1,830,535 | | | | 1,958,963 | | | | | | | | | | |
Debt securities held in the Financial Services segment are substantially all composed of investment grade debt securities, and, as a financial instrument subject to IFRS 9 impairment requirements,12-month expected losses are recorded. The following table shows an analysis of the gross carrying amount for debt securities measured at amortized cost or at fair value through other comprehensive income based on a credit rating system in the Financial Services segment, which is primarily a composite of external credit ratings as of March 31, 2022 and 2023. | | | | | | | | | | | | | | | | | | | | | | | | Debt securities by credit ratings (Gross carrying amount) | | | | | | | | | | | | 488,275 | | | | 559,271 | | | | | 2,431,758 | | | | 2,807,508 | | | | | 8,560,523 | | | | 8,695,883 | | | | | 12,948 | | | | 9,625 | | | | | 32,422 | | | | 6,434 | | | | | | | | | | | | | | 11,525,926 | | | | 12,078,721 | | | | | | | | | | |
Loans held in the banking business in the Financial Services segment are regularly reassessed by the credit ratings of debtors, and as a financial instrument subject to IFRS 9 impairment requirements,12-month or lifetime expecte d credit losses are recorded depending on whether or not the credit risk has increased significantly since initial recognition or not.
SONY GROUP CORPORATION AND CONSOLI DATED SUBSIDIARIES The following table shows an analysis of the gross carrying amount for loans measured at amortized cost based on credit ratings by debtors in the banking business in the Financial Services segment as of March 31, 2022 and 2023. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | | | | |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2,747,406 | | | | 156 | | | | 2,747,562 | | | | 2,532 | | | | 3,423 | | | | 5,955 | | | | 2,753,517 | | | | | 24,522 | | | | 282 | | | | 24,804 | | | | 11 | | | | 85 | | | | 96 | | | | 24,900 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2,771,928 | | | | 438 | | | | 2,772,366 | | | | 2,543 | | | | 3,508 | | | | 6,051 | | | | 2,778,417 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | | | | |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3,124,410 | | | | 140 | | | | 3,124,550 | | | | 2,173 | | | | 3,350 | | | | 5,523 | | | | 3,130,073 | | | | | 16,852 | | | | 242 | | | | 17,094 | | | | 4 | | | | 74 | | | | 78 | | | | 17,172 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3,141,262 | | | | 382 | | | | 3,141,644 | | | | 2,177 | | | | 3,424 | | | | 5,601 | | | | 3,147,245 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
* | Normal is defined as borrowers who have strong results and no particular problems with their financial position. |
(d) | Credit risk for debt securities designated to be measured at fair value through profit or loss |
The credit risk exposures for debt securities designated to be measured at fair value through profit or loss were 267,169 million yen, and 188,906 million yen as of March 31, 2022 and 2023, respectively. The change in the fair value attributable to the changes in credit risk was an increase of 1,425 million yen for the fiscal year ended March 31, 2022 and an increase of 509 million yen for the fiscal year ended March 31, 2023. The cumulative changes are 2,026 million yen and 2,535 million yen as of March 31, 2022 and 2023, respectively. | Market risks for the banking business |
In the banking business, by formulating and conforming with market risk management policies, Sony manages the risk of loss for when the value of assets and liabilities (includingoff-balance-sheet items), and income from assets and liabilities could be adversely affected by changes in various market risk factors, such as interest rates, exchange rates and stock prices. Market risk management policies specify details such as risk management methods and procedures. ALM and risk management policies are determined by the banking subsidiary’s Board of Directors. Based on these policies, an ALM committee and a risk management committee typically meet once each month to understand and confirm actual conditions and deliberate future measures and risk conditions. On a daily basis, the risk management division maintains an overall understanding of interest, exchange rates and duration of financial assets and liabilities, and monitors Value at Risk (“VaR”), which quantifies the maximum expected loss which could occur during a given holding period and at a given probability, and interest rate sensitivity analysis, and confirms regulatory compliance. Sony also conducts interest rate swaps and other derivative transactions to hedge against interest and exchange rate fluctuation risks. In the measurement of VaR, the historical method (time period: 250 days, confidence level: 99.0%) is used, and interest rate risk, exchange rate risk, and price risk are measured as the amount of market risk. The total market risk volume as of March 31, 2022 and 2023 was 8,230 million yen and 21,433 million yen, respectively. VaR employs statistical methods to estimate the maximum loss that could occur in a defined period of time in the future based on market fluctuation data for a defined period of time in the past; therefore, VaR may not capture the risk in situations in which the market environment undergoes drastic changes that are unpredictable under normal circumstances.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Due to the reform and replacement of benchmark interest rates such as the London Interbank Offered Rate (“LIBOR”), the use of other interbank offered rates (“IBORs”) has become a priority for global regulators. The use of panel-based LIBOR ceased as of December 2021, except for the use of certain U.S. dollar (“USD”) LIBORs. The1-, 3-, and 6-months panel-based USD LIBOR settings are expected to be abolished and lose their representativeness at the end of June 2023. The overnight and 12 months USD LIBOR settings will permanently cease immediately after June 2023. As of March 31, 2023, Sony has contracts that reference USD LIBOR. As mentioned above, the JPY and GBP IBORs have been abolished on December 31, 2021 and replaced by alternative interest rates such as the Tokyo Overnight Average rate and the Sterling Overnight Index Average. Currently, the Secured Overnight Financing Rate (“SOFR”) is gradually replacing USD LIBOR as a reference rate. There remains key differences between USD LIBOR and SOFR. USD LIBOR is a “term rate,” which means that it is published for a specific borrowing period (such as three months or six months) and is “forward-looking,” because it is published at the beginning of the borrowing period. On the other hand, SOFR is currently a “backward-looking” rate, based on overnight rates from actual transactions, and is published at the end of the borrowing period. Furthermore, LIBOR includes a credit spread over the risk-free rate, while SOFR currently does not include such a spread. To transition existing contracts and agreements that reference USD LIBOR to SOFR, adjustments for term differences and credit differences need to be applied to SOFR, to enable the two benchmark rates to be economically equivalent on transition. As of March 31, 2023, the Alternative Reference Rates Committee, a working group for a transition from USD LIBOR to a more robust reference rate, recommends SOFR instead of LIBOR. However, some market participants are calling for the use of credit sensitive rates (“CSRs”) that include a credit spread, and these rates might be used in addition to SOFR. After 2021, Sony established a LIBOR transition project plan in the banking business. In the initial stages of this transition project, Sony planned for the transition out of LIBOR, including USD LIBOR. As the cessation date for the publication of major tenors of USD LIBOR has been set as the end of June 2023, the transition out of USD LIBOR has not been completed as of March 31, 2023. Sony is continuing to drive the transition project to meet the objective of moving out of LIBOR prior to the cessation date for the publication of USD LIBOR. This transition project considered changes to business processes, risk management and valuation models, as well as managing any related tax and accounting implications. As of March 31, 2023, changes to business processes and risk management are largely complete, except for some valuation model changes. However, some contractual changes, such as securities and derivatives transactions that reference USD LIBOR, have not yet been implemented. Therefore, there is a risk that Sony will not be able to make the necessary contractual changes before the end of June 2023, when the1-, 3-, and6-months panel-based USD LIBOR are abolished. In addition, CSRs, rather than SOFR, might be used as an alternative interest rate for debt securities, which would require the implementation of system changes in a short period of time. To avoid the above risks, Sony communicates closely with its counterparty. Sony is also flexible in responding to systemic issues through collaboration among project members and other departments. Sony has a loan contract and interest swap agreement, related to the loan contract, aiming to manage certain borrowing costs, both of which reference USD LIBOR. From March 31, 2023 to the date of submission of this document, Sony has completed the execution of amendment agreements for the transition to alternative interest rate benchmarks for contracts that used USD LIBOR as a reference rate.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES The following table contains details of all of the financial instruments that Sony holds at March 31, 2023 which reference USD LIBOR and SOFR and have not yet transitioned to SOFR or an alternative interest rate benchmark: | | | | | | | | | | | | | | | | | | | | | |
have yet to transition to an alternative benchmark interest rate | | | | | | | | | | | Financial assets required to be measured at FVOCI | | | 18,529 | | | | 3,291 | | Financial assets required to be measured at AC | | | 290,178 | | | | 223,111 | | | | | (159,918 | ) | | | (159,918 | ) | | | | 35,483 | | | | 34,375 | | | | | | | | | | | | | | 184,272 | | | | 100,859 | | | | | | | | | | |
* | Derivatives are presented on a net basis. |
Invento ries are comprised of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | 533,612 | | | | 1,028,614 | | | | | 163,206 | | | | 244,140 | | Raw materials, purchased components and supplies | | | 177,189 | | | | 195,288 | | | | | | | | | | | | | | 874,007 | | | | 1,468,042 | | | | | | | | | | |
For the fiscal years ended March 31, 2021, 2022 and 2023 the write-downs of inventories were 73,594 million yen, 80,546 million yen and 110,901 million yen, respectively. For the fiscal years ended March 31, 2021, 2022, and 2023 the amounts of inventories expensed and included in cost of sales were 2,057,248 million yen, 2,495,769 million yen, and 3,317,553 million yen, respectively. Included within these amounts for the fiscal years ended March 31, 2021, 2022 and 2023 were employee benefits expenses of 269,428 million yen, 282,765 million yen and 238,133 million yen, respectively, and depreciation and amortization expenses of 192,760 million yen, 201,860 million yen and 189,230 million yen, respectively. Other cost of sales mainly consists of material costs, subcontractor costs and other professional service
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES | Investments in associates and joint ventures |
There are no associates or joint ventures that are individually material to Sony. The carrying amounts of investments in associates and joint ventures that are not individually material to Sony, as of March 31, 2022 and 2023 are as follows: | | | | | | | | | | | | | | | | | | | | | | | | Investments accounted for using the equity method | | | | | | | | | | | | 235,671 | | | | 279,640 | | | | | 32,842 | | | | 45,580 | | | | | | | | | | | | | | 268,513 | | | | 325,220 | | | | | | | | | | |
share of comprehensive income, profit or loss and other comprehensive income, of associates and joint ventures that are not individually material to Sony for the fiscal years ended March 31, 2021, 2022 and 2023 are as follows: | | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 14,086 | | | | 21,920 | | | | 22,637 | | | | | (2,535 | ) | | | 1,726 | | | | 1,812 | | | | | | | | | | | | | | | | | | 11,551 | | | | 23,646 | | | | 24,449 | | | | | | | | | | | | | | | Share of other comprehensive income | | | | | | | | | | | | | | | | 884 | | | | 2,077 | | | | 3,659 | | | | | 1 | | | | 1 | | | | 40 | | | | | | | | | | | | | | | | | | 885 | | | | 2,078 | | | | 3,699 | | | | | | | | | | | | | | | Share of comprehensive income | | | | | | | | | | | | | | | | 14,970 | | | | 23,997 | | | | 26,296 | | | | | (2,534 | ) | | | 1,727 | | | | 1,852 | | | | | | | | | | | | | | | | | | 12,436 | | | | 25,724 | | | | 28,148 | | | | | | | | | | | | | | |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES | Property, plant and equipment |
The changes in property, plant and equipment for the fiscal years ended March 31, 2022 and 2023 are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as of April 1, 2021: | | | | | | | | | | | | | | | | | | | | | | | | 76,077 | | | | 755,115 | | | | 1,864,034 | | | | 102,310 | | | | 2,797,536 | | Accumulated depreciation and impairment losses | | | (37 | ) | | | (491,156 | ) | | | (1,314,220 | ) | | | (1,582 | ) | | | (1,806,995 | ) | | | | | | | | | | | | | | | | | | | | | | | | | 76,040 | | | | 263,959 | | | | 549,814 | | | | 100,728 | | | | 990,541 | | | | | | | | | | | | | | | | | | | | | | | Changes in carrying amount: | | | | | | | | | | | | | | | | | | | | | | | | 2,461 | | | | 25,434 | | | | 91,189 | | | | 229,094 | | | | 348,178 | | Acquisitions through business combinations | | | — | | | | 1,946 | | | | 1,437 | | | | — | | | | 3,383 | | | | | 24 | | | | 48,600 | | | | 134,660 | | | | (185,979 | ) | | | (2,695 | ) | Disposals or classified as held for sale *1 | | | (1,628 | ) | | | (2,248 | ) | | | (4,690 | ) | | | (158 | ) | | | (8,724 | ) | | | | — | | | | (29,906 | ) | | | (205,920 | ) | | | — | | | | (235,826 | ) | | | | — | | | | (235 | ) | | | (579 | ) | | | (74 | ) | | | (888 | ) | | | | 1,226 | | | | 9,640 | | | | 7,032 | | | | 1,036 | | | | 18,934 | | | | | — | | | | 282 | | | | 22 | | | | 6 | | | | 310 | | | | | | | | | | | | | | | | | | | | | | | | | | 2,083 | | | | 53,513 | | | | 23,151 | | | | 43,925 | | | | 122,672 | | | | | | | | | | | | | | | | | | | | | | | Balance as of March 31, 2022: | | | | | | | | | | | | | | | | | | | | | | | | 78,160 | | | | 832,785 | | | | 1,953,985 | | | | 145,940 | | | | 3,010,870 | | Accumulated depreciation and impairment losses | | | (37 | ) | | | (515,313 | ) | | | (1,381,020 | ) | | | (1,287 | ) | | | (1,897,657 | ) | | | | | | | | | | | | | | | | | | | | | | | | | 78,123 | | | | 317,472 | | | | 572,965 | | | | 144,653 | | | | 1,113,213 | | | | | | | | | | | | | | | | | | | | | | | Changes in carrying amount: | | | | | | | | | | | | | | | | | | | | | | | | 700 | | | | 17,369 | | | | 112,351 | | | | 364,450 | | | | 494,870 | | Acquisitions through business combinations | | | — | | | | 168 | | | | 2,480 | | | | 5,939 | | | | 8,587 | | | | | 75 | | | | 75,608 | | | | 232,218 | | | | (314,742 | ) | | | (6,841 | ) | Disposals or classified as held for sale *1 | | | (876 | ) | | | (1,610 | ) | | | (2,793 | ) | | | (644 | ) | | | (5,923 | ) | | | | — | | | | (33,682 | ) | | | (234,530 | ) | | | — | | | | (268,212 | ) | | | | — | | | | (317 | ) | | | (570 | ) | | | (52 | ) | | | (939 | ) | | | | 1,232 | | | | 8,931 | | | | 5,315 | | | | 531 | | | | 16,009 | | | | | — | | | | (4,636 | ) | | | (1,264 | ) | | | — | | | | (5,900 | ) | | | | | | | | | | | | | | | | | | | | | | | | | 1,131 | | | | 61,831 | | | | 113,207 | | | | 55,482 | | | | 231,651 | | | | | | | | | | | | | | | | | | | | | | | Balance as of March 31, 2023: | | | | | | | | | | | | | | | | | | | | | | | | 79,291 | | | | 921,156 | | | | 2,202,010 | | | | 201,299 | | | | 3,403,756 | | Accumulated depreciation and impairment losses | | | (37 | ) | | | (541,853 | ) | | | (1,515,838 | ) | | | (1,164 | ) | | | (2,058,892 | ) | | | | | | | | | | | | | | | | | | | | | | | | | 79,254 | | | | 379,303 | | | | 686,172 | | | | 200,135 | | | | 1,344,864 | | | | | | | | | | | | | | | | | | | | | | |
*1 | An asset or disposal group for which the cash flows are expected to arise principally from sale rather than continuing use is classified to current asset as an asset held for sale. |
*2 | Depreciation expenses are allocated to the cost of inventory and are recognized in cost of sales as inventory is sold, or are directly recognized in selling, general and administrative expenses and research and development expenditures in the consolidated statements of income, depending on the use of the asset. |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Sony leases communication and commercial equipment, plant, office space, warehouses, employees’ residential facilities and other assets. The changes inassets for the fiscal years ended March 31, 2022 and 2023 are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as of April 1, 2021: | | | | | | | | | | | | | | | | | | | | 15,394 | | | | 327,350 | | | | 15,290 | | | | 358,034 | | | | | | | | | | | | | | | | | | | Changes in the carrying amount | | | | | | | | | | | | | | | | | Increase due to new lease agreements and remeasurement of lease liabilities | | | 2,908 | | | | 104,456 | | | | 12,816 | | | | 120,180 | | Decrease due to termination of lease agreements and remeasurement of lease liabilities | | | (159 | ) | | | (5,685 | ) | | | (356 | ) | | | (6,200 | ) | Depreciation | | | (1,140 | ) | | | (72,944 | ) | | | (7,700 | ) | | | (81,784 | ) | Other | | | 797 | | | | 22,091 | | | | 312 | | | | 23,200 | | | | | | | | | | | | | | | | | | | Net changes | | | 2,406 | | | | 47,918 | | | | 5,072 | | | | 55,396 | | | | | | | | | | | | | | | | | | | Balance as of March 31, 2022: | | | | | | | | | | | | | | | | | | | | 17,800 | | | | 375,268 | | | | 20,362 | | | | 413,430 | | | | | | | | | | | | | | | | | | | Changes in the carrying amount | | | | | | | | | | | | | | | | | Increase due to new lease agreements and remeasurement of lease liabilities | | | 1,533 | | | | 90,395 | | | | 36,604 | | | | 128,532 | | Decrease due to termination of lease agreements and remeasurement of lease liabilities | | | (3,323 | ) | | | (10,654 | ) | | | (214 | ) | | | (14,191 | ) | Depreciation | | | (1,171 | ) | | | (77,368 | ) | | | (7,808 | ) | | | (86,347 | ) | Other | | | 399 | | | | 35,422 | | | | 818 | | | | 36,639 | | | | | | | | | | | | | | | | | | | Net changes | | | (2,562 | ) | | | 37,795 | | | | 29,400 | | | | 64,633 | | | | | | | | | | | | | | | | | | | Balance as of March 31, 2023: | | | | | | | | | | | | | | | | | | | | 15,238 | | | | 413,063 | | | | 49,762 | | | | 478,063 | | | | | | | | | | | | | | | | | | |
| Income, expenses, and cash flows (except for depreciation) arising from lease contracts as a lessee and lessor are as follows: |
| | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | | | | | | | | | | | | | | Interest expenses on lease liabilities | | | | | | | 8,223 | | | | 10,382 | | Expenses related to short-term leases accounted for applying an exemption | | | | | | | 19,764 | | | | 36,807 | | | | | | | | | (2,256 | ) | | | (1,784 | ) | Net cash outflows for leases | | | | | | | 83,546 | | | | 89,681 | |
Refer to Note 6 for the maturity analysis of Sony’s financial liabilities including lease liabilities.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES | Goodwill and intangible assets |
The changes in goodwill for the fiscal years ended March 31, 2022 and 2023 are as follows: | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | Balance at beginning of the fiscal year | | | | | | | | | | | | 1,073,178 | | | | 1,312,615 | | | | | (347,069 | ) | | | (359,720 | ) | | | | | | | | | | | | | 726,109 | | | | 952,895 | | | | | | | | | | | Increase (decrease) due to: | | | | | | | | | | | | 197,644 | | | | 274,499 | | Disposals or classified as held for sale * | | | (40,201 | ) | | | (445 | ) | | | | — | | | | — | | | | | 69,343 | | | | 48,163 | | | | | — | | | | — | | Balance at end of the fiscal year | | | | | | | | | | | | 1,312,615 | | | | 1,649,041 | | | | | (359,720 | ) | | | (373,929 | ) | | | | | | | | | | | | | 952,895 | | | | 1,275,112 | | | | | | | | | | |
* | Disposals or classified as held for sale for the fiscal year ended March 31, 2022 relate mainly to the transfer of certain operations of Game Show Network, LLC, a wholly-owned subsidiary in the Pictures segment. Refer to Note 31 for the details of the transfer. |
The carrying amounts of goodwill by segment as of March 31, 2022 and 2023 are as follows: | | | | | | | | | | | | | | | | | | | | | | | | Game & Network Services *1 | | | 200,206 | | | | 407,121 | | | | | 539,055 | | | | 579,969 | | | | | 187,658 | | | | 259,055 | | Entertainment, Technology & Services | | | 11,949 | | | | 14,654 | | Imaging & Sensing Solutions | | | 3,193 | | | | 3,479 | | | | | 10,834 | | | | 10,834 | | | | | — | | | | — | | | | | | | | | | | | | | 952,895 | | | | 1,275,112 | | | | | | | | | | |
All of the goodwill shown in the G&NS line of the table above is allocated to a group of CGUs which comprise the entire G&NS segment. Intangible assets with indefinite useful lives related to the G&NS business have carrying amounts of 57,217 million yen and 57,409 million yen, as of March 31, 2022 and 2023, respectively, which are included in “Other intangible assets.” Intangible assets with indefinite useful lives include the trademark for PlayStation® , which is assessed to have an indefinite useful life as the trademark for PlayStation® is utilized as the core trademark for Sony’s products and services throughout the G&NS segment and Sony expects to continue using the trademark in the foreseeable future as well. The recoverable amount of the group of CGUs is determined by the value in use. The value in use is calculated by discounting the estimated future cash flows including a terminal value. The estimated future
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES cash flows are prepared based on the MRP. A terminal value after the final year of the total forecasted period is determined by utilizing a perpetual growth rate. The growth rate and thepre-tax discount rate were 1.5% and 9.6% as of March 31, 2022, and 1.5% and 10.8% as of March 31, 2023, respectively. Goodwill shown in the Music line of the table above is primarily allocated to the worldwide recorded music and the worldwide music publishing CGUs excluding operations in Japan. Goodwill related to the worldwide recorded music CGU has carrying amounts of 235,746 millionyen and 255,834 million yen, as of March 31, 2022 and 2023, respectively. The recoverable amount of the CGU is determined by the value in use. The value in use is calculated by discounting the estimated future cash flows including a terminal value. The estimated future cash flows are prepared based on the MRP. A terminal value after the final year of the total forecasted period is determined by utilizing a perpetual growth rate. The growth rate and thepre-tax discount rate were 1.0% and 8.9% as of March 31, 2022, and 1.0% and 12.8% as of March 31, 2023, respectively. Goodwill related to the music publishing CGU has carrying amounts of 270,116 million yen and 290,833 million yen, as of March 31, 2022 and 2023, respectively. The recoverable amount of the CGU is determined by the value in use. The value in use is calculated by discounting the estimated future cash flows including a terminal value. The estimated future cash flows are prepared based on the MRP. A terminal value after the final year of the total forecasted period is determined by utilizing a perpetual growth rate. The growth rate and thepre-tax discount rate were 2.5% and 8.5% as of March 31, 2022, and 3.0% and 11.1% as of March 31, 2023, respectively. Goodwill shown in the Pictures line of the table above is primarily allocated to the animation distribution CGU. Goodwill related to the animation distribution CGU has carrying amounts of 102,590 million yen and 124,265 million yen, as of March 31, 2022 and 2023, respectively. The recoverable amount of the CGU is determined by the value in use. The value in use is calculated by discounting the estimated future cash flows including a terminal value. The estimated future cash flows are prepared based on the MRP, with revenues in years beyond the MRP based on declining growth rates. A terminal value is based on a revenue multiple applied to the final year of the total forecasted period. The growth rates beyond the MRP period were 5.0% to 15.0% and 5.0% to 15.0%, and thepre-tax discount rate were 13.5% and 16.2% as of March 31, 2022 and 2023, respectively. The value in use calculation uses key assumptions such as thepre-tax discount rate, perpetual growth rate, competitive and regulatory environment, and technology trends. For each assumption, historical experience, external information, competitors and industry trends are taken into account. Sony does not expect the recoverable amounts to be lower than the carrying amounts even when the growth rate andpre-tax discount rate that are used in the evaluation of the recoverable amounts change within a reasonably predictable range.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES The changes in content assets for the fiscal years ended March 31, 2022 and 2023 are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | Balance as of April 1, 2021: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2,909,102 | | | | 304,036 | | | | 724,513 | | | | 26,709 | | | | 32,019 | | | | 14,178 | | | | 4,010,557 | | Accumulated amortization and impairment losses | | | (2,514,627 | ) | | | (239,403 | ) | | | (167,761 | ) | | | (14,232 | ) | | | (7,008 | ) | | | (4,979 | ) | | | (2,948,010 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 394,475 | | | | 64,633 | | | | 556,752 | | | | 12,477 | | | | 25,011 | | | | 9,199 | | | | 1,062,547 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Changes in carrying amount: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 313,648 | | | | 75,841 | | | | 87,350 | | | | 2,209 | | | | — | | | | 20,997 | | | | 500,045 | | Acquisitions through business combinations | | | 11,724 | | | | 32,124 | | | | 28,194 | | | | — | | | | 9,760 | | | | 10,797 | | | | 92,599 | | Disposals or classified as held for sale | | | (932 | ) | | | (4,747 | ) | | | — | | | | — | | | | — | | | | — | | | | (5,679 | ) | | | | (294,350 | ) | | | (70,514 | ) | | | (25,182 | ) | | | (604 | ) | | | (1,648 | ) | | | (8,602 | ) | | | (400,900 | ) | | | | (13,870 | ) | | | (738 | ) | | | — | | | | — | | | | — | | | | — | | | | (14,608 | ) | | | | 42,782 | | | | 4,619 | | | | 57,676 | | | | 1,161 | | | | 938 | | | | 866 | | | | 108,042 | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 59,002 | | | | 36,585 | | | | 148,038 | | | | 2,766 | | | | 9,050 | | | | 24,058 | | | | 279,499 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as of March 31, 2022: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3,549,934 | | | | 395,045 | | | | 914,418 | | | | 30,278 | | | | 43,219 | | | | 46,086 | | | | 4,978,980 | | Accumulated amortization and impairment losses | | | (3,096,457 | ) | | | (293,827 | ) | | | (209,628 | ) | | | (15,035 | ) | | | (9,158 | ) | | | (12,829 | ) | | | (3,636,934 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 453,477 | | | | 101,218 | | | | 704,790 | | | | 15,243 | | | | 34,061 | | | | 33,257 | | | | 1,342,046 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Changes in carrying amount: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 526,273 | | | | 83,491 | | | | 27,839 | | | | 942 | | | | 35 | | | | 10,725 | | | | 649,305 | | Acquisitions through business combinations | | | 419 | | | | 7 | | | | 607 | | | | — | | | | 1,171 | | | | 46,079 | | | | 48,283 | | Disposals or classified as held for sale | | | (38,899 | ) | | | — | | | | — | | | | — | | | | — | | | | (7 | ) | | | (38,906 | ) | | | | (381,753 | ) | | | (76,824 | ) | | | (31,686 | ) | | | (1,285 | ) | | | (2,755 | ) | | | (15,820 | ) | | | (510,123 | ) | | | | (13,815 | ) | | | — | | | | (236 | ) | | | — | | | | — | | | | (152 | ) | | | (14,203 | ) | | | | 27,228 | | | | 4,665 | | | | 50,980 | | | | 1,086 | | | | 937 | | | | 294 | | | | 85,190 | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 290 | | | | 290 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 119,453 | | | | 11,339 | | | | 47,504 | | | | 743 | | | | (612 | ) | | | 41,409 | | | | 219,836 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as of March 31, 2023: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 4,320,022 | | | | 419,025 | | | | 1,008,942 | | | | 32,484 | | | | 45,988 | | | | 97,386 | | | | 5,923,847 | | Accumulated amortization and impairment losses | | | (3,747,092 | ) | | | (306,468 | ) | | | (256,648 | ) | | | (16,498 | ) | | | (12,539 | ) | | | (22,720 | ) | | | (4,361,965 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 572,930 | | | | 112,557 | | | | 752,294 | | | | 15,986 | | | | 33,449 | | | | 74,666 | | | | 1,561,882 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
* | The additions in Film costs include the cost of films internally produced and acquired from third party projects. Film costs acquired from third party projects are not a significant portion of Film costs recorded by Sony. The additions in Broadcasting rights, Music catalogs, Artist contracts and Music distribution rights mainly represent acquisitions through contracts with third parties. The additions in Game content primarily include externally acquired game content for the fiscal year ended March 31, 2022 and internally developed game content for the fiscal year ended March 31, 2023. |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES (3) Other intangible assets The changes in other intangible assets for the fiscal years ended March 31, 2022 and 2023 are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | | | | | | | Balance as of April 1, 2021: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 218,192 | | | | 41,494 | | | | 24,250 | | | | 827,210 | | | | 55,752 | | | | 148,729 | | | | 1,315,627 | | Accumulated amortization and impairment losses | | | (200,406 | ) | | | (36,775 | ) | | | (6,397 | ) | | | (582,875 | ) | | | (27,162 | ) | | | (70,957 | ) | | | (924,572 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 17,786 | | | | 4,719 | | | | 17,853 | | | | 244,335 | | | | 28,590 | | | | 77,772 | | | | 391,055 | | Changes in carrying amount: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 4,668 | | | | 639 | | | | 158 | | | | 93,642 | | | | — | | | | 3,538 | | | | 102,645 | | Acquisitions through business combinations | | | 2,488 | | | | 19,121 | | | | 7,076 | | | | 6,895 | | | | — | | | | 8,132 | | | | 43,712 | | | | | — | | | | — | | | | — | | | | 15,681 | | | | — | | | | — | | | | 15,681 | | Disposals or classified as held for sale | | | (49 | ) | | | (565 | ) | | | (550 | ) | | | (2,599 | ) | | | — | | | | (107 | ) | | | (3,870 | ) | | | | (5,576 | ) | | | (4,975 | ) | | | (1,875 | ) | | | (87,113 | ) | | | (3,361 | ) | | | (6,904 | ) | | | (109,804 | ) | | | | (6 | ) | | | — | | | | (313 | ) | | | (3,218 | ) | | | — | | | | (202 | ) | | | (3,739 | ) | | | | 216 | | | | 2,146 | | | | 2,280 | | | | 5,534 | | | | 2,829 | | | | 1,577 | | | | 14,582 | | | | | 140 | | | | — | | | | 1 | | | | 819 | | | | — | | | | (1,119 | ) | | | (159 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 1,881 | | | | 16,366 | | | | 6,777 | | | | 29,641 | | | | (532 | ) | | | 4,915 | | | | 59,048 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as of March 31, 2022: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 213,649 | | | | 58,427 | | | | 32,683 | | | | 952,153 | | | | 61,939 | | | | 155,479 | | | | 1,474,330 | | Accumulated amortization and impairment losses | | | (193,982 | ) | | | (37,342 | ) | | | (8,053 | ) | | | (678,177 | ) | | | (33,881 | ) | | | (72,792 | ) | | | (1,024,227 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 19,667 | | | | 21,085 | | | | 24,630 | | | | 273,976 | | | | 28,058 | | | | 82,687 | | | | 450,103 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Changes in carrying amount: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 6,432 | | | | — | | | | 17 | | | | 117,019 | | | | — | | | | 3,323 | | | | 126,791 | | Acquisitions through business combinations | | | 2,056 | | | | 9,237 | | | | 16,655 | | | | 26,298 | | | | — | | | | 38,394 | | | | 92,640 | | | | | — | | | | — | | | | — | | | | 19,835 | | | | — | | | | — | | | | 19,835 | | Disposals or classified as held for sale | | | (8 | ) | | | (112 | ) | | | (14 | ) | | | (2,907 | ) | | | — | | | | (129 | ) | | | (3,170 | ) | | | | (8,152 | ) | | | (9,437 | ) | | | (4,290 | ) | | | (94,821 | ) | | | (3,954 | ) | | | (14,566 | ) | | | (135,220 | ) | | | | (8 | ) | | | (93 | ) | | | — | | | | (342 | ) | | | — | | | | (66 | ) | | | (509 | ) | | | | 156 | | | | 1,483 | | | | 1,516 | | | | 3,715 | | | | 2,176 | | | | 613 | | | | 9,659 | | | | | (1,121 | ) | | | 158 | | | | 699 | | | | 4,299 | | | | — | | | | (322 | ) | | | 3,713 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (645 | ) | | | 1,236 | | | | 14,583 | | | | 73,096 | | | | (1,778 | ) | | | 27,247 | | | | 113,739 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as of March 31, 2023: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 201,243 | | | | 66,593 | | | | 51,747 | | | | 1,045,743 | | | | 66,583 | | | | 199,311 | | | | 1,631,220 | | Accumulated amortization and impairment losses | | | (182,221 | ) | | | (44,272 | ) | | | (12,534 | ) | | | (698,671 | ) | | | (40,303 | ) | | | (89,377 | ) | | | (1,067,378 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 19,022 | | | | 22,321 | | | | 39,213 | | | | 347,072 | | | | 26,280 | | | | 109,934 | | | | 563,842 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES | Impairment ofnon-financial assets |
There were no material impairment losses for the fiscal years ended March 31 , 2021, 2022 and 2023. | Insurance-related accounts |
| Assets, liabilities, revenues and expenses included in the insurance business |
Life insurance policies that Sony underwrites in the life insurance business, whichare included in the Financial Services segment, most of which are categorized as long-duration contracts, mainly consist of whole life, term life, disease and health insurance, variable life insurance and individual variable annuity contracts. The life insurance revenues for the fiscal years ended March 31, 2021, 2022 and 2023 were 913,361 million yen, 943,092 million yen and 975,799 million yen, respectively. Property and casualty insurance policies that Sony underwrites in thenon-life insurance business, which is included in the Financial Services segment, are primarily automotive insurance contracts, which are categorized as short-duration contracts. Thenon-life insurance revenues for the fiscal years ended March 31, 2021, 2022 and 2023 were 123,574 million yen, 132,908 million yen and 139,678 million yen, respectively. The insurance contract liability in which an insured event has not occurred or a surrender option has not been exercised at the reporting date is classified asnon-current. However, if either the insured event has occurred or the surrender option has been exercised, Sony would no longer have the right to defer payment of these amounts. Since the insurance contract liability would be due to be settled within twelve months after the reporting period, it is classified as current. Deferred insurance acquisition costs As of March 31, 2022 and 2023, the balances of deferred insurance acquisition costsfor non-traditional life insurance contracts were 261,475 million yen and 324,862 million yen, respectively. Future insurance policy benefits Liabilities for future insurance policy benefits, except the portion of liabilities for minimum guarantee benefits described below, which mainly relate to individual life insurance policies, are established in amounts adequate to meet the estimated future obligations of policies in force. These liabilities, which require significant management judgment and estimates, are computed by the net level premium method based upon the assumptions as to future investment yield, morbidity, mortality rates, lapse rates and other factors. Future insurance policy benefits are computed using interest rates ranging from 0.5% to 4.5% and are based on factors such as market conditions and expected investment returns. Morbidity, mortality rates and lapse rates used as assumptions for all policies are based on either the subsidiary’s own experience or various actuarial tables. Generally these assumptions are locked in throughout the life of the contract upon the issuance of new insurance contracts, although significant changes in experience or assumptions may require Sony to provide for expected future losses. Liabilities for future insurance policy benefits include the liabilities for the minimum guarantee benefits of individual variable annuity and variable life insurance contracts. The details regarding the minimum guarantee benefits are presented in “Minimum guarantee benefit for individual variable annuity and variable life insurance contracts” below. Sony measures certain of these liabilities for future insurance policy benefits at fair value. Refer to (4). Policyholders’ account in the life insurance business Policyholders’ account in the life insurance business represents an accumulation of account deposits plus credited interest less withdrawals, expenses and mortality charges. Policyholders’ account in the life insurance business includes universal life insurance and investment contracts. Investment contracts are defined by the previous accounting practices in accordance with the provisions of IFRS 4. Universal life insurance includes interest sensitive whole life contracts and variable life insurance contracts. The credited rates associated with interest sensitive whole life contracts range from 1.7% to 2.0%. For variable life insurance contracts, policy values are expressed in terms of investment units. Each unit is linked to an asset portfolio. The value of a unit
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES increases or decreases based on the value of the linked asset portfolio. Investment contracts mainly include single payment endowment contracts, single payment educational endowment contracts, individual variable annuity contracts and policies after the start of annuity payments. The credited rates associated with investment contracts, except for individual variable annuity contracts, range from 0.01% to 6.3%. For individual variable annuity contracts, policy values are expressed in terms of investment units. Each unit is linked to an asset portfolio. The value of a unit increases or decreases based on the value of the linked asset portfolio. The liabilities for policyholders’ account in the life insurance business includes the liabilities related to the individual variable annuity and variable life insurance contracts with minimum guarantee benefits. Sony measures certain of these liabilities for policyholders’ account in the life insurance business at fair value. Refer to Note (4). Policyholders’ account in the life insurance business is comprised of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | 3,278,148 | | | | 3,348,137 | | | | | 1,393,257 | | | | 1,715,921 | | | | | 119,890 | | | | 84,521 | | | | | | | | | | | | | | 4,791,295 | | | | 5,148,579 | | | | | | | | | | |
Minimum guarantee benefit for individual variable annuity and variable life insurance contracts Regarding individual variable annuity and variable life insurance contracts, minimum guarantee benefits (minimum death benefit, minimum accumulation benefit, etc.) are provided, and Sony bears the risk of fulfilling the minimum guarantee benefits prescribed in the contracts to policyholders. The fair value measurement is applied to the liability for individual variable annuity contracts with minimum guarantee benefits. Refer to Note (4). Excluding the portion of the liability measured at fair value, the liabilities for the minimum guarantee benefits are calculated using current best-estimate assumptions and are based on the ratio of the present value of expected total excess payments divided by the present value of expected total assessments over the life of the contract. Mortality rates, lapse rates, discount rates and investment yield are used as significant assumptions for this calculation. The policyholders’ account value, net amount at risk, liability for the minimum guarantee benefit, and average attained age as of March 31, 2022 and 2023 are as follows: | | | | | | | | | | | | | | | | | | | | | | | Individual variable annuity contracts | | | Variable life insurance contracts | | | | | Policyholders’ account value | | | 467,924 | | | | 1,686,488 | | | | 2,154,412 | | | | | 58,961 | | | | 6,361,770 | | | | 6,420,731 | | Liability for minimum guarantee benefit | | | 37,382 | | | | 63,392 | | | | 100,774 | |
| | | | | | | | | | | | | | | | | | | Individual variable annuity contracts | | | Variable life insurance contracts | | | | | 63 | | | | 45 | |
| | | | | | | | | | | | | | | | | | | | | | | Individual variable annuity contracts | | | Variable life insurance contracts | | | | | Policyholders’ account value | | | 419,628 | | | | 1,778,451 | | | | 2,198,079 | | | | | 78,322 | | | | 7,727,061 | | | | 7,805,383 | | Liability for minimum guarantee benefit | | | 41,214 | | | | 76,012 | | | | 117,226 | |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES | | | | | | | | | | | | | | | | | | | Individual variable annuity contracts | | | Variable life insurance contracts | | | | | 64 | | | | 45 | |
Shadow liability adequacy test in the life insurance business When holding financial assets that are measured at fair value through other comprehensive income and correspond to insurance contract liabilities, shadow accounting is applied to evaluate insurance-related accounts as if the financial assets were sold as of the end of reporting period and valuation gains or losses were realized for the purpose of reducing the accounting mismatches between the insurance contract liabilities and the financial assets. Sony performs a shadow liability adequacy test on life insurance contracts quarterly. Mortality rates, morbidity rates, lapse rates and discount rates are used as significant assumptions for this shadow liability adequacy test. As a result of the shadow liability adequacy test, the net amounts of future insurance policy benefits minus deferred insurance acquisition costs were recorded at a sufficient level as of March 31, 2022 and 2023, and accordingly, a decrease of deferred insurance acquisition costs and an increase of future insurance policy benefits were not recorded as of those dates. | Changes in insurance contract liabilities and deferred insurance acquisition costs |
Changes in insurance contract liabilities The changes in insurance contract liabilities are as follows: | | | | | | | | | | | | | | | | | | | Future insurance policy benefits and other | | | Policyholders’ account in the life insurance business | | | | | Balance as of April 1, 2021 | | | 6,749,450 | | | | 4,328,894 | | | | 11,078,344 | | | | | | | | | | | | | | | | | | 134,865 | | | | — | | | | 134,865 | | | | | 6,614,585 | | | | 4,328,894 | | | | 10,943,479 | | | | | | | | | | | | | | | | | | 813,856 | | | | 468,299 | | | | 1,282,155 | | Insurance liabilities released | | | (539,586 | ) | | | (251,169 | ) | | | (790,755 | ) | Unwind of discount and actuarial items *2 | | | 149,869 | | | | 201,797 | | | | 351,666 | | Changes in valuation of expected future benefits | | | (11,144 | ) | | | 946 | | | | (10,198 | ) | Shadow accounting adjustments | | | (15,692 | ) | | | (3,169 | ) | | | (18,861 | ) | | | | (65,198 | ) | | | 29,328 | | | | (35,870 | ) | Currency exchange rate fluctuations | | | 110,485 | | | | 16,369 | | | | 126,854 | | | | | | | | | | | | | | | Balance as of March 31, 2022 | | | 7,192,040 | | | | 4,791,295 | | | | 11,983,335 | | | | | | | | | | | | | | | | | | 153,006 | | | | — | | | | 153,006 | | | | | 7,039,034 | | | | 4,791,295 | | | | 11,830,329 | | | | | | | | | | | | | | | | | | 821,226 | | | | 594,239 | | | | 1,415,465 | | Insurance liabilities released | | | (778,728 | ) | | | (261,212 | ) | | | (1,039,940 | ) | Unwind of discount and actuarial items *2 | | | 151,058 | | | | (31,604 | ) | | | 119,454 | | Changes in valuation of expected future benefits | | | 7,378 | | | | 12,142 | | | | 19,520 | | Shadow accounting adjustments | | | 2,083 | | | | (4,694 | ) | | | (2,611 | ) | | | | (76,745 | ) | | | 38,177 | | | | (38,568 | ) | Currency exchange rate fluctuations | | | 108,200 | | | | 10,236 | | | | 118,436 | | | | | | | | | | | | | | | Balance as of March 31, 2023 | | | 7,426,512 | | | | 5,148,579 | | | | 12,575,091 | | | | | | | | | | | | | | | | | | 162,091 | | | | — | | | | 162,091 | | | | | 7,264,421 | | | | 5,148,579 | | | | 12,413,000 | |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES | *1 | The current portion of future insurance policy benefits and other is included in other current liabilities in the consolidated statements of financial position. |
| *2 | Mainly includes interests credited to reserves, expenses and mortality charges. |
Changes in deferred insurance acquisition costs The changes in deferred insurance acquisition costs are as follows: | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | Balance at beginning of the fiscal year | | | 631,231 | | | | 683,836 | | | | | | | | | | | | | | 7,245 | | | | 7,310 | | | | | 623,986 | | | | 676,526 | | | | | | | | | | | New deferred insurance acquisition costs | | | 109,320 | | | | 110,108 | | Amortization amount for current period | | | (69,237 | ) | | | (84,523 | ) | Shadow accounting adjustments | | | 4,505 | | | | 20,604 | | Currency exchange rate fluctuations | | | 8,017 | | | | 7,988 | | | | | | | | | | | Balance at end of the fiscal year | | | 683,836 | | | | 738,013 | | | | | | | | | | | | | | 7,310 | | | | 7,149 | | | | | 676,526 | | | | 730,864 | |
| * | The current portion of deferred insurance acquisition costs is included in other current assets in the consolidated statements of financial position. |
| Significant assumptions regarding insurance contracts |
The significant assumptions and the ranges used to measure the insurance contract liabilities as of March 31, 2022 and 2023 are as follows: | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | (0.075%)-6.25% | | | | (0.115%)-6.25% | |
Other significant assumptions are mortality rates and lapse rates. Impact from changes made to assumptions | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | 6,643 | | | | 15,640 | | Changes in economic assumptions | | | 7,091 | | | | 15,378 | | Changes in non-economic assumptions | | | (448 | ) | | | 262 | | | | | 18,087 | | | | 31,244 | | Changes in economic assumptions | | | 16,874 | | | | 30,858 | | Changes in non-economic assumptions | | | 1,213 | | | | 386 | |
Economic assumptions including discount rates andnon-economic assumptions including mortality rates and morbidity rates, lapse rates, and operating expense rates are developed based on best estimates by product as of each cutoff date. Best-estimate assumptions are developed to reflect past and current experiences as well as expected experiences in the future. Expected future changes in assumptions should be reflected only when they are supported by sufficient rationales. Except for a deteriorating trend in mortality rates and morbidity rates, no other expected future changes are assumed in the best-estimate assumptions applied.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES | Insurance-related accounts measured at fair value |
In determining the fair value of future insurance policy benefits and policyholders’ account in the life insurance business to which Sony applies themeasures at fair value, option, Sony uses the present value of future expected cash flows based on mortality rates, lapse rates, discount rates, investment yield and various actuarial assumptions. These are classified within levelLevel 3 of the fair value hierarchy since Sony primarily uses unobservable inputs in its valuation. In determining the fair value of liability for the minimum guarantee benefits of variable annuities, Sony uses mortality rates (0.004%~44.865%), lapse rates (1.000%
~7.500%), and discount rates (-0.061%~1.433%) as significant unobservable inputs. The fair value of the minimum guarantee
accumulation benefits, which is the primary minimum guarantee risk, generally declines with higher mortality rates, higher lapse rates, or higher discount rates.The fair value of Sony’s assets and liabilities that are measured at fair value on a recurring basis at March 31, 2019 and 2020 are as follows. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Presentation in the consolidated balance sheets | | | | | | | | | | | | | | | | | | | Securities investments and other | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Available-for-sale securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Japanese national government bonds | | | | | | | | | | | | | | | | | | | | | | | | | �� | | | | | | | | Japanese local government bonds | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign government bonds *1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign corporate bonds *2 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Presentation in the consolidated balance sheets | | | | | | | | | | | | | | | | Future insurance policy benefits | | | | | | Other current liabilities | | | Other noncurrent liabilitie s | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Presentation in the consolidated balance sheets | | | | | | | | | | | | | | | | | | | Securities investments and other | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Available-for-sale securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Japanese national government bonds | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Japanese local government bonds | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign government bonds *1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign corporate bonds *2 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Presentation in the consolidated balance sheets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Future insurance policy benefits and policyholders’ account in the life insurance business *6 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
*1 | 4,910 million yen and 7,771 million yen are included in foreign securities for which the fair value option has been elected and classified in level 2 for the fiscal years ended March 31, 2019 and 2020.
In the consolidated balance sheets, 2,386 million yen are included as marketable securities for the fiscal years ended March 31, 2020 and 4,910 million yen and 5,385 million yen are included as securities investment and other for the fiscal years ended March 31, 2019 and 2020, respectively. |
*2 | 173,964 million yen and 188,426 million yen are included in foreign securities for which the fair value option has been elected and classified in level 2 for the fiscal years ended March 31, 2019 and 2020, respectively. In the consolidated balance sheets, 33,391 million yen and 34,502 million yen are included as marketable securities and 140,573 million yen and 153,924 million yen are included as securities investment and other for the fiscal years ended March 31, 2019 and 2020, respectively. |
*3 | 185,195 million yen and 193,430 million yen are included in foreign securities for which the fair value option has been elected and classified in level 2 and level 3 for the fiscal years ended March 31, 2019 and 2020, respectively, and are included in the consolidated balance sheets as securities investments and other. |
*4 | Other investments include certain hybrid financial instruments and certain private equity investments. |
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
*5 | Derivative assets and liabilities are recognized and disclosed on a gross basis. |
*6 | Future insurance policy benefits and policyholders’ account in the life insurance business are those for which the fair value option has been elected. |
7 | Net gains of 85 million yen and net loss of 12,408 million yen arising fromassets and liabilities
for which the fair value option has been elected are included in financial services revenue and financial services expense in the consolidated statements of income for the fiscal years ended March 31, 2019 and 2020, respectively. |
Transfers into level 1 were 1,769 million yen and 4,395 million yen for the fiscal years ended March 31, 2019 and 2020, respectively, as quoted prices for certain trading debt securities and equity securities became available in an active market. Transfers out of level 1 were 2,508 million yen and 3,216 million yen for the fiscal years ended March 31, 2019 and 2020, respectively, as quoted prices for certain trading debt securities were not available in an active market.
The changes in fair value of level 3 assets and liabilities for the fiscal years ended March 31, 2019 and 2020 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fiscal year ended March 31, 2019 | | | | | | | | | | | | | | | | | Future insurance policy benefits and | | | | Available-for-sale securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | | | | | | | Total realized and unrealized gains (losses): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | | | | | | | Included in other comprehensive income (loss) *2 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | | ) | | | | | | | | | | | | | ) | | | | ) | | | — | | | | | ) | | | | | | | | | | | | | | | | | | | | — | | | | | | | | | | Transfers out of level 3 *4 | | | | | | | | ) | | | | ) | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Changes in unrealized gains (losses) relating to instruments still held at reporting date: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fiscal year ended March 31, 2020 | | | | | | | | | | | | | | | | | Future insurance policy benefits and Policyholder s ’ | | | | Available-for-sale securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | | | | | | | Acquisition of AEGON Sony Life Insurance Co., Ltd. and SA Reinsurance Ltd. *5 | | | | | | | | | | | | | | | — | | | | | | | | | | Total realized and unrealized gains (losses): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | — | | | | | ) | | | | | Included in other comprehensive income (loss) *2 | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 12,101 | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | | ) | | | | | | | | | | | | | ) | | | | ) | | | — | | | | | ) | | | | ) | | | | | | | | | | | | | | | | — | | | | | | | | | | Transfers out of level 3 *4 | | | | | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Changes in unrealized gains (losses) relating to instruments still held at reporting date: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | ) | | | — | | | | | ) | | | | |
| *1 | Earning effects are included in financia
l services revenue and financial services expense in the consolidated statements of income. |
| *2 | Unrealized gains (losses) are included in unrealized gains (losses) on securities, net for available-for-sale securities and included in debt valuation adjustments for future insurance policy benefits and policyholders’ account in the consolidated statements of comprehensive income. |
| *3 | Certain corporate bonds and certain securitized products were transferred into level 3 because differences between the fair value determined by indicative quotes from dealers and the fair value determined by internally developed prices became significant and the observability of the inputs used decreased. |
| *4 | Certain corporate bonds and certain securitized products were transferred out of level 3 because observable market data became available. |
Level 3assets include certain securitized products, certain private equity investments, and certain domestic and foreign corporate bonds for which quoted prices are not available in a market and where there is less transparency around inputs. In determining the fair value of such assets, Sony uses third-party information such as indicative quotes from dealers without adjustment. Level 3 liabilities include future insurance policy benefits and policyholders’ account in the life insurance business whose underlying figuresas of March 31, 2022 and 2023 is as follows:
| | | | | | | | | | | | | | | | | | | | | | Presentation in the consolidated statements of
| | | |
policy benefits and other | | |
in the life insurance business | | | | | 507,699 | | | | 37,382 | | | | 470,317 | | | | | 462,684 | | | | 41,214 | | | | 421,470 | |
The valuation techniques, significant unobservable inputs, and the ranges used to measure the fair value of the future insurance policy benefits and policyholders’ account in the life insurance business as of March 31, 2022 and 2023 are unobservable, and whoseas follows: | | | | | | | | | Significant unobservable inputs | | | | | | | Present value of future expected cash flows | | Credit spread* | | 47.5bp | | 83.6bp | | Mortality rates | | 0.003% - 35.693% | | 0.003% - 37.438% | | Lapse rates | | 0%7.500% | | 0% - 7.500% |
The decrease (increase) in fair value is calculated in-house. For validating the result of higher (lower) credit spreads, mortality rates or lapse rates. The fair values, Sony primarily uses internal models which include management judgmentvalue of the future insurance policy benefits and policyholders’ account in the life insurance business measured at fair value would not change significantly, even if one or estimationmore of assumptions that market participants would use in pricing the asset.
significant unobservable inputs are changed to reflect reasonably possible alternative assumptions. SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
(2) | Assets and liabilities that areThe changes in fair value of future insurance policy benefits and policyholders’ account in the life insurance business measured at fair value on a nonrecurring basis |
Sony also has assets and liabilities that are required to be remeasured to fair value on a nonrecurring basis when certain circumstances occur. During the fiscal years ended March 31, 2019 and 2020, such remeasurements to fair value related primarily to the following:
| | | | | | | | | | | | | | | | | | | During the fiscal year ended March 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Long-lived assets impairments | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | During the fiscal year ended March 31, 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Remeasurement of retained investment in SRE | | | | | | | | | | | | | | | | | Long-lived assets impairments | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | |
Long-lived assets impairments
Sony recorded an impairment loss of 31,341 million yen, 19,172 million yen and 12,714 million yen for the fiscal years ended March 31, 2018, 20192022 and 2020, respectively, included within the EP&S segment, related to long-lived assets in the smartphone business asset group. For the smartphone business asset group, the corresponding estimated future cash flows leading to the impairment charge reflected smartphone sales results and expectation of continued difficulty in the business environment.2023 are as follows:
Sony recorded an impairment loss of 12,858 million yen for the fiscal year ended March 31, 2019, included within All Other, related to long-lived assets and goodwill in the storage media business asset group. As a result of conducting a strategic review of the business and evolving market trends, Sony reduced the corresponding estimated future cash flows of this business and the estimated ability to recover the entire carrying amount of the long-lived assets and goodwill within the period applicable to the impairment determination, resulting in an impairment charge for the fiscal year ended March 31, 2019.
| | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | Balance at beginning of the fiscal year | | | 536,189 | | | | 507,699 | | | | | | | | | | | | | | | | | | | | | | | 830 | | | | (11,740 | ) | Included in other comprehensive income *3 | | | (797 | ) | | | (2,380 | ) | | | | — | | | | — | | | | | (28,523 | ) | | | (30,895 | ) | | | | | | | | | | Balance at end of the fiscal year | | | 507,699 | | | | 462,684 | | | | | | | | | | | Changes in unrealized gains (losses) relating to future insurance policy benefits and policyholders’ account in the life insurance business still held as of the end of the reporting period included in net income *2 | | | (13,638 | ) | | | (501 | ) |
| *1 | Gains presented as negative and losses presented as positive. |
| *2 | Included in financial services revenue and financial services expenses in the consolidated statements of income. |
| *3 | Included in insurance contract valuation adjustments in the consolidated statements of comprehensive income. |
These measurements are classified as level 3 because significant unobservable inputs, such as the condition of the assets or projections of future cash flows, the timing of such cash flows and the discount rate reflecting the risk inherent in future cash flows, were considered in the fair value measurements. For the fiscal year ended March 31, 2018, a discount rate of 8.5% and projected revenue growth rates ranging from (8)% to 6% were used in the fair value measurements related to the long-lived assets for the smartphone business. For the fiscal year ended March 31, 2019, a discount rate of 8.5% and projected revenue growth rates ranging from (26)% to 24% were used in the fair value measurements related to the long-lived assets for the smartphone business. For the fiscal year ended March 31, 2020, a discount rate of 10.6% and projected revenue growth rates ranging from (10)% to 70% were used in the fair value measurements related to the long-lived assets for the smartphone business. For the fiscal year ended March 31, 2019, a discount rate of 8.9% and projected revenue growth rates ranging from (34)% to 21% were used in the fair value measurements related to the long-lived assets and goodwill for the storage media business.
F-7Except as described above, no other impairment losses were individually material for the fiscal year ended March 31, 2020. The other impairment losses were primarily related to the impairment losses in asset groups within Media Networks in the Pictures segment related to a review of the channel portfolio.6
Remeasurement of previously owned equity interest in EMI
During the fiscal year ended March 31, 2019, Sony remeasured to fair value the previously owned equity interests in EMI in connection with EMI Music Publishing acquisition. The measurement is classified as level 3 because significant unobservable inputs, such as projections of future cash flows and market comparables of similar transactions and companies were considered in the fair value measurements. Refer to Note 25.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES | Insurance and market risks |
Remeasurement of retained investment in SRERisk management policy and exposure DuringIn the fiscal year ended March 31, 2020,life insurance business, Sony soldmanages various market-related risks in the following manner:
| Insurance risk management |
With respect to insurance underwriting risk, based on the level of policy reserves and capital levels, the life insurance subsidiary manages the insurance portfolio appropriately, such as setting policy limits for each type of insurance as necessary. In addition, underwriting standards and standards for revising and abolishing each product are clearly defined as internal rules and are regularly reviewed. Concentration of insurance risk The insurance contract portfolio does not have excessive concentration risk. Interest rate risk management Interest rate risk is managed by the risk management divisi on of the life insurance subsidiary based on the policies for interest rate risk management that specify details such as risk management methods and procedures. Based on ALM policies that are determined through such methods as deliberation by the life insurance subsidiary’s Executive Committee, the subsidiary determines and confirms actual risk conditions with its Board of Directors. The division maintains an overall understanding of the interest rates and durations of financial instruments, monitors them based on the analysis of the quantity of risk using VaR, and periodically reports the status of each risk to the life insurance subsidiary’s Board of Directors and the Executive Committee. As part of its sharesthe ALM management, the life insurance subsidiary invests in SREfinancial assets that match the characteristics of the insurance contract obligations, and remeasuredthereby reduces interest rate risk as much as possible. Through the remaining sharespurchase and sale of financial assets included in their portfolio, the interest rate sensitivity (duration) of financial assets and insurance contract obligations is matched as much as possible so that they ensure sufficient cash flow to fair value. This measurement is classifiedsettle insurance claims as level 1 because a quoted price for the shares of SRE is available on the Tokyo Stock Exchange. Refer to Note 5. Remeasurement of previously owned equity interest in AEGON Sony Life Insurance Co., Ltd. and SA Reinsurance Ltd.they come due.
During the fiscal year ended March 31, 2020, Sony remeasured to fair value the previously owned equity interests in AEGON Sony Life Insurance Co., Ltd. and SA Reinsurance Ltd. (collectively, the “JVs”) in connection with acquisition of the JVs. The measurement is classified as level 3 because significant unobservable inputs, such as projections of future cash flows and market comparables of similar transactions and companies, were considered in the fair value measurements. AEGON Sony Life Insurance Co., Ltd. changed its name to “Sony Life With Insurance Co., Ltd.,” as of April 1, 2020. Refer to Note 25.Exchange rate risk
The estimated fair values by fair value hierarchy level of certain financial instruments that are not reported at fair value are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Housing loans in the banking business | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Long-term debt including the current portion | | | | | | | | | | | | | | | | | | | | | Investment contracts included in policyholders’ account in the life insurance business | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Housing loans in the banking business | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Long-term debt including the current portion | | | | | | | | | | | | | | | | | | | | | Investment contracts included in policyholders’ account in the life insurance business | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
F-4Exchange rate risk is managed by the risk management division of the life insurance subsidiary based on the policies for exchange rate risk management that specify details such as risk management methods and procedures. The division periodically reports the status of each risk to the life insurance subsidiary’s Board of Directors and Executive Committee.
9Equity market price fluctuation risk Equity market price fluctuation risk is managed by the risk management division of the life insurance subsidiary based on the policies for equity market price fluctuation risk management that specify details such as risk management methods and procedures. The division periodically reports the status of each risk to the life insurance subsidiary’s Board of Directors and Executive Committee. Derivative transactions are managed by the risk management division of the life insurance subsidiary based on the policies for derivative transactions that specify details such as risk management methods and procedures. The division periodically reports the status of each risk to the life insurance subsidiary’s Board of Directors and Executive Committee. For the purpose of pursuing a stable and sustainable increase of corporate value, in the life insurance business, Sony uses Market Consistent Embedded Value (“MCEV”), which is an indicator used to support the analysis of the value of a life insurance business and is compliant with the European Insurance CFO Forum Market Consistent Embedded Value Principles© (“MCEV Principles”). MCEV is also used for sensitivity analysis of market risk and insurance risk.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES MCEV represents the present value of the current and future distributable earnings to shareholders generated from assets allocated to the covered business after sufficient allowance for the aggregate risks in the covered business. MCEV consists of the adjusted net worth and the value of the existing business. Adjusted net worth is the amount of assets allocated to the covered business as of the valuation date and is calculated as the amount of its market value in excess of statutory policy reserves and other liabilities. The value of the existing business consists of the present value of certainty-equivalent profit, the time value of options and guarantees, frictional costs and the cost ofnon-hedgeable risks. The main assumptions, including mortality rates, morbidity rates, lapse and surrender rates, and operating expense rates, were developed based on best estimates by product. The Board of Directors of the life insurance subsidiary has confirmed that, with the exception of certain noncompliance items, the MCEV presented below has been produced following the methodology set out in the MCEV Principles. The main noncompliance item referred to above is the reference rate, which is used in the calculations and has been defined as the government bond nominal spot rate curve rather than the swap rate curve as stipulated in the MCEV Principles. MCEV is not an estimate of “fair value” as it does not include the value of new businesses to be sold in the future and does not include thenon-life insurance business, such as the property and casualty insurance business and the banking business. The calculation of MCEV is based on numerous assumptions with respect to economic conditions, operating conditions, taxes and other matters, many of which are beyond Sony’s control. In general, deviations between projection assumptions and actual experience in the future are to be expected and such deviations may materially impact the value calculated. The summary excludestables below show the sensitivities of changing the underlying assumptions of MCEV as of March 31, 2022 and 2023. | | | | | | | | | | | | | | | | | | | | | | | Changes in assumptions, etc. | | | | | | | | | | | | | | | No change | | | 2,066,357 | | | | — | | | | — | | | | 50bp decrease | | | 2,107,521 | | | | 41,164 | | | | 1.99 | % | | | 50bp increase | | | 2,004,841 | | | | (61,516 | ) | | | (2.98 | %) | Stock / Real estate market value | | 10% decrease | | | 2,049,089 | | | | (17,268 | ) | | | (0.84 | %) | | | 10% decrease | | | 2,097,153 | | | | 30,796 | | | | 1.49 | % | | | 10% decrease | | | 2,083,260 | | | | 16,903 | | | | 0.82 | % | Mortality rates (death protection) | | 5% decrease | | | 2,136,304 | | | | 69,948 | | | | 3.39 | % | Mortality rates (third sector / annuity products) | | 5% decrease | | | 2,052,870 | | | | (13,487 | ) | | | (0.65 | %) | | | 5% decrease | | | 2,136,413 | | | | 70,057 | | | | 3.39 | % | | | 10% appreciation of the Yen | | | 2,051,249 | | | | (15,108 | ) | | | (0.73 | %) |
| | | | | | | | | | | | | | | | | | | | | | | Changes in assumptions, etc. | | | | | | | | | | | | | | | No change | | | 2,121,135 | | | | — | | | | — | | | | 50bp decrease | | | 2,244,971 | | | | 123,836 | | | | 5.84 | % | | | 50bp increase | | | 1,990,132 | | | | (131,003 | ) | | | (6.18 | %) | Stock / Real estate market value | | 10% decrease | | | 2,103,460 | | | | (17,675 | ) | | | (0.83 | % ) | | | 10% decrease | | | 2,158,765 | | | | 37,630 | | | | 1.77 | % | | | 10% decrease | | | 2,182,037 | | | | 60,902 | | | | 2.87 | % | Mortality rates (death protection) | | 5% decrease | | | 2,191,177 | | | | 70,042 | | | | 3.30 | % | Mortality rates (third sector / annuity products) | | 5% decrease | | | 2,110,640 | | | | (10,495 | ) | | | (0.49 | %) | | | 5% decrease | | | 2,184,127 | | | | 62,992 | | | | 2.97 | % | | | 10% appreciation of the Yen | | | 2,118,499 | | | | (2,636 | ) | | | (0.12 | %) |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES | Risk management policy and exposure |
In line with liquidity risk management policies, the accounting division of each insurance subsidiary prepares and updates cash flow plans in a timely manner based on the reports from departments and manages cash equivalents, call loans, time deposits, notesflows, and accounts receivable, trade, call money, short-term borrowings, notesthe risk management division of each insurance subsidiary manages the liquidity risk. The accounting division and accounts payable, traderisk management division periodically or as needed report such information to each insurance subsidiary’s Board of Directors and depositsExecutive Committee. The following table summarizes the estimated timing of the remaining undiscounted net cash flows from customersinsurance contract liabilities and the contractual timing of the remaining undiscounted cash flows arising from securities held in the bankinginsurance business becauseas of March 31, 2022 and 2023. The cash flows of insurance liabilities are based on assumptions regarding morbidity rates, mortality rates, and lapse rates, which are consistent with the estimates used for the carrying valuesamounts. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | Insurance contract liabilities | | | 25,561,549 | | | | — | | | | 165,028 | | | | 155,586 | | | | 198,370 | | | | 234,987 | | | | 263,679 | | | | 24,543,899 | | Securities held in the insurance business | | | 18,536,483 | | | | 2,008,071 | | | | 656,948 | | | | 223,111 | | | | 348,527 | | | | 335,791 | | | | 311,466 | | | | 14,652,569 | |
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| | Insurance contract liabilities | | | 27,737,139 | | | | — | | | | 165,746 | | | | 153,881 | | | | 198,154 | | | | 224,698 | | | | 263,708 | | | | 26,730,952 | | Securities held in the insurance business | | | 19,640,244 | | | | 2,408,401 | | | | 636,352 | | | | 367,283 | | | | 345,113 | | | | 322,176 | | | | 428,997 | | | | 15,131,922 | |
Since the total of these financial instruments approximated their fair values due to their short-term nature. The summary also excludesheld-to-maturity the above estimated amounts is the amount before discounting, it exceeds the amount of insurance contract liabilities and securities disclosedwhich is included in Note 7. Cashinvestments and cash equivalents, call loans and call money are classified in level 1. Time deposits, short-term borrowings, deposits from customersadvances in the banking business are classified in level 2.Held-to-maturity
securities, included in marketable securities and securities investments and otherFinancial Services segment shown in the consolidated balance sheets, primarily includestatements of financial position. | Short-term borrowings and long-term debt |
Short-term borrowings and long-term debt are comprised of the following: | | | | | | | | | | | | | | | | | | |
| | |
| | | | | | | | 1,976,553 | | | | 0.18 | % | | | | | | | | | | | | | | | | | | | | | 693,603 | | | | 0.70 | % | | | 2022-2056 | | | | | 189,608 | | | | 0.25 | % | | | 2022-2029 | | Unsecured zero coupon convertible bonds | | | 26,495 | | | | — | % | | | 2022 | | | | | 465,349 | | | | 2.10 | % | | | | | | | | | | | | | | | | | | | | | 1,375,055 | | | | | | | | | | Less — Portion due within one year | | | 171,409 | | | | | | | | | | | | | | | | | | | | | | | | | | 1,203,646 | | | | | | | | | | | | | | | | | | | | | | |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES | | | | | | | | | | | | | | | | | | |
| | |
| | | | | | | | 1,914,934 | | | | 1.89 | % | | | | | | | | | | | | | | | | | | | | | 1,074,060 | | | | 1.70 | % | | | 2023-2056 | | | | | 349,332 | | | | 0.30 | % | | | 2023-2029 | | | | | 532,246 | | | | 2.35 | % | | | | | | | | | | | | | | | | | | | | | 1,955,638 | | | | | | | | | | Less — Portion due within one year | | | 187,942 | | | | | | | | | | | | | | | | | | | | | | | | | | 1,767,696 | | | | | | | | | | | | | | | | | | | | | | |
the Financial Services segment, Sony pledged assets as collateral for short-term borrowings and long-term debt and the pledged assets are comprised of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | 1,490,663 | | | | 1,678,553 | | Housing loans in the banking business | | | 782,175 | | | | 829,659 | |
addition to the above, in the Financial Services segment, Sony pledged securities with quoted prices thatforsecurities-for-securities lending transactions and the pledged securities are traded less frequently than exchange-traded instruments,as follows: , in the Financial Services segment, Sony pledged securities as collateral for cash settlements, variation margins of futures markets and certain other purposes and the pledged securities are as follows: July 21, 2015, Sony issued 120,000 million yen of 130% Callable Unsecured Zero Coupon Convertible Bonds due on September 28, 2022 (the “Zero Coupon Convertible Bonds”). The bondholders we re entitled to convert the Zero Coupon Convertible Bonds into shares of common stock from September 1, 2015 to September 28, 2022, and the initial conversion price was 5,008 yen per share. The conversion price is subject to anti-dilution provisions, where the conversion price is adjusted in certain cases such as the majorityissuance or disposal of government bondsthe shares of Sony Group Corporation’s common stock at below market price, stock splits, bonus issues of shares, and dividends in excess of 25 yen per common share per fiscal year. In addition, an early redemption is triggered upon the occurrence of certain corporate bondsevents including a merger or corporate split, and are substantially all classified in level 2. The fair valuesthe completion of housing loansa takeover bid resulting in the bankingdelisting of the shares of common stock of Sony Group Corporation. The conversion price is reduced for a certain period prior to the early redemption date, which is determined by a formula that is based on time to maturity and Sony’s common stock price, in order to compensate bondholders for the time value up to the original maturity date. The reduced conversion price ranged from 3,526.5 yen to 5,008 yen per share. The conversion price has been adjusted to 4,952.8 yen per common share since June 10, 2022 because the payment of the total annual dividend per common share for the fiscal year ended March 31, 2022 was 65 yen, which is in excess of 25 yen. At the early redemption date, the remaining Zero Coupon Convertible Bonds would be redeemed at 100% of the principal amount. The conversion right is bifurcated from the host contract and classified as equity. Sony had the option to redeem all of the Zero Coupon Convertible Bonds outstanding at 100% of the principal amount on or after July 21, 2020, if the closing price per share of Sony Group Corporation’s common stock on the Tokyo Stock Exchange was 130% or more of the conversion price of the Zero Coupon
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES applicable on each trading day for 20 consecutive trading days. As the option is considered closely related to the host contract, Sony does not bifurcate the option from the host contract. were no significant adverse debt covenants under the Zero Coupon Convertible Bonds. Sony redeemed the Zero Coupon Convertible Bonds at maturity on September 30, 2022. In August and October 2022, in order to enhance liquidity, Sony executed an approximate 1,175 m illion U.S. dollar bank loan from a group of banks with three, five andten-year maturity terms for the purpose of covering the consideration for the acquisition of 100% of the equity interest in Ellation, a subsidiary of AT&T Inc., which operates the anime business included“Crunchyroll,” in securities investmentsAugust 2021. This bank loan utilizes theco-financing facility of Japan Bank for International Cooperation (“JBIC”), which aims to facilitate overseas mergers and otheracquisitions by Japanese companies. Approximately 60%, or 705 million U.S. dollars, is from the JBIC and was borrowed in U.S. dollars in October 2022, and approximately 40%, or 70,000 illion yen (approximately 470 m illion U.S. dollars) is from Japanese private banks and was borrowed in yen in August 2022. In December 2022, Sony Group Corporation issued unsecured straight bonds in the consolidated balance sheets, were estimated based ontotal principal amount of 150,000 m illion yen. Sony Group Corporation used all of the discounted future cash flows using interest rates reflecting London Interbank Offered Rate base yield curves with certain risk premiums. The fair valuesproceeds of the issued bonds for the repayment of CP by the end of December 2022. There are no significant adverse debt covenants or cross-default provisions related to the other short-term borrowings and long-term debt including the current portion and investment contracts included in policyholders’ account in the life insurance business were estimated based on either the market value or the discounted future cash flows using Sony’s current incremental borrowing rates for similar liabilities.debt. 14. | Derivative instruments and hedging activities |
Sony has certain financial instruments including financial assets and liabilities acquired in the normal course of business. Such financial instruments are exposed to market risk arising from the changes in foreign currency exchange rates and interest rates. In applying a consistent risk management strategy for the purpose of reducing such risk, Sony uses derivative financial instruments, which include foreign exchange forward contracts, foreignswap agreements, currency option contracts, and interest rate swap agreements (including interest rate and currency swap agreements). Certain other derivative financial instruments are entered into in the Financial Services segment for asset-liability management (“ALM”)ALM purposes. These instruments are executed with creditworthy financial institutions, and virtually all foreign currency contracts are denominated in U.S. dollars, euros and other currencies of major countries. These derivatives generally mature or expire within six months after the balance sheet date. Other than derivatives utilized in the Financial Services segment for ALM, Sony does not use derivative financial instruments for trading or speculative purposes. These derivative transactions utilized for ALM in the Financial Services segment are executed within certain limits in accordance with an internal risk management policy. Derivative financial instruments held by Sony are classified and accounted for as described below.
Both the derivatives designated as fair value hedges and the hedged items are reflected at fair value in the consolidated balance sheets. Changes in the fair value of the derivatives designated as fair value hedges, as well as offsetting changes in the carrying value of the underlying hedged items, are recognized in income. For the fiscal years ended March 31, 2018and, there were 0 amounts excluded from the assessment of hedge effectiveness of fair value hedges.Changes in the fair value of derivatives designated as cash flow hedges are initially recorded in other comprehensive income (“OCI”) and reclassified into earnings when the hedged transaction affects earnings. The time value component of the fair value of option contracts is excluded from the assessment of hedge effectiveness and recognized in earnings on a straight-line basis over the life of the hedging instruments. Any difference between the change in fair value of the excluded component andthe
accumulated amount recognized in earnings on a straight-line basisis recognized in OCI.Derivatives not designated as hedges
Changes in the fair value of derivatives not designated as hedges are recognized in income.
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
A description of the purpose and classification of the derivative financial instruments held by Sony is as follows: Foreign exchange forward contracts, swap agreements and foreign currency option contracts Foreign exchange forward contracts, swap agreements and purchased and written foreign currency option contracts are utilized primarily to limit the exposure affected by changes in foreign currency exchange rates on cash flows generated or anticipated by Sony’s transactions and accounts receivable and payable denominated in foreign currencies. The majority of written foreign currency option contracts are a part of range forward contract arrangements and expire in the same month with the corresponding purchased foreign currency option contracts. Sony also entered into foreign exchange forward contracts and foreign exchange range forward contracts which effectively fixed the cash flows from certain forecasted purchase and sale transactions denominated in foreign currencies for the fiscal years ended March 31, 2018, 2019 2021, 2022 and 2020
.2023. The ineffective portions of the hedging relationships were not significant. Accordingly, these derivatives have been designated as cash flow hedges. Foreign exchange forward contracts and foreign currency option contracts that do not qualify as hedges are marked-to-market measured at fair value with changes in value recognized in otherfinancial income and financial expenses. Foreign exchange forward contracts, foreign currency option contracts and currency swap agreements held by certain subsidiaries in the Financial Services segment are marked-to-market measured at fair value with changes in value recognized in financial services
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Interest rate swap agreements (including interest rate and currency swap agreements) Interest rate swap agreements are utilized primarily to lower funding costs, to diversify sources of funding and to limit Sony’s exposure associated with underlying borrowings and available-for-sale
debt securities resulting from adverse fluctuations in interest rates, foreign currency exchange rates and changes in fair values. Interest rate swap agreements entered into in the Financial Services segment are used for reducing the risk arising from the changes in the fair value of fixed rate available-for-sale
debt securities. These derivatives are considered to be a hedge against changes in the fair value ofavailable-for-sale
debt securities in the Financial Services segment. Accordingly, these derivatives have been designated as fair value hedges.Certain subsidiaries in the Financial Services segment have interest rate swap agreements as part of their ALM, which are marked-to-market measured at fair value with changes in value recognized in financial service revenues.services revenue.Any other interest rate swap agreements that do not qualify as hedges, which are used for reducing the risk arising from changes of variable rate debt, are marked-to-market measured at fair value with changes in value recognized in otherfinancial income and financial expenses. Certain subsidiaries in the Financial Services segment have equity future contracts, equity swap agreements, bond future contracts, commodity future contracts, interest rate swaption agreements, other currency contracts and hybrid financial instruments as part of their ALM, which are with changes in value recognized in financial services revenue. The hybrid financial instruments, disclosed in Note 75 as debt securities, contained embedded derivatives that are not required to be bifurcated because the entire instruments are carriedmeasured at fair value.
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
The estimated fair values of Sony’s outstanding derivative instruments are sum marized as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | |
| | | | | | | | | | | | | | | | | | | Interest rate swap agreements | | | 26,795 | | | | 6,455 | | | | 43,464 | | | | 3,139 | | Interest rate swaptions agreements | | | — | | | | 1,075 | | | | 380 | | | | 2,517 | | | | | | | | | | | | | | | | | | | Foreign exchange contracts | | | | | | | | | | | | | | | | | Foreign exchange forward contracts | | | 14,687 | | | | 34,284 | | | | 12,496 | | | | 12,257 | | | | | 11,897 | | | | 925 | | | | 3,774 | | | | 5,781 | | Currency option contracts purchased | | | 42 | | | | — | | | | 508 | | | | 835 | | Currency option contracts written | | | — | | | | 172 | | | | — | | | | 5 | | | | | 3,578 | | | | 1,201 | | | | 4,540 | | | | 998 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | 11,903 | | | | 290 | | | | 3,321 | | | | | — | | | | 16,105 | | | | — | | | | 5,270 | | Option contracts purchased | | | 4,024 | | | | — | | | | 4,692 | | | | — | | | | | | | | | | | | | | | | | | | | | | 61,023 | | | | 72,120 | | | | 70,144 | | | | 34,123 | | | | | | | | | | | | | | | | | | |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES The estimated fair values and maturity analysis for notional amounts of Sony’s outstanding derivative instruments which are designated as hedging instruments are summarized as follows: | | | | | | | | | | | | | | | | | | | | | Derivatives designated as hedging instruments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Prepaid expenses and other current assets | | | | | | | | | | Current liabilities: Other | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign exchange contracts | | Prepaid expenses and other current assets | | | | | | | | | | Current liabilities: Other | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Derivatives not designated as hedging instruments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Prepaid expenses and other current assets | | | | | | | | | | Current liabilities: Other | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign exchange contracts | | Prepaid expenses and other current assets | | | | | | | | | | Current liabilities: Other | | | | | | | | | Foreign exchange contracts | | | | | | | | | | | | | | | | | | | | | | | Prepaid expenses and other current assets | | | | | | | | | | Current liabilities: Other | | | | | | | | | | | Prepaid expenses and other current assets | | | | | | | | | | Current liabilities: Other | | | | | | | | | | | Prepaid expenses and other current assets | | | | | | | | | | Current liabilities: Other | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash flow hedging relationships | | | | | | | | | | | | | | | | | | | | | | | | | Foreign exchange forward contracts | | | | | | | — | | | | | | | | — | | | | | | | | Current liabilities: Other financial liabilities | | | | | 115.3 | | | | — | | | | | | | | | | | | | | | | | | Currency option bought contracts | | | 4,830 | | | | — | | | | 4,830 | | | | 28 | | | | — | | | | Current assets: Other financial assets | | | | | 115.0 | | | | — | | | | | | | | | | | | | | | | | | Currency option sold contracts | | | 4,975 | | | | — | | | | 4,975 | | | | — | | | | 161 | | | | Current liabilities: Other financial liabilities | | | | | 118.5 | | | | — | | | | | | | | | | | | | | | | | | Interest rate swap agreements | | | — | | | | 146,778 | | | | 146,778 | | | | 17,987 | | | | — | | | | Non-current assets: Other financial assets | | | | | — | | | | 1.5 | % | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash flow hedging relationships | | | | | | | | | | | | | | | | | | | | | | | | | Foreign exchange forward contracts | | | | | | | — | | | | | | | | | | | | | | | | Current assets: Other financial assets | | | | | 131.3 | | | | — | | | | | | | | | | | | | | | | | | Currency option bought contracts | | | | | | | — | | | | | | | | | | | | | | | | Current assets: Other financial assets | | | | | 125.8 | | | | — | | | | | | | | | | | | | | | | | | Currency option sold contracts | | | 47,995 | | | | — | | | | 47,995 | | | | — | | | | 835 | | | | Current liabilities: Other financial liabilities | | | | | 131.9 | | | | — | | | | | | | | | | | | | | | | | | Interest rate swap agreements | | | — | | | | 159,918 | | | | 159,918 | | | | 28,513 | | | | — | | | | Non-current assets: Other financial assets | | | | | — | | | | 1.5 | % | | | | | | | | | | | | | | | | |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Presented belowChanges in the fair value of hedging instruments related to cash flow hedges are the effects of derivative instruments on the consolidated statements of income and the consolidated statements ofrecorded in accumulated other comprehensive income for the fiscal years ended March 31, 2018, 20192022 and 2020.2023.
| | | | | | | | | | | | | | | Derivatives under fair value | | | | Location of gains or (losses) recognized in income on derivative instruments | | Amounts of gains or (losses) recognized in income on derivative instruments | | Fiscal year ended March 31 | | | | | | | | | | | | Financial services revenue | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | Foreign exchange contracts | | | | | | | | Balance as of April 1, 2021 | | | (4,282 | ) | | | 5,581 | | | | 1,299 | | | | | | | | | | | | | | | Changes in fair value of hedging instruments recognized in other comprehensive income | | | (14,645 | ) | | | 6,942 | | | | (7,703 | ) | Reclassification adjustments to profit (loss) for the year *1,2 | | | 12,886 | | | | 1,643 | | | | 14,529 | | | | | 538 | | | | (2,629 | ) | | | (2,091 | ) | | | | | | | | | | | | | | Balance as of March 31, 2022 | | | (5,503 | ) | | | 11,537 | | | | 6,034 | | | | | | | | | | | | | | | Changes in fair value of hedging instruments recognized in other comprehensive income | | | (26,950 | ) | | | 13,975 | | | | (12,975 | ) | Reclassification adjustments to profit (loss) for the year *1,2 | | | 34,825 | | | | (4,012 | ) | | | 30,813 | | | | | (2,408 | ) | | | (3,051 | ) | | | (5,459 | ) | | | | | | | | | | | | | | Balance as of March 31, 2023 | | | (36 | ) | | | 18,449 | | | | 18,413 | | | | | | | | | | | | | | |
*1 | In the consolidated statements of income, the amount reclassified to profit (loss) is included in sales for hedges of foreign exchange contracts and in financial expenses for hedges of interest rate contracts. |
*2 | For the fiscal years ended March 31, 2022 and 2023, hedge ineffectiveness recognized in profit or loss was not material. |
F-516. Offsetting of financial assets and financial liabilities
2Tables below show the gross amounts of financial assets and liabilities, amounts offset, and net amounts presented in the consolidated statements of financial position, as well as the financial assets and liabilities that are subject to enforceable master netting agreements or similar agreements, as of March 31, 2022 and 2023. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | | Gross amounts not offset in the
consolidated statements of
| | | | | | |
| | |
| | | | | | | | 37,847 | | | | — | | | | 37,847 | | | | 24,504 | | | | 10,782 | | | | 2,561 | | | | | 30,370 | | | | 26,739 | | | | 3,631 | | | | — | | | | — | | | | 3,631 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 68,217 | | | | 26,739 | | | | 41,478 | | | | 24,504 | | | | 10,782 | | | | 6,192 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 72,004 | | | | — | | | | 72,004 | | | | 33,514 | | | | 29,530 | | | | 8,960 | | | | | 60,056 | | | | 26,739 | | | | 33,317 | | | | — | | | | — | | | | 33,317 | | | | | 1,272,040 | | | | — | | | | 1,272,040 | | | | 1,269,188 | | | | — | | | | 2,852 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 1,404,100 | | | | 26,739 | | | | 1,377,361 | | | | 1,302,702 | | | | 29,530 | | | | 45,129 | | | | | | | | | | | | | | | | | | | | | | | | | | |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES | | | | | | | | | | | | | | | | | Derivatives under cash flow | | Fiscal year ended March 31 | | | | | | | | | | | | Amounts recognized in unrealized gains (losses) on derivative instruments in OCI (before tax) | | Foreign exchange contracts : | | | | | | | | | | | | | Components included in the assessment of hedge effectiveness | | | | ) | | | | | | | | | Components excluded from the assessment of hedge effectiveness that were recognized based on amortization approach | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross amounts not offset in the consolidated statements of | | | | | | | | | | | | | | | | | | 34,382 | | | | — | | | | 34,382 | | | | 16,430 | | | | 13,852 | | | | 4,100 | | | | | 175,872 | | | | 174,930 | | | | 942 | | | | — | | | | — | | | | 942 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total assets | | | 210,254 | | | | 174,930 | | | | 35,324 | | | | 16,430 | | | | 13,852 | | | | 5,042 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 31,997 | | | | — | | | | 31,997 | | | | 21,700 | | | | 5,216 | | | | 5,081 | | | | | 281,295 | | | | 174,930 | | | | 106,365 | | | | — | | | | — | | | | 106,365 | | | | | 1,557,652 | | | | — | | | | 1,557,652 | | | | 1,556,595 | | | | — | | | | 1,057 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total liabilities | | | 1,870,944 | | | | 174,930 | | | | 1,696,014 | | | | 1,578,295 | | | | 5,216 | | | | 112,503 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Certain subsidiaries have entered into master netting agreements or other similar agreements, which are mainly International Swaps and Derivatives Association (ISDA) Master Agreements. An ISDA Master Agreement is an agreement between two counterparties that may have multiple derivative contracts with each other, and such ISDA Master Agreement may provide for the net settlement of all or a specified group of these derivative contracts, through a single payment, in a single currency, in the event of a default on or affecting any one derivative contract, or a termination event affecting all or a specified group of derivative contracts. Master netting agreements create a right of set off, but the master netting agreements do not automatically provide for such set off. |
| Amounts offset in the consolidated statements of financial position are related to repurchase agreements of products. |
| Short-term borrowings relate to repurchase agreements (repos). |
| | | | | | | | | | | | | | | Derivatives under cash flow | | | | Affected line item in consolidated | | Fiscal year ended March 31 | | | | | | | | | | Amounts reclassified from unrealized gains (losses) on derivative instruments in accumulated OCI (before tax) | | Foreign exchange contracts : | | | | | | | | | | | | | | | Components included in the assessment of hedge effectiveness | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | Components excluded from the assessment of hedge effectiveness that were recognized based on amortization approach | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | | | Derivatives not designated as hedging instruments | | | | Location of gains or (losses) recognized in income on derivative instruments | | Amounts of gains or (losses) recognized in income on derivative instruments | | Fiscal year ended March 31 | | | | | | | | | | | | Financial services revenue | | | | ) | | | | ) | | | | | Foreign exchange contracts | | Financial services revenue | | | | | | | | ) | | | | | Foreign exchange contracts | | Foreign exchange loss, net | | | | | | | | ) | | | | | | | Financial services revenue | | | | ) | | | | ) | | | | | | | Financial services revenue | | | | | | | | | | | | ) | | | Financial services revenue | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | |
Presented below are the amortized cost of hedged items, which are available-for-sale debt securities, and cumulative amount of fair value hedging adjustments to hedged items under fair value hedging relationships as of March 31, 2020.
| | | | | | | | | | | Derivatives under fair value
| | | | Balance sheet location of
| | | | | | | hedged items by fair value hedges
| | | | | | | | | | | | | | | Securities investments and other
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
The following table summarizes additional information, including notional amounts, for each type of derivative:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign exchange contracts: | | | | | | | | | | | | | | | | | Foreign exchange forward contracts | | | | | | | | ) | | | | | | | | | Currency option contracts purchased | | | | | | | | | | | | | | | | | Currency option contracts written | | | | | | | | ) | | | | | | | | ) | | | | | | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest rate swap agreements | | | | | | | | ) | | | | | | | | ) | Interest rate swaption agreements | | | | | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commodity future contracts | | | | | | | | | | | | | | | | |
All derivatives are recognized as either assets or liabilities in the consolidated balance sheets on a gross basis, but certain subsidiaries have entered into master netting agreements or other similar agreements, which are mainly International Swaps and Derivatives Association (ISDA) Master Agreements. An ISDA Master Agreement is an agreement between two counterparties that may have multiple derivative contracts with each other, and such ISDA Master Agreement may provide for the net settlement of all or a specified group of these derivative contracts, through a single payment, in a single currency, in the event of a default on or affecting any one derivative contract, or a termination event affecting all or a specified group of derivative contracts. Presented below are the effects of offsetting derivative assets, derivative liabilities, financial assets and financial liabilities as of March 31, 2019 and 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | Gross amounts presented in the consolidated | | | Gross amounts not offset in the consolidated balance sheet that are subject to master netting agreements | | | | | | | | | | | | | | Derivative assets subject to master netting agreements | | | | | | | | | | | | | | | | | Derivative assets not subject to master netting agreements | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Derivative liabilities subject to master netting agreements | | | | | | | | | | | | | | | | | Derivative liabilities not subject to master netting agreements | | | | | | | | | | | | | | | | | Repurchase, securities lending and similar arrangements | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross amounts not offset in the consolidated balance sheet that are subject to master netting agreements | | | | | | | | | | | | | | Derivative assets subject to master netting agreements | | | | | | | | | | | | | | | | | Derivative assets not subject to master netting agreements | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Derivative liabilities subject to master netting agreements | | | | | | | | | | | | | | | | | Derivative liabilities not subject to master netting agreements | | | | | | | | | | | | | | | | | Repurchase, securities lending and similar arrangements | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
15. | PensionDefined benefit and severance plans
|
(1) | Defined benefit and severance plans |
Upon terminating employment, employees of Sony Group Corporation and its subsidiaries in Japan are entitled, under most circumstances, to lump-sum indemnities or pension payments as described below. Sony Group Corporation and certain of its subsidiaries’ pension plans utilize a point-based plan under which a point is added every year reflecting the individual employee’s performance over that year. Under the point-based plan, the amount of payment is determined based on the sum of cumulative points from past services and interest points earned on the cumulative points regardless of whether or not the employee is voluntarily retiring. Under the plans, in general, the defined benefits cover 65% of the indemnities under existing regulations to employees. The remaining indemnities are covered by severance payments by the companies. The pension benefits are payable at the option of the retiring employee either in a lump-sum amount or monthly pension payments. Contributions to the plans are funded through several financial institutions in accordance with the applicable laws and regulations. From April 1, 2012, Sony Group Corporation and substantially all of its subsidiaries in Japan have modified existing defined benefit pension plans such that life annuities will no longer accrue additional service benefits, with those participants instead accruing fixed-term annuities. The defined benefit pension plans were closed to new participants and a defined contribution plan was also introduced. From October 1, 2019, Sony Group Corporation and substantially all of its subsidiaries in Japan have amended their defined benefit pension plans and have implemented defined contribution plans for all employees other than those employees that had retired before the amendments. As a result, accrued pension and severance costs decreased 74,872 million yen and accumulated other comprehensive income increased 81,230 million yen in the consolidated balance sheets as of the fiscal year ended March 31, 2020. In addition, a loss on the pension plan amendment of 6,358 million yen was recorded in other expenses in the consolidated statements of income for the fiscal year ended March 31, 2020. In addition, several of Sony’s foreign subsidiaries have defined benefit pension plans or severance indemnity plans, which cover substantially all of their employees. Under such plans, the related cost of benefits is currently funded or accrued. Benefits awarded under these plans are based primarily on the current rate of pay and length of service.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Net defined benefit liability (asset) recognized in the consolidated statements of financial position Amounts recognized in the consolidated statements of financial position are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Present value of defined benefit obligations | | | 614,763 | | | | 573,143 | | | | 277,903 | | | | 124,702 | | Fair value of plan assets | | | (474,933 | ) | | | (447,747 | ) | | | (198,791 | ) | | | (56,987 | ) | The impact of minimum funding requirement and asset ceiling | | | 4,870 | | | | 6,897 | | | | 2,491 | | | | 3,455 | | | | | | | | | | | | | | | | | | | Net amount | | | 144,700 | | | | 132,293 | | | | 81,603 | | | | 71,170 | | | | | | | | | | | | | | | | | | | Amount recognized in the consolidated statements of financial position | | | | | | | | | | | | | | | | | Net defined benefit asset | | | (21,057 | ) | | | (28,334 | ) | | | (6,544 | ) | | | (1,775 | ) | Net defined benefit liability | | | 165,757 | | | | 160,627 | | | | 88,147 | | | | 72,945 | | | | | | | | | | | | | | | | | | | Net amount | | | 144,700 | | | | 132,293 | | | | 81,603 | | | | 71,170 | | | | | | | | | | | | | | | | | | |
Present value of defined benefit obligations The components of net periodic benefit costschanges in the defined benefit o bligations for the fiscal years ended March 31, 2018, 20192022 and 2020 were2023 are as follows: | | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Expected return on plan assets | | | | ) | | | | ) | | | | ) | Recognized actuarial loss | | | | | | | | | | | | | Amortization of prior service costs | | | | ) | | | | ) | | | | ) | Losses on curtailments and settlements | | | | | | | | | | | | | | | | | | | | | | | | | | Net periodic benefit costs | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Expected return on plan assets | | | | ) | | | | ) | | | | ) | Amortization of net transition asset | | | | | | | | | | | | | Recognized actuarial loss | | | | | | | | | | | | | Amortization of prior service costs | | | | ) | | | | ) | | | | | Losses on curtailments and settlements | | | | | | | | | | | | | | | | | | | | | | | | | | Net periodic benefit costs | | | | | | | | | | | | | | | | | | | | | | | | | |
The components of net periodic benefit costs other than service cost for the fiscal years
ended March 31, 2019 and 2020 are included within other expenses (income) in the consolidated statements of income.The estimated net actuarial loss and prior service cost for the defined benefit pension plans that will be amortized from accumulated other comprehensive income into net periodic benefit costs over the next fiscal year are 12,185 million yen and 1,412 million yen, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | Fiscal year ended March 31 | | | | | | | | | | | | | | | Beginning balance of the fiscal year | | | 640,061 | | | | 614,763 | | | | 371,239 | | | | 277,903 | | | | | | | | | | | | | | | | | | | Current service cost | | | 12,868 | | | | 12,660 | | | | 2,424 | | | | 2,319 | | Past service cost | | | 4 | | | | 5 | | | | (34 | ) | | | (365 | ) | Interest cost | | | 3,751 | | | | 4,367 | | | | 5,117 | | | | 4,623 | | Remeasurements: | | | | | | | | | | | | | | | | | Change in demographic assumptions | | | (536 | ) | | | 2,974 | | | | 630 | | | | (458 | ) | Change in financial assumptions | | | (8,594 | ) | | | (27,314 | ) | | | (16,789 | ) | | | (60,179 | ) | Other | | | (95 | ) | | | (569 | ) | | | (91 | ) | | | (940 | ) | Translation adjustments | | | — | | | | — | | | | 19,372 | | | | 11,213 | | Plan participants’ contributions | | | — | | | | — | | | | 333 | | | | 516 | | Benefits paid | | | (32,909 | ) | | | (33,741 | ) | | | (38,923 | ) | | | (9,798 | ) | Curtailments and settlements * | | | — | | | | — | | | | (65,375 | ) | | | (100,132 | ) | Other | | | 213 | | | | (2 | ) | | | — | | | | — | | | | | | | | | | | | | | | | | | | Ending balance of the fiscal year | | | 614,763 | | | | 573,143 | | | | 277,903 | | | | 124,702 | | | | | | | | | | | | | | | | | | |
* | Curtailments and settlements of the foreign plans for the fiscal year ended March 31, 2022 relate mainly to the termination of the defined benefit pension plan at certain U.S. subsidiaries. Curtailments and settlements of the foreign plans for the fiscal year ended March 31, 2023 relate mainly to the termination of the defined benefit pension plan at certain U.K. subsidi aries. |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES The changes in the benefit obligation and plan assets as well as the funded status and compositionweighted average duration of amounts recognized in the consolidated balance sheets were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Change in benefit obligation: | | | | | | | | | | | | | | | | | Benefit obligation at beginning of the fiscal year | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Plan participants’ contributions | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | Foreign currency exchange rate changes | | | | | | | | | | | | ) | | | | ) | Curtailments and settlements | | | | | | | | ) | | | | ) | | | | ) | Effect of changes in consolidated subsidiaries | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | Benefit obligation at end of the fiscal year | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fair value of plan assets at beginning of the fiscal year | | | | | | | | | | | | | | | | | Actual return on plan assets | | | | | | | | | | | | | | | | | Foreign currency exchange rate changes | | | | | | | | | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | Plan participants’ contributions | | | | | | | | | | | | | | | | | Curtailments and settlements | | | | | | | | ) | | | | ) | | | | ) | | | | | ) | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | Fair value of plan assets at end of the fiscal year | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Funded status at end of the fiscal year | | | | ) | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | | | | | |
Amounts recognized in the consolidated balance sheets consist of:
Amounts recognized in accumulated other comprehensive income, excluding tax effects, consist of:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Prior service cost (credit) | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
The accumulated benefit obligations for all defined benefit pension plans were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated benefit obligations | | | | | | | | | | | | | | | | |
The projected benefit obligations the accumulated benefit obligations and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Projected benefit obligations | | | | | | | | | | | | | | | | | Accumulated benefit obligations | | | | | | | | | | | | | | | | | Fair value of plan assets | | | | | | | | | | | | | | | | |
Weighted-average assumptions used to determine benefit obligations as of March 31, 2019 and 2020 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | | | % | | | | % | | | | % | Rate of compensation increase | | | | | | | | | | | | | | | | |
| * | Substantially all of Sony’s Japanese pension plans were point-based. Point-based plans do not incorporate a measure of compensation rate increases. |
Weighted-average assumptions used to determine the net periodic benefit costs for the fiscal years ended March 31, 2018, 20192022 and 2020 were2023 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | Fiscal year ended March 31 | | | | | | | | | | | | | | | | | | | | | | | | | % | | | | % | | | | % | | | | % | | | | % | | | | % | Expected return on plan assets | | | | | | | | | | | | | | | | | | | | | | | | | Rate of compensation increase | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Weighted average duration of defined benefit obligations | | | 11.5 years | | | | 11.2 years | | | | 15.7 years | | | | 12.2 years | |
* Substantially all of Sony’s Japanese pension plans were point-based. Point-based plans do not incorporate a measure of compensation rate increases.
Sony reviews these assumptions for changes in circumstances.
The weighted-average rate of compensation increase is calculated based only on thepay-related
plans. The point-based plans discussed above are excluded from the calculation because payments made under the plan are not based on employee compensation.The mortality ratesignificant actuarial assumptions used to determine the present value of defined benefit obligations as of March 31, 2022 and 2023 are as follows: The sensitivities of the defined benefit obligations to changes in the significant weighted-average actuarial assumptions are based on life expectancy and death rates for different types of participants.as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 18,069 | | | | 16,042 | | | | 11,055 | | | | 3,487 | | | | | (15,372 | ) | | | (13,201 | ) | | | (10,439 | ) | | | (3,316 | ) |
The sensitivity analyses are calculated using the same method used to determine the expected long-term ratedefined benefit liability recognized in the consolidated statements of return on pension plan assets, Sony considers the current and expected asset allocations, as well as the historical and expected long-term rates of returns on various categoriesfinancial position while holding all other assumptions consistent. Fair value of plan assets. assets Sony’s pension investment policy recognizes the expected growth and the variability risk associated with the long-term nature of pension liabilities, the returns and risks of diversification across asset classes, and the correlation among assets. The asset allocations are designed to maximize returns consistent with
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
levels of liquidity and investment risk that are considered prudent and reasonable. While the pension investment policy gives appropriate consideration to recent market performance and historical returns, the investment assumptions utilized by Sony are designed to achieve a long-term return consistent with the long-term nature of the corresponding pension liabilities. The investment objectives of Sony’s plan assets are designed to generate returns that will enable the plans to meet their future obligations. The precise amount for which these obligations will be settled depends on future events, including the retirement dates and life expectancy of the plans’ participants. The obligations are estimated using actuarial assumptions, based on the current economic environmentconditions and other pertinent factors. Sony’s investment strategy balances the requirement to generate returns, using potentially higher yielding assets such as equity securities, with the need to control risk in the portfolio with less volatile assets, such as fixed-income securities. Risks include, among others, inflation, volatility in equity values and changes in interest rates that could negatively impact the funding level of the plans, thereby increasing itstheir dependence on contributions from Sony. To mitigate any potential concentration risk of plan assets, thorough consideration is given to balancing the portfolio among industry sectors and geographies, taking into account interest rate sensitivity, dependence on economic growth, currency and other factors that affect investment returns. The target allocations as of March 31, 2020,2023 , are, as a result of Sony’s asset liability management, 17%15% (202: 16%) of equity securities, 54%53% (2022: 52%) of fixed income securities and 29%32% (2022 : 32%) of other investments for the pension plans of Sony Group Corporation and most of its subsidiaries in Japan, and, on a weighted average basis, 14%1% (2022 : 1%) of equity securities, 63%28% (2022 : 22%) of fixed income securities and 23%71% (2022 : 77%) of other investments for the pension plans of foreign subsidiaries. The fair values of the assets held by Japanese and foreign plans, which are classified in accordance with the fair value hierarchy described in Note 2, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | using inputs considered as | | | | | | | | | | | Cash and cash equivalents | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Asset-backed securities *4 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | using inputs considered as | | | | | | | | | | | Cash and cash equivalents | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Asset-backed securities *4 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| *1 | Includes approximately 51 percent and 37 percent of Japanese equity securities, and 49 percent and 63 percent of foreign equity securities for the fiscal years ended March 31, 2019 and 2020, respectively. |
| *2 | Includes approximately 48 percent and 36 percent of debt securities issued by Japanese national and local governments, and 52 percent and 64 percent of debt securities issued by foreign national and local governments for the fiscal years ended March 31, 2019 and 2020, respectively. |
| *3 | Includes debt securities issued by Japanese and foreign corporation and government related agencies. |
| *4 | Includes primarily mortgage-backed securities. |
| *5 | Commingled funds represent pooled institutional investments, including primarily investment trusts. They include approximately 50 percent and 50 percent of investments in equity, 49 percent and 45 percent of investments in fixed income, and 1 percent and 5 percent of investments in other for the fiscal years ended March 31, 2019 and 2020, respectively. |
| *6 | Represents commodity futures funds. |
| *7 | Includes multiple private equity funds of funds that primarily invest in venture, buyout, and distressed markets in the United States and Europe. |
| *8 | Includes primarily funds that invest in a portfolio of a broad range of hedge funds to diversify the risks and reduce the volatilities associated with a single hedge fund. |
| *9 | Includes primarily private real estate investment trusts. |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | using inputs considered as | | | | | | | | | | | Cash and cash equivalents | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | using inputs considered as | | | | | | | | | | | Cash and cash equivalents | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| *1 | Includes primarily foreign equity securities. |
| *2 | Includes primarily foreign government debt securities. |
| *3 | Includes primarily foreign corporate debt securities. |
| *4 | Represents annuity contracts with or without profit sharing. |
| *5 | Commingled funds represent pooled institutional investments including mutual funds, common trust funds, and collective investment funds. They are primarily comprised of foreign equities and fixed income investments. |
| *6 | Includes primarily private real estate investment trusts. |
Each level in the fair value hierarchy in which each plan asset is classified is determined based on inputs used to measure the fair values of the asset, and does not necessarily indicate the risks or rating of the asset.
The following is a description of the valuation techniques used to measure Japanese and foreign plan assets at fair value. The valuation techniques are applied consistently from period to period. Equity securities are valued at the closing price reported in the active market in which the individual securities are traded. These assets are generally classified as level 1.
The fair value of fixed income securities is typically estimated using pricing models, quoted prices of securities with similar characteristics or discounted cash flows and are generally classified as level 2.
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Commingled funds are typically measured using the valuation provided by the administrator of the fund and reviewed by Sony. The valuation is based on Sony’s interest in the value of the underlying assets owned by the fund minus liabilities. These assets are classified as level 1, level 2 or level 3 depending on availability of quoted market prices.
Commodity funds are valued using inputs that are derived principally from or corroborated by observable market data. These assets are generally classified as level 2.
Private equity and private real estate investment trust valuations require significant judgment due to the absence of quoted market prices, the inherent lack of liquidity and the long-term nature of such assets. These assets are initially valued at cost and are reviewed periodically utilizing available and relevant market data to determine if the carrying value of these assets should be adjusted. These investments are classified as level 3.
Hedge funds are measured using the valuation provided by the administrator or custodian of the fund and reviewed by Sony. The valuation is based on Sony’s interest in the value of the underlying assets owned by the fund minus liabilities. These investments are classified as level 3.
The following table sets forth a summary of changes in the fair values of Japanese and foreign plans’ level 3plan assets for the fiscal years ended March 31, 20192022 and 2020:2023 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | Fair value measurement using significant unobservable inputs | | | | | | | | | | | | | | | Beginning balance at April 1, 2018 | | | | | | | | | | | | | | | | | Return on assets held at end of year | | | | | | | | | | | | | | | | | Purchases, sales, and settlements, net | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ending balance at March 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Return on assets held at end of year | | | | | | | | ) | | | | | | | | | Purchases, sales, and settlements, net | | | | ) | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | | | | | Ending balance at March 31, 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fair value measurement using significant unobservable inputs | | | | | | | | | | | | | | | Beginning balance at April 1, 2018 | | | | | | | | | | | | | | | | | Return on assets held at end of year | | | | | | | | | | | | | | | | | Purchases, sales, and settlements, net | | | | ) | | | | | | | | ) | | | | ) | | | | | | | | | ) | | | | | | | | ) | | | | | ) | | | | | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | Ending balance at March 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Return on assets held at end of year | | | | | | | | | | | | | | | | | Purchases, sales, and settlements, net | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | Ending balance at March 31, 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | Fiscal year ended March 31 | | | | | | | | | | | | | | | Beginning balance of the fiscal year | | | 476,411 | | | | 474,933 | | | | 288,394 | | | | 198,791 | | | | | | | | | | | | | | | | | | | | | | 3,026 | | | | 3,649 | | | | 3,955 | | | | 2,804 | | | | | | | | | | | | | | | | | | | Return on plan assets excluding interest income | | | 17,617 | | | | (13,378 | ) | | | (10,121 | ) | | | (43,173 | ) | | | | — | | | | — | | | | 13,880 | | | | 5,760 | | | | | 2,476 | | | | 5,650 | | | | 4,573 | | | | 3,444 | | Plan participants’ contributions | | | — | | | | — | | | | 333 | | | | 516 | | | | | (24,597 | ) | | | (23,107 | ) | | | (37,545 | ) | | | (8,240 | ) | | | | — | | | | — | | | | (5,005 | ) | | | — | | Curtailments and settlements * | | | — | | | | — | | | | (59,673 | ) | | | (102,915 | ) | | | | | | | | | | | | | | | | | | Ending balance of the fiscal year | | | 474,933 | | | | 447,747 | | | | 198,791 | | | | 56,987 | | | | | | | | | | | | | | | | | | |
| * | Primarily consistsCurtailments and settlements of translation adjustments.the foreign plans for the fiscal year ended March 31, 2022 relate mainly to the termination of the defined benefit pension plan at certain U.S. subsidiaries. Curtailments and settlements of the foreign plans for the fiscal year ended March 31, 2023 relate mainly to the termination of the defined benefit pension plan at certain U.K. subsidiaries.
|
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Sony makes contributions to its defined benefit pension plans as deemed appropriate by management after considering the fair value of plan assets, expected return on plan assets and the present value of defined benefit obligations. Sony expects to contribute approximately 2 billion yen to the Japanese plans and approximately 85 billion yen to the foreign plans during the fiscal year ending March 31, 2021.2024. The expected future benefit paymentsfair values of the assets held by Japanese and foreign plans are as follows: | | | | | | | | | | | | | | | | Fiscal year ending March 31 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | Market price in active market | | | | | | | | | Cash and cash equivalents | | | 13,843 | | | | 13,843 | | | | — | | | | | 31,660 | | | | 28,175 | | | | 3,485 | | | | | | | | | | | | | | | | | | 10,005 | | | | 1,122 | | | | 8,883 | | | | | 4,222 | | | | 31 | | | | 4,191 | | | | | 316,319 | | | | — | | | | 316,319 | | | | | 49,777 | | | | — | | | | 49,777 | | | | | 49,107 | | | | — | | | | 49,107 | | | | | | | | | | | | | | | | | | 474,933 | | | | 43,171 | | | | 431,762 | | | | | | | | | | | | | | |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES | | | | | | | | | | | | | | | | | | | | | | |
| | | Market price in active market | | | | | | | | | Cash and cash equivalents | | | 18,060 | | | | 18,060 | | | | — | | | | | 37,562 | | | | 33,335 | | | | 4,227 | | | | | | | | | | | | | | | | | | 10,369 | | | | 975 | | | | 9,394 | | | | | 4,587 | | | | 25 | | | | 4,562 | | | | | 287,978 | | | | — | | | | 287,978 | | | | | 40,612 | | | | — | | | | 40,612 | | | | | 48,579 | | | | — | | | | 48,579 | | | | | | | | | | | | | | | | | | 447,747 | | | | 52,395 | | | | 395,352 | | | | | | | | | | | | | | |
(2) | *1 | Represents primarily Japanese equity securities. |
| *2 | Includes approximately 84% and 85% of debt securities issued by Japanese national and local governments, and 16% and 15%of debt securities issued by foreign national and local governments as of the fiscal years ended March 31, 2022 and 2023, respectively. |
| *3 | Includes debt securities issued by Japanese and foreign corporationand government related agencies. |
| *4 | Commingled funds represent pooled institutional investments, including primarily investment trusts. |
| | | | | | | | | | | | | | | | | | | | | | |
| | | Market price in active market | | | | | | | | | Cash and cash equivalents | | | 2,350 | | | | 2,350 | | | | — | | | | | 61 | | | | 61 | | | | — | | | | | | | | | | | | | | | | | | 19,141 | | | | — | | | | 19,141 | | | | | 23,546 | | | | — | | | | 23,546 | | | | | 63 | | | | — | | | | 63 | | | | | 129,084 | | | | 432 | | | | 128,652 | | | | | 22,316 | | | | — | | | | 22,316 | | | | | 2,230 | | | | 8 | | | | 2,222 | | | | | | | | | | | | | | | | | | 198,791 | | | | 2,851 | | | | 195,940 | | | | | | | | | | | | | | |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES | | | | | | | | | | | | | | | | | | | | | | |
| | | Market price in active market | | | | | | | | | Cash and cash equivalents | | | 2,403 | | | | 2,403 | | | | — | | | | | 65 | | | | 65 | | | | — | | | | | | | | | | | | | | | | | | 2,135 | | | | — | | | | 2,135 | | | | | 12,052 | | | | — | | | | 12,052 | | | | | 61 | | | | — | | | | 61 | | | | | 19,401 | | | | 341 | | | | 19,060 | | | | | 18,113 | | | | — | | | | 18,113 | | | | | 2,757 | | | | 8 | | | | 2,749 | | | | | | | | | | | | | | | | | | 56,987 | | | | 2,817 | | | | 54,170 | | | | | | | | | | | | | | |
| *1 | Includes primarily foreign equity securities. |
| *2 | Includes primarily foreign government debt securities. |
| *3 | Includes primarily foreign corporate debt securities. |
| *4 | Represents annuity contracts with or without profit sharing and bulk insurance contracts. |
| *5 | Commingled funds represent pooled institutional investments, including primarily investment trusts. |
The impact of minimum funding requirement and asset ceiling The impact of minimum funding requirement and asset ceiling for the fiscal years ended March 31, 2022 and 2023 is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | Fiscal year ended March 31 | | | | | | | | | | | | | | | Beginning balance of the fiscal year | | | 3,990 | | | | 4,870 | | | | 13,156 | | | | 2,491 | | | | | | | | | | | | | | | | | | | | | | 25 | | | | 39 | | | | 187 | | | | 65 | | | | | | | | | | | | | | | | | | | Change in asset ceiling excluding interest income | | | 855 | | | | 1,988 | | | | (11,018 | ) | | | 811 | | Translation adjustments | | | — | | | | — | | | | 166 | | | | 88 | | | | | | | | | | | | | | | | | | | Ending balance of the fiscal year | | | 4,870 | | | | 6,897 | | | | 2,491 | | | | 3,455 | | | | | | | | | | | | | | | | | | |
| Defined contribution plans |
Total defined contribution expenses for the fiscal years ended March 31, 2018, 20192021, 2022 and 2020 were2023 are as follows: | | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | | | | 10,992 | | | | 11,137 | | | | 11,461 | | | | | 9,639 | | | | 11,154 | | | | 17,271 | |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES 16. | Stockholders’ equityEmployee benefits expenses
|
ChangesEmployee benefits expenses included in cost of sales, selling, general and administrative, and financial services expenses in the numberconsolidated statements of shares of common stock issued and outstanding duringincome for the fiscal years ended March 31, 2018, 20192021, 2022 and 2020 have resulted from2023 are as follows:
| | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | Total employee benefits expenses | | | 1,187,119 | | | | 1,253,148 | | | | 1,539,965 | |
Employee benefits expenses include salaries, bonuses, stock-based compensation, social security, welfare and expenses relating to post-employment benefits. | Participation and residual liabilities in the Pictures segment |
The changes in participation and residual liabilities for the following:fiscal year ended March 31, 2023 are as follows: | | | | | | | | | | | | Fiscal year ended March 31 | | | | Number of shares
2023 | | Balance at March 31, 2017beginning of the fiscal year | | | 410,275 | | | | | | | Issuance of new sharesCurrent portion
| | | 190,162 | | 218,000Non-current portion | | | 220,113 | | | | | | | Exercise of stock acquisition rightsAdditional participation and residual liabilities
| | | 210,226 | | Conversion of convertible bondsAmounts paid during the year
| | | (220,415 | ) | 4,789Unpaid amounts reversed during the year
| | | (13,605 | ) | | | | 36,694 | | | | | | | Balance at March 31, 2018end of the fiscal year | | | 423,175 | | | | | | | Issuance of new sharesCurrent portion
| | | 230,223 | | 149,900Non-current portion | | | 192,952 | |
There was no material changedue to discounting during thefiscal year. | Other assets and other liabilities |
Components of other assets as of March 31, 2022 and 2023 are as follows: | | | | | | | | | | | | | | | | | | | | | | | | Advance payments and prepaid expenses | | | 384,299 | | | | 481,080 | | Income taxes receivable and other taxes receivable | | | 169,580 | | | | 243,569 | | | | | 208,241 | | | | 207,627 | | | | | | | | | | | | | | 762,120 | | | | 932,276 | | | | | | | | | | | | | | 473,070 | | | | 610,330 | | | | | 289,050 | | | | 321,946 | |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Components of other liabilities as of March 31, 2022 and 2023 are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | 366,227 | | | | 508,454 | | Accrued short-term employee benefits | | | 347,023 | | | | 395,110 | | | | | 197,791 | | | | 197,836 | | Taxes payable other than income taxes | | | 163,316 | | | | 185,224 | | | | | 177,404 | | | | 177,789 | | Future insurance policy benefits and other | | | 153,006 | | | | 162,091 | | Other long-term employee benefit obligations | | | 15,030 | | | | 64,684 | | | | | 28,606 | | | | 26,167 | | | | | 146,566 | | | | 130,573 | | | | | | | | | | | | | | 1,594,969 | | | | 1,847,928 | | | | | | | | | | | | | | 1,488,488 | | | | 1,720,335 | | | | | 106,481 | | | | 127,593 | |
(Changes in presentation) Other long-term employee benefit obligations, which were included within Other as of March 31, 2022, are now reclassified and presented as part of a separate caption due to an increase in materiality. Other long-term employee benefit obligations of 15,030 million yen, which were included within Other as of March 31, 2022 have been reclassified to conform to this change in presentation. The changes in product warranties for the fiscal year ended March 31, 2023 are as follows: | | | | | | | | | | | Fiscal year ended March 31 | | | | | | ExerciseBalance at beginning of stock acquisition rightsthe fiscal year
| | | 28,606 | | | | | | | Conversion of convertible bondsAdditional product warranties
| | | 22,963 | | 2,992Amounts used during the year
| | | (20,442 | ) | Unused amounts reversed during the year | | | (6,359 | ) | | | | 1,399 | | | | | | | Balance at March 31, 2019end of the fiscal year | | | 26,167 | | | | | | |
| | | | | Exercise of stock acquisition rights
| | | | | Conversion of convertible bonds
| | | | | Cancellation of treasury stock
| | | | ) | | | | |
| | Balance at March 31, 2020Common stock | | | | | | | | | |
At March 31, 2020, 36,802,040The number of shares of common stock would beauthorized as of March 31, 2021, 2022 and 2023 was 3,600,000,000.
The following table shows the changes in the number of shares of common stock issued uponand outstanding during the conversion or exercisefiscal years ended March 31, 2021, 2022 and 2023. All of all convertible bondsthe shares of common stock of Sony Group Corporation are issued with no par value, and the issued stock acquisition rights outstanding.was fully paid. | | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | Balance at beginning of the fiscal year | | | 1,261,058,781 | | | | 1,261,058,781 | | | | 1,261,081,781 | | | | | | | | | | | | | | | | | | — | | | | 23,000 | | | | — | | | | | | | | | | | | | | | Balance at end of the fiscal year | | | 1,261,058,781 | | | | 1,261,081,781 | | | | 1,261,081,781 | | | | | | | | | | | | | | |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES ConversionsAs of convertible bonds intoMarch 31, 2021, 2022 and 2023, the number of shares of treasury stock, which was included in the balance of common stock are accounted for in accordance with the provisions of the Companies Act of Japan ()shares issued above, were 21,831,206 shares, 24,078,136 shares and related regulations (collectively the “Companies Act”) by crediting approximatelyone-half26,584,221 shares, respectively.
of the conversion proceeds to the common stock account and the remainder to the additionalpaid-in
capital account. Sony Group Corporation may purchase its own shares at any time by a resolution of the Board of Directors up to the retained earnings available for dividends to shareholders, in accordance with the Companies Act.Act of Japan. Although Sony Corporation’s Group Corporation approved on August 4, 2020 by resolution of the Board of Directors resolved and authorizedthe setting of parameters for the repurchase of shares of its own common stock pursuant to the Companies Act at the meeting of the BoardJapan and Sony Group Corporation’s Articles of Directors held on February 8, 2019. During the year ended March 31, 2019, Sony repurchased
19,309,100 shares of itsIncorporation, no common stock for an amount of 100,000 million yen under the above resolution.was acquired based on these parameters.
Sony Group Corporation’s Board of Directors resolved and authorizedapproved the setting of parameters for the repurchase of shares of its own common stock pursuant to the Companies Act of Japan and Sony Group Corporation’s Articles of Incorporation at the meeting of the Board of Directors held on April 28, 2021. Under the above resolution, Sony Group Corporation repurchased 7,400,600 shares of its common stock for an amount of 88,281 million yen during the fiscal year ended March 31, 2022, and repurchased 806,300 shares of its common stock for an amount of 9,100 million yen during the fiscal year ended March 31, 2023. Sony Group Corporation’s Board of Directors resolved and approved the setting of parameters for the repurchase of shares of its own common stock pursuant to the Companies Act of Japan and Sony Group Corporation’s Articles of Incorporation at the meeting of the Board of Directors held on May 16, 2019. During10, 2022. Under the year ended March 31, 2020,above resolution, Sony repurchased 33,059,2008,545,600 shares of its common stock for an amount of 199,999 89,118 million yen under the above resolution. Based on the resolution of SonyCorporation
’s Representative Corporate Executive Officer delegated by the Board of Directors, Sony Corporation canceled 12,737,400 shares of its common stock held as treasury stock on March 26, 2020.
The amount of statutory retained earnings of Sony Corporation available for dividends to shareholders as of March 31, 2020 was 683,084 million yen.The appropriation of retained earnings forduring the fiscal year ended March 31, 2020, including2023.
Additionalpaid-in capital consists of surplus that is derived from equity transactions and not recorded in common stock, and its primary component is capital reserves. The Companies Act of Japan provides that no less than 50% of thepaid-in amount or proceeds of issuance of shares shall be incorporated in common stock, and that the remaining shall be incorporated in capital reserves. Capital reserves may be incorporated in common stock upon approval of the General Meeting of Shareholders. Retained earnings consist of legal reserves and accumulated earnings. The Companies Act of Japan provides that earnings in an amount equal to 10% of cash dividends forfrom retained earnings shall be appropriated as a capital reserve or a legal reserve on the six-month perioddate of distribution of retained earnings until an aggregated amount of capital reserve and legal reserve equals 25% of common stock. Legal reserves may be used upon approval of the General Meeting of Shareholders. Dividends whose record date falls in the fiscal years ended March 31, 2020, has been incorporated2022 and 2023, and whose effective date falls in the consolidated financial statements. This appropriation of retained earnings was approved by the written resolution of the Board of Directors of Sony Corporationsubsequent period are as of May 13, 2020 and was then recorded in the statutory books of account, in accordance with the Companies Act.follows: Retained earnings include Sony’s equity in undistributed earnings of affiliated companies accounted for by the equity method in the amount of 46,477 million yen and 61,226 million yen at March 31, 2019 and 2020, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | | | | | | | Board of Directors’ meeting held on May 10, 2022 | | | Common stock | | | | 43,295 | | | | Retained earnings | | | | 35.00 | | | | March 31, 2022 | | | | June 3, 2022 | | Board of Directors’ meeting held on April 28, 2023 | | | Common stock | | | | 49,380 | | | | Retained earnings | | | | 40.00 | | | | March 31, 2023 | | | | June 5, 2023 | |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES (3) | Other comprehensive income |
Changes in accumulated other comprehensive income, net of tax, by component for the fiscal years ended March 31, 2018, 20192021, 2022 and 2020 were2023 are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | Unrealized gains (losses) on securities | | | Unrealized gains (losses) on derivative instruments | | | Pension liability adjustment | | | Foreign currency translation adjustments | | | | | Balance at March 31, 2017 | | | | | | | | ) | | | | ) | | | | ) | | | | ) | Other comprehensive income before reclassifications | | | | | | | | ) | | | | | | | | ) | | | | ) | Amounts reclassified out of accumulated other | | | | ) | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Net other comprehensive income | | | | | | | | ) | | | | | | | | ) | | | | | Less: Other comprehensive income attributable to noncontrolling interests | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at March 31, 2018 | | | | | | | | ) | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Other comprehensive income attributable to Sony Group Corporation’s stockholders | | | Transfer to retained earnings | | | Transactions with noncontrolling interests shareholders and other | | |
| | Changes in equity instruments measured at fair value through other comprehensive income | | | (8,882 | ) | | | 144,544 | | | | 6,085 | | | | (2,125 | ) | | | 139,622 | | Changes in debt instruments measured at fair value through other comprehensive income | | | 985,234 | | | | (179,251 | ) | | | — | | | | 458,754 | | | | 1,264,737 | | | | | 1,248 | | | | 51 | | | | — | | | | — | | | | 1,299 | | Remeasurement of defined benefit pension plans | | | — | | | | 11,555 | | | | (11,555 | ) | | | — | | | | — | | Exchange differences on translating foreign operations | | | — | | | | 113,771 | | | | — | | | | 130 | | | | 113,901 | | Insurance contract valuation adjustments | | | 1,973 | | | | (2,537 | ) | | | — | | | | 476 | | | | (88 | ) | Share of other comprehensive income of investments accounted for using the equity method | | | (97 | ) | | | 885 | | | | (2 | ) | | | — | | | | 786 | | | | | | | | | | | | | | | | | | | | | | | | | | 979,476 | | | | 89,018 | | | | (5,472 | ) | | | 457,235 | | | | 1,520,257 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Other comprehensive income attributable to Sony Group Corporation’s stockholders | | | Transfer to retained earnings | | |
| | Changes in equity instruments measured at fair value through other comprehensive income | | | 139,622 | | | | (106,426 | ) | | | (5,784 | ) | | | 27,412 | | Changes in debt instruments measured at fair value through other comprehensive income | | | 1,264,737 | | | | (416,904 | ) | | | — | | | | 847,833 | | | | | 1,299 | | | | 4,735 | | | | — | | | | 6,034 | | Remeasurement of defined benefit pension plans | | | — | | | | 33,641 | | | | (33,641 | ) | | | — | | Exchange differences on translating foreign operations | | | 113,901 | | | | 223,777 | | | | — | | | | 337,678 | | Insurance contract valuation adjustments | | | (88 | ) | | | 599 | | | | — | | | | 511 | | Share of other comprehensive income of investments accounted for using the equity method | | | 786 | | | | 2,078 | | | | — | | | | 2,864 | | | | | | | | | | | | | | | | | | | | | | 1,520,257 | | | | (258,500 | ) | | | (39,425 | ) | | | 1,222,332 | | | | | | | | | | | | | | | | | | | | | | |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES | | | | | | | | | | | | | | | | | | | | | | | | | | | Unrealized gains (losses) on securities | | | Unrealized gains (losses) on derivative instruments | | | | | | Foreign currency translation adjustments | | | | | Balance at March 31, 2018 | | | | | | | | ) | | | | ) | | | | ) | | | | ) | Cumulative effect of ASU2016-01 | | | | ) | | | | | | | | | | | | | | | | ) | Other comprehensive income before reclassifications | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Amounts reclassified out of accumulated other comprehensive income * | | | | | | | | ) | | | | | | | | ) | | | | | Net other comprehensive income | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Less: Other comprehensive income attributable to noncontrolling interests | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at March 31, 2019 | | | | | | | | ) | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unrealized gains (losses) on securities | | | Unrealized gains (losses) on derivative instruments | | | Pension liability adjustment | | | Foreign currency translation adjustments | | | | | | | | Balance at March 31, 2019 | | | | | | | | ) | | | | ) | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Other comprehensive income before reclassifications | | | | | | | | | | | | ) | | | | ) | | | | | | | | ) | Amounts reclassified out of accumulated other | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net other comprehensive income | | | | | | | | | | | | | | | | ) | | | | | | | | | Less: Other comprehensive income attributable to noncontrolling interests | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at March 31, 2020 | | | | | | | | | | | | ) | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | |
* | Foreign currency translation adjustments were transferred from accumulated other comprehensive income to net income as a result of a complete or substantially complete liquidation or sale of certain foreign subsidiaries and affiliates. |
| | | | | | | | | | | | | | | | | | | | | | |
| | | Other comprehensive income attributable to Sony Group Corporation’s stockholders | | | Transfer to retained earnings | | |
| | Changes in equity instruments measured at fair value through other comprehensive income | | | 27,412 | | | | (36,862 | ) | | | 298 | | | | (9,152 | ) | Changes in debt instruments measured at fair value through other comprehensive income | | | 847,833 | | | | (884,678 | ) | | | — | | | | (36,845 | ) | | | | 6,034 | | | | 12,379 | | | | — | | | | 18,413 | | Remeasurement of defined benefit pension plans | | | — | | | | 18,891 | | | | (18,891 | ) | | | — | | Exchange differences on translating foreign operations | | | 337,678 | | | | 175,525 | | | | — | | | | 513,203 | | Insurance contract valuation adjustments | | | 511 | | | | 1,714 | | | | — | | | | 2,225 | | Share of other comprehensive income of investments accounted for using the equity method | | | 2,864 | | | | 3,699 | | | | — | | | | 6,563 | | | | | | | | | | | | | | | | | | | | | | 1,222,332 | | | | (709,332 | ) | | | (18,593 | ) | | | 494,407 | | | | | | | | | | | | | | | | | | |
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Reclassifications out of accumulated other comprehensive income forand the fiscal years ended March 31, 2018, 2019 and 2020 were as follows:
| | | | | | | | | | | | | | | | | | | | | Comprehensive income components | | Amounts reclassified from accumulated other comprehensive income | | | Affected line items in consolidated | | | | | | | | | | | | | Unrealized gains (losses) on securities | | | | ) | | | | | | | | | | Financial services revenue | | | | | ) | | | | | | | | | | Gain on sale of securities investments, net | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Unrealized gains (losses) on derivative instruments | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | Pension liability adjustment | | | | | | | | | | | | | | | | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign currency translation adjustments | | | | ) | | | | ) | | | | ) | | Foreign exchange loss, net and other operating (income) expense, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | Total amounts reclassified out of accumulated other comprehensive income, net of tax | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
* | The amortization of pension and postretirement benefit componentsis
included in the computation of net periodic pension cost. Refer to Note 15. |
(4) | Equity transactions with noncontrolling interests |
Net income attributable to Sony Corporation’s stockholders and transfers (to) from therelated tax effect including noncontrolling interests for the fiscal years ended March 31, 2018, 20192021, 2022 and 2020 were2023 are as follows:
| | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | Net income attributable to Sony Corporation’s stockholders | | | | | | | | | | | | | Transfers (to) from the noncontrolling interests: | | | | | | | | | | | | | Increase (decrease) in additional paid-in capital for purchase of additional shares in consolidated subsidiaries | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | Change from net income attributable to Sony Corporation’s stockholders and transfers (to) from the noncontrolling interests | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | Comprehensive income components | | | | | | | | | | Items that will not be reclassified to profit or loss | | | | | | | | | | | | | Changes in equity instruments measured at fair value through other comprehensive income | | | | | | | | | | | | | Amount incurred during the year | | | 191,122 | | | | (139,511 | ) | | | (45,708 | ) | | | | | | | | | | | | | | | | | 191,122 | | | | (139,511 | ) | | | (45,708 | ) | | | | (46,382 | ) | | | 33,085 | | | | 8,846 | | | | | | | | | | | | | | | | | | 144,740 | | | | (106,426 | ) | | | (36,862 | ) | Remeasurement of defined benefit pension plans | | | | | | | | | | | | | Amount incurred during the year | | | 17,856 | | | | 43,134 | | | | 27,136 | | | | | | | | | | | | | | | | | | 17,856 | | | | 43,134 | | | | 27,136 | | | | | (6,301 | ) | | | (9,493 | ) | | | (8,245 | ) | | | | | | | | | | | | | | | | | 11,555 | | | | 33,641 | | | | 18,891 | | Share of other comprehensive income of investments accounted for using the equity method | | | | | | | | | | | | | Amount incurred during the year | | | 98 | | | | 869 | | | | 197 | | | | | | | | | | | | | | | | | | 98 | | | | 869 | | | | 197 | | | | | (11 | ) | | | (292 | ) | | | (52 | ) | | | | | | | | | | | | | | | | | 87 | | | | 577 | | | | 145 | | | | | | | | | | | | | | | | | | 156,382 | | | | (72,208 | ) | | | (17,826 | ) |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES | | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | Comprehensive income components | | | | | | | | | | Items that may be reclassified subsequently to profit or loss | | | | | | | | | | | | | Changes in debt instruments measured at fair value through other comprehensive income | | | | | | | | | | | | | Amount incurred during the year | | | (285,504 | ) | | | (572,692 | ) | | | (1,223,450 | ) | Reclassification to profit or loss | | | (98 | ) | | | (6,408 | ) | | | (5,300 | ) | | | | | | | | | | | | | | | | | (285,602 | ) | | | (579,100 | ) | | | (1,228,750 | ) | | | | 80,053 | | | | 162,196 | | | | 344,072 | | | | | | | | | | | | | | | | | | (205,549 | ) | | | (416,904 | ) | | | (884,678 | ) | | | | | | | | | | | | | | Amount incurred during the year | | | 7,481 | | | | (7,703 | ) | | | (12,975 | ) | Reclassification to profit or loss | | | (7,228 | ) | | | 14,529 | | | | 30,813 | | | | | | | | | | | | | | | | | | 253 | | | | 6,826 | | | | 17,838 | | | | | (202 | ) | | | (2,091 | ) | | | (5,459 | ) | | | | | | | | | | | | | | | | | 51 | | | | 4,735 | | | | 12,379 | | Insurance contract valuation adjustments | | | | | | | | | | | | | Amount incurred during the year | | | (3,081 | ) | | | 807 | | | | 2,463 | | Reclassification to profit or loss | | | (39 | ) | | | (10 | ) | | | (83 | ) | | | | | | | | | | | | | | | | | (3,120 | ) | | | 797 | | | | 2,380 | | | | | — | | | | (198 | ) | | | (666 | ) | | | | | | | | | | | | | | | | | (3,120 | ) | | | 599 | | | | 1,714 | | Exchange differences on translating foreign operations | | | | | | | | | | | | | Amount incurred during the year | | | 115,304 | | | | 227,017 | | | | 177,645 | | Reclassification to profit or loss | | | 17 | | | | (742 | ) | | | 630 | | | | | | | | | | | | | | | | | | 115,321 | | | | 226,275 | | | | 178,275 | | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | 115,321 | | | | 226,275 | | | | 178,275 | | Share of other comprehensive income of investments accounted for using the equity method | | | | | | | | | | | | | Amount incurred during the year | | | 798 | | | | 1,501 | | | | 3,554 | | Reclassification to profit or loss | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | 798 | | | | 1,501 | | | | 3,554 | | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | 798 | | | | 1,501 | | | | 3,554 | | | | | | | | | | | | | | | | | | (92,499 | ) | | | (183,794 | ) | | | (688,756 | ) | | | | | | | | | | | | | | Total other comprehensive income | | | 63,883 | | | | (256,002 | ) | | | (706,582 | ) | | | | | | | | | | | | | |
| Equity transactions with noncontrolling interests shareholders |
During the fiscal year ended March 31, 2019,2021, Sony Group Corporation acquired fromall the Estate of Michael Jackson (the “Estate”)common shares and the 25.1% interest in Nile Acquisition LLC (“Nile”)related stock acquisition rights not held by the Estate. A totalSony Group Corporation of 287.5SFGI, a consolidated subsidiary of Sony Group Corporation, and SFGI became a wholly-owned subsidiary of Sony Group Corporation. Consideration for this acquisition was 396,698 million U.S.
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
dollars was paid to the Estate for the acquisition.yen. The net difference between the cash consideration, paid andthe decrease in the carrying amount of the noncontrolling interests was recognized as a decrease to additionalpaid-in
capital of 295.9 million U.S. dollars. As a result of the acquisition, Nile became a wholly-owned subsidiary of Sony.On November 18, 2019, Sony, through a wholly-owned subsidiary in the Pictures segment, acquired AT&T Inc.’s (“AT&T”) 42% equity interest in Game Show Network, LLC (“Game Show Network”), a U.S.-based media network subsidiary. As a result of this acquisition, Game Show Network has become a wholly-owned subsidiary of Sony. Sony paid 53,9921,046,380 million yen (496 million U.S. dollars) to AT&T, including 129 million U.S. dollars of dividends Sony distributed to AT&T prior to the acquisition. The difference between the cash paid and the carrying amountincrease in accumulated other comprehensive income of the noncontrolling interests457,072 million yen was recognized as an increase to additional paid-in capital.capital of 192,610 million yen.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES 17. | Stock-based compensation plans |
The stock-based compensation expense for the fiscal years ended March 31, 2018, 20192021, 2022 and 20202023 was 5,2498,892 million yen, 5,49911,105 million yen and 5,95815,781 million yen, respectively. Sony Group Corporation principally has a stock-based compensation incentive plan for selected directors,the corporate executive officers and employees of Sony Group Corporation, and the directors, other officers and employees of its subsidiaries in the form of a stock acquisition rightsoption plan. The stock acquisition rights granted under the stock option plan generally have three year gradedthree-year vesting schedules and are exercisable up to ten10 years from the date of grant. The total cash received from exercises under all of the stock acquisition rights plans during the fiscal years ended March 31, 2018, 2019 and 2020 was 7,129 million yen, 12,757 million yen and 7,560 million yen, respectively. Sony issuedGroup Corporation either issues new shares of common stock or reissues existing treasury stock upon the exercise of these rights.
The weighted-average fair value per share at the date of grant of stock acquisition rights granted during the fiscal years ended March 31, 2018, 20192021, 2022 and 20202023 was 2,0452,207 yen, 1,5932,994 yen and 1,8643,123 yen, respectively. The fair value of stock acquisition rights granted on the date of grant and used to recognize compensation expense for the fiscal years ended March 31, 2018, 20192021, 2022 and 20202023 was estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions: | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | Weighted-average assumptions | | | | | | | | | | | | | | | | | % | | | | % | | | | % | | | | | years | | | | years | | | | years | | | | | % | | | | % | | | | % | | | | | % | | | | % | | | | % |
| | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | Weighted-average assumptions | | | | | | | | | | Share price at the grant date | | | 9,202 | yen | | | 14,361 | yen | | | 11,389 | yen | | | | 0.17 | % | | | 0.60 | % | | | 1.88 | % | | | | 5.41 | years | | | 5.33 | years | | | 5.46 | years | | | | 26.97 | % | | | 22.47 | % | | | 26.55 | % | | | | 0.34 | % | | | 0.29 | % | | | 0.47 | % |
| * | Expected volatility was based on the historical volatilities of Sony Group Corporation’s common stock over the expected life of the stock acquisition rights. |
A summary of the activities regarding the stock acquisition rights plan during the fiscal year ended March 31, 2020 is as follows: | | | | | | | | | | | | | | | | | | | Fiscal year ended March 31, 2020 | | | | | | | Weighted- average exercise price | | | Weighted- average remaining life | | | | | | | | | | | | | | | | | | Outstanding at beginning of the fiscal year | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Outstanding at end of the fiscal year | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Exercisable at end of the fiscal year | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The total intrinsic value of shares exercised under the stock acquisition rightsoption plan during the fiscal years ended March 31, 2018, 20192021, 2022 and 20202023 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | | |
| | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Outstanding at beginning of the fiscal year | | | 12,876,700 | | | | 4,982 | | | | 14,022,400 | | | | 6,653 | | | | 16,544,300 | | | | 9,397 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 4,534,600 | | | | 9,221 | | | | 4,876,400 | | | | 14,188 | | | | 4,744,300 | | | | 10,979 | | | | | 3,178,300 | | | | 3,911 | | | | 1,944,900 | | | | 5,313 | | | | 1,260,800 | | | | 5,565 | | | | | 210,600 | | | | 6,280 | | | | 409,600 | | | | 9,484 | | | | 336,300 | | | | 12,654 | | | | | | | | | | | | | | | | | | | | | | | | | | | Outstanding at end of the fiscal year | | | 14,022,400 | | | | 6,653 | | | | 16,544,300 | | | | 9,397 | | | | 19,691,500 | | | | 10,312 | | | | | | | | | | | | | | | | | | | | | | | | | | | Exercisable at end of the fiscal year | | | 5,800,700 | | | | 4,535 | | | | 7,044,700 | | | | 5,883 | | | | 9,683,000 | | | | 8,033 | |
The weighted-average stock price at the time when the stock acquisition rights were exercised during the fiscal years ended March 31, 2021, 2022 and 2023 was 6,970 million9,311 yen, 13,325 million12,627 yen and 7,575 million11,404 yen, respectively.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
A summary of unexercised stock acquisition rights as of March 31, 2021, 2022 and 2023 is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Outstanding at end of the | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 22 nd | | November 22, 2011 | | November 22, 2012 to November 21, 2021 | | ¥ | 1,523 | | | | 24,700 | | | | — | | | | — | | 23 rd | | November 22, 2011 | | November 22, 2012 to November 21, 2021 | | $ | 19.44 | | | | 77,500 | | | | — | | | | — | | 24 th | | December 4, 2012 | | December 4, 2013 to December 3, 2022 | | ¥ | 932 | | | | 24,000 | | | | 14,700 | | | | — | | 25 th | | December 4, 2012 | | December 4, 2013 to December 3, 2022 | | $ | 11.23 | | | | 102,600 | | | | 77,900 | | | | — | | 26 th | | November 20, 2013 | | November 20, 2014 to November 19, 2023 | | ¥ | 2,007 | | | | 88,500 | | | | 47,000 | | | | 14,400 | | 27 th | | November 20, 2013 | | November 20, 2014 to November 19, 2023 | | $ | 20.01 | | | | 140,900 | | | | 127,300 | | | | 110,700 | | 28 th | | November 20, 2014 | | November 20, 2015 to November 19, 2024 | | ¥ | 2,410.5 | | | | 243,700 | | | | 190,900 | | | | 132,500 | | 29 th | | November 20, 2014 | | November 20, 2015 to November 19, 2024 | | $ | 20.67 | | | | 167,300 | | | | 154,100 | | | | 135,500 | | 30 th | | November 19, 2015 | | November 19, 2016 to November 18, 2025 | | ¥ | 3,404 | | | | 323,900 | | | | 252,600 | | | | 186,900 | | 31 st | | November 19, 2015 | | November 19, 2016 to November 18, 2025 | | $ | 27.51 | | | | 218,800 | | | | 170,800 | | | | 148,200 | | 32 nd | | November 22, 2016 | | November 22, 2017 to November 21, 2026 | | ¥ | 3,364 | | | | 672,100 | | | | 516,300 | | | | 390,400 | | 33 rd | | November 22, 2016 | | November 22, 2017 to November 21, 2026 | | $ | 31.06 | | | | 446,200 | | | | 367,900 | | | | 330,500 | | 34 th | | November 21, 2017 | | November 21, 2018 to November 20, 2027 | | ¥ | 5,231 | | | | 872,800 | | | | 572,500 | | | | 434,200 | | 35 th | | November 21, 2017 | | November 21, 2018 to November 20, 2027 | | $ | 45.73 | | | | 787,200 | | | | 676,400 | | | | 620,500 | | 36 th | | February 28, 2018 | | February 28, 2019 to February 27, 2028 | | ¥ | 5,442 | | | | 5,800 | | | | 4,500 | | | | 3,900 | | 38 th | | November 20, 2018 | | November 20, 2019 to November 19, 2028 | | ¥ | 6,440 | | | | 1,290,600 | | | | 977,800 | | | | 839,900 | | 39 th | | November 20, 2018 | | November 20, 2019 to November 19, 2028 | | $ | 56.22 | | | | 987,300 | | | | 826,800 | | | | 760,500 | | 40 th | | November 20, 2019 | | November 20, 2020 to November 19, 2029 | | ¥ | 6,705 | | | | 1,645,300 | | | | 1,389,700 | | | | 1,210,100 | | 41 st | | November 20, 2019 | | November 20, 2020 to November 19, 2029 | | $ | 60.99 | | | | 1,393,400 | | | | 1,190,800 | | | | 1,076,300 | | 42 nd | | April 17, 2020 | | April 17, 2021 to April 16, 2030 | | $ | 63.75 | | | | 20,000 | | | | 13,300 | | | | 13,300 | | 43 rd | | November 18, 2020 | | November 18, 2021 to November 17, 2030 | | ¥ | 9,237 | | | | 2,252,000 | | | | 2,193,000 | | | | 2,060,400 | | 44 th | | November 18, 2020 | | November 18, 2021 to November 17, 2030 | | $ | 87.48 | | | | 2,222,800 | | | | 1,974,800 | | | | 1,862,100 | | 45 th | | November 18, 2021 | | November 18, 2022 to November 17, 2031 | | ¥ | 14,350 | | | | — | | | | 2,399,100 | | | | 2,367,500 | | 46 th | | November 18, 2021 | | November 18, 2022 to November 17, 2031 | | $ | 124.90 | | | | — | | | | 2,391,100 | | | | 2,277,100 | | 47 th | | November 16, 2022 | | November 16, 2023 to November 15, 2032 | | ¥ | 11,390 | | | | — | | | | — | | | | 2,427,100 | | 48 th | | November 16, 2022 | | November 16, 2023 to November 15, 2032 | | $ | 77.89 | | | | — | | | | — | | | | 2,289,500 | |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES As of March 31, 2020, there was 5,912
million yen of total unrecognized compensation expense related to nonvested stock acquisition rights. This expense is expected to be recognized over a weighted-average period of 1.97In April 2016, a series of earthquakes occurred in the Kumamoto region of Japan. These earthquakes caused damage to certain fixed assets, including buildings, machinery and equipment, as well as inventories in manufacturing sites located in the Kumamoto region.
For the fiscal year ended March 31, 2017, Sony incurred incremental losses and associated expenses including repair costs of fixed assets and a loss on disposal of inventories directly related to the damage caused by the earthquakes of 16,682 million yen. These losses and expenses were primarily recorded in cost of sales in the consolidated statements of income and were offset by insurance recoveries of 10,682 million yen, as described below. In addition, Sony incurred other expenses of 9,365 million yen, which included idle facility costs at manufacturing sites. These expenses were primarily recorded in cost of sales in the consolidated statements of income.
Sony has insurance policies that cover certain damage directly caused by the earthquakes for Sony Corporation and certain of its subsidiaries, including damage at manufacturing sites. The insurance policies cover the damage and costs associated with fixed assets and inventories, as well as incremental expenses including removal and cleaning costs. These policies also provide business interruption coverage, including coverage for lost profits. For the fiscal year ended March 31, 2017, Sony recorded insurance receivables of 10,682 million yen, representing a portion of the insurance recoveries that were deemed probable of collection up to the extent of the amount of corresponding losses recognized in the same period. Of the insurance receivables recorded during the period, substantially all relate to damaged assets and inventories, and do not include amounts for business interruption or lost profits. Sony concluded that the recoveries from insurance claims are probable based on the coverage under valid policies, communications with the insurance carriers, Sony’s past claims history with the insurance carriers, and Sony’s assessment that the insurance carriers have the financial ability to pay the claims. In March 2017, 10,000 million yen was agreed to by the insurance carriers. These receivables are recorded within other receivables, whereas the remaining receivables of 682 million yen is recorded in other current assets in the consolidated balance sheets as of the fiscal year ended March 31, 2017.
Sony has underwritten 2,000 million yen in reinsurance policies for the above insurance carriers related to the policy described above. The amount was recorded in other current liabilities in the consolidated balance sheets as of the fiscal year ended March 31, 2017 and was paid to the insurance carriers in the fiscal year ended March 31, 2018.
In April 2017, the remaining insurance claims of 10,000 million yen that were mainly for business interruption coverage were agreed to by the carriers. As a result, the total amount of insurance recoveries paid to Sony in April 2017 was 20,000 million yen. 9,318 million yen, which was the difference between 20,000 million yen and 10,682 million yen as described above, was recorded in other operating revenue for the fiscal year ended March 31, 2018. The proceeds from insurance recoveries were presented as cash flows from operating activities in the consolidated statements of cash flows for the fiscal year ended March 31, 2018.
Receivables from contracts with customers, contract assets and contract liabilities are comprised of the following: | | | | | | | | | | | | | | | | | | | | Receivables from contracts with customers *1 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Receivables from contracts with customers *1 | | | 1,177,027 | | | | 1,382,377 | | | | | 12,204 | | | | 16,785 | | | | | 294,911 | | | | 366,227 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Receivables from contracts with customers *1 | | | 1,382,377 | | | | 1,679,106 | | | | | 16,785 | | | | 19,355 | | | | | 366,227 | | | | 508,454 | |
| *1 | Receivables from contracts with customers are included in the consolidated statements of financial position as “Trade and other receivables, and contract assets” and “Other financial assets,”non-current. |
| *2 | Contract assets are included in the consolidated balance sheetsstatements of financial position as “Notes“Trade and accounts receivable, tradeother receivables, and contract assets” and “Other”,“Othernon-current.non-current assets.” |
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
| *23 | Contract liabilities are included in the consolidated balance sheetsstatements of financial position as “Other”, both“Other current liabilities” and “Othernon-current.non-current liabilities.” |
Contract liabilities principally relate to customer advances received prior to performance. Revenues of 204,265216,931 million yen, 231,274 million yen and 303,779 million yen were recognized during the fiscal yearyears ended March 31, 2020,2021, 2022 and 2023, which were included in the balance of contract liabilities atas ofMarch 31April
, 2019. 1, 2020, 2021 and 2022. Revenues of 61,70676,405 million yen, 78,149 million yen and 45,645 million yen were recognized during the fiscal yearyears ended March 31, 20202021, 2022 and 2023 respectively, from performance obligations satisfied prior to March 31, 2019.April 1, 2020, 2021 and 2022 respectively.Remaining (unsatisfied or partially unsatisfied) performance obligations represent future revenues not yet recorded for firm orders that have not yet been performed. Sony applies practical expedients to exclude certain information about the remaining performance obligations, primarily related to contracts with an expected original duration of less than one year and sales-based or usage-based royalty revenue on licenses of intellectual property.less. The following table shows the summary of the transaction prices allocated to remaining performance obligations that are unsatisfied atas of March 31, 2020,2022 and 2023, respectively, of which more than half are expected to be recognized within one year and substantially all within three years. | | | | | | | | | | | March 31, The amount of the transaction price related to variable consideration is included only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue to be recognized will not occur. | | Pictures — Motion Pictures and Television Productions*1
| | | | | Pictures — Media Networks
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | Pictures — Motion Pictures and Television Productions *1 | | | 705,974 | | | | 796,690 | | Pictures — Media Networks | | | 17,568 | | | | 8,120 | | | | | 127,530 | | | | 140,842 | | | | | 57,948 | | | | 68,708 | |
| *1 | For Motion Pictures and Television Productions in the Pictures segment, Sony has included all contracts regardless of duration. |
| *2 | AmountThe amount included in the Music segment primarily consists of minimum royalty guarantees or fixed fees in contracts related to license revenue for ongoing access to an evolving library of content. These contracts also include the potential for sales-based or usage-based royalties to exceed the minimum guarantees, and these additional royalties are excluded from the amount above, of which substantially all are recognized as revenue within three years. |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Contract costs are comprised as follows: | | | | | | | | | | | | | | | | | | | | Incremental costs of obtaining a contract | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | Incremental costs of obtaining a contract | | | 7,336 | | | | 6,110 | |
Sony applies practical expedients to recognize the incremental costs of obtaining a contract as an expense if the amortization period of the asset that otherwise would have been recognized is one year or less. The amortization of 6,4207,271 million yen, 6,917 million yen and 4,686 million yen was recognized during the fiscal yearyears ended March 31, 2020.2021, 2022 and 2023, respectively. The incremental costs of obtaining a contract are primarily recognized in the EPET&S segment for the internet-related service business and amortized to expense over the contract period. | Disaggregation of revenue |
For the breakdown of sales and operatingfinancial services revenue by segments, product categories and geographies,g eographies, refer to Note 29.4.As part of its effort to improve the performance of the various businesses, Sony has undertaken a number of restructuring initiatives. Sony defines restructuring initiatives as activities initiated by Sony, which are designed
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
to generate a positive impact on future profitability. These activities include exiting a business or product category, implementing a headcount reduction program, realignment of its manufacturing sites tolow-cost
areas, utilizing the services of third-party original equipment and design manufacturers (OEMs and ODMs), a review of its development and design structure, and the streamlining of its sales and administrative functions. The restructuring activities are generally short term in nature and are generally completed within one year of initiation.The changes in the accrued restructuring charges for the fiscal years ended March 31, 2018, 2019 and 2020 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | Employee termination benefits | | | Non-cash write-downs and disposals, net * | | | | | | | | Balance at March 31, 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | ) | | | | | ) | | | | | | | | ) | | | | ) | | | | | ) | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | Balance at March 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | ) | | | | | ) | | | | | | | | ) | | | | ) | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | Balance at March 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | ) | | | | | ) | | | | | | | | ) | | | | ) | | | | | ) | | | | | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | Balance at March 31, 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| * | Significant asset impairments excluded from restructuring charges are described in Note 13. |
Total costs incurred in connection with these restructuring programs by segment for the fiscal years ended March 31, 2018, 2019 and 2020 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | Fiscal year ended March 31, 2018 | | | | Employee termination benefits | | | | | | Total net restructuring charges | | | Depreciation associated with restructured assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Electronics Products & Solutions | | | | | | | | | | | | | | | | | | | | | Imaging & Sensing Solutions | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | | | | | Fiscal year ended March 31, 2019 | | | | Employee termination benefits | | | | | | Total net restructuring charges | | | Depreciation associated with restructured assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Electronics Products & Solutions | | | | | | | | | | | | | | | | | | | | | Imaging & Sensing Solutions | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Fiscal year ended March 31, 2020 | | | | Employee termination benefits | | | | | | Total net restructuring charges | | | Depreciation associated with restructured assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Electronics Products & Solutions | | | | | | | | | | | | | | | | | | | | | Imaging & Sensing Solutions | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| * | Other associated costs includesnon-cash
write-downs and disposals, net |
Depreciation associated with restructured assets as used in the context of the disclosures regarding restructuring activities refers to the increase in depreciation expense caused by revising the useful life and the salvage value of depreciable fixed assets under an approved restructuring plan. Any impairment of the assets is recognized immediately in the period it is identified.
Sony has undergone several headcount reduction programs to further reduce operating costs primarily in an effort to improve the performance of certain segments related to the EP&S segment and reduce cost at the headquarters function. Through measures including the realignment of its manufacturing sites, a review of its development and design structure, and the streamlining of its sales and administrative functions, Sony has continued to implement a company-wide (including headquarters) rationalization. Sony intends to reallocate and optimize its workforce through programs including work reassignments and outplacements. The employee termination benefits costs in the above table are included in selling, general and administrative in the consolidated statements of income.
In an effort to optimize the organization and improve the performance of the Music segment, Sony has implemented a number of restructuring initiatives targeting operating effectiveness and cost reduction. These activities resulted in restructuring charges primarily consisting of headcount reductions totaling 6,630 million yen, 3,192 million yen and 3,185 million yen for the fiscal years ended March 31, 2018, 2019 and 2020,
respectively.
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
In an effort to optimize the organization and improve the performance of the Pictures segment, Sony has implemented a number of restructuring initiatives targeting operating effectiveness and cost reduction. These activities resulted in restructuring charges primarily consisting of headcount reductions totaling 4,795 million yen for the fiscal year ended March 31,
There were no significant charges for the Pictures segment during the fiscal year ended March 31, 2020.In an effort to improve the performance of each business, mainly the smartphone business in the EP&S segment, Sony has implemented a number of restructuring initiatives targeting profitability improvement. These activities resulted in restructuring charges primarily consisting of the closure and consolidation of manufacturing sites as well as sales offices overseas totaling 16,011 million yen and 14,727 million yen for the fiscal years
ended March 31, 2019 and 2020,
respectively.21. | Supplemental consolidated statements of income information |
| Other operating (income) expense, net |
Sony records transactions in other operating (income) expense, net due to either the nature of the transaction or in consideration of factors including the relationship to Sony’s core operations. Other operating (income) expense, net is comprised of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gain on sale of Sony City Osaki *1 | | | | ) | | | | | | | | | Gain on remeasurement of EMI shares *2 | | | | | | | | ) | | | | | Gain on remeasurement and sale of SRE shares | | | | | | | | | | | | ) | Gain on remeasurement of AEGON Sony Life Insurance Co., Ltd. and SA Reinsurance Ltd. shares *4 | | | | | | | | | | | | ) | (Gain) loss on purchase/sale of interests in subsidiaries and affiliates, net *5 | | | | ) | | | | ) | | | | ) | (Gain) loss on sale, disposal or impairment of assets, net *6 | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | ) | | | | ) | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | Gain on transfer of GSN Games shares *1 | | | — | | | | (70,020 | ) | | | — | | (Gain) loss on purchase/sale of interests in subsidiaries and associates, net | | | (18,868 | ) | | | (4,593 | ) | | | (4,318 | ) | (Gain) loss on sale, disposal or impairment of assets, net *2 | | | 32,122 | | | | 8,316 | | | | (417 | ) | | | | 996 | | | | 803 | | | | (7,286 | ) | | | | | | | | | | | | | | | | | 14,250 | | | | (65,494 | ) | | | (12,021 | ) | | | | | | | | | | | | | |
| *1 | A portion of gain on sale and leaseback transactions is deferred and is amortized on a straight-line basis over the lease term. |
*2 | Refer to Notes 5 and 25. |
*4 | Refer to Notes 5 and 25. |
*52 | Refer to Notes 25 and 26. |
*6 | Refer to Notes 9 13, 20 and 26.11. |
| Research and development costsexpenditures |
Research and development costs charged to cost of salesexpenditures recognized as an expense for the fiscal years ended March 31, 2018, 20192021, 2022 and 20202023 were 458,518545,357 million yen, 481,202618,368 million yen and 499,290735,698 million yen, respectively. Advertising costs included in selling, general and administrative expenses for the fiscal years ended March 31, 2018, 20192021, 2022 and 20202023 were 407,106261,391 million yen, 385,500347,709 million yen and 359,458391,131 million yen, respectively.
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
| Shipping and handling costs |
Shipping and handling costs for finished goods included in selling, general and administrative expenses for the fiscal years ended March 31, 2018, 20192021, 2022 and 20202023 were 46,25282,708 million yen, 51,75770,858 million yen and 46,19695,208 million yen, respectively, which included the internal transportation costs of finished goods.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES 22. | Financial income and expense |
| | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | | | | | | | | | | | | | | Financial assets measured at AC | | | 7,610 | | | | 6,996 | | | | 22,399 | | | | | | | | | | | | | | | Financial assets measured at FVOCI | | | 1,566 | | | | 2,792 | | | | 3,488 | | Gain on revaluation of equity instruments | | | | | | | | | | | | | Financial assets measured at FVPL | | | 61,259 | | | | — | | | | — | | | | | 13,357 | | | | 9,516 | | | | 5,171 | | | | | | | | | | | | | | | | | | 83,792 | | | | 19,304 | | | | 31,058 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | | | | | | | | | | | | | | Financial liabilities measured at AC | | | 5,916 | | | | 6,377 | | | | 16,016 | | | | | 8,292 | | | | 8,223 | | | | 10,382 | | Foreign exchange loss, net | | | 16,191 | | | | 1,612 | | | | 14,489 | | Loss on revaluation of equity instruments | | | | | | | | | | | | | Financial assets measured at FVPL | | | — | | | | 66,177 | | | | 4,623 | | | | | 10,683 | | | | 21,751 | | | | 13,441 | | | | | | | | | | | | | | | | | | 41,082 | | | | 104,140 | | | | 58,951 | | | | | | | | | | | | | | |
| *1 | Foreign exchange loss, net includes gains or losses from foreign exchange contracts. |
| * 2 | Shares of Spotify Technology S.A. (“Spotify”) held by Sony are classified as equity securities required to be measured at fair value through profit or loss. The revaluation of the Spotify shares, net of costs to be paid to Sony’s artists and distributed labels, owned as of March 31, 2021, March 31, 2022 and March 31, 2023 resulted in an unrealized gain of 51,310 million yen (480 million U.S. dollars), an unrealized loss of 45,017 million yen (395 million U.S. dollars), and an unrealized loss of 7,787 million yen (58 million U.S. dollars), respectively. |
Domestic and foreign components of incomeIncome (loss) before income taxes and the provision for current and deferred income taxes attributable to such income are summarized as follows: | | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | Income before income taxes: | | | | | | | | | | | | | Sony Corporation and all subsidiaries in Japan | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Sony Corporation and all subsidiaries in Japan | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Sony Corporation and all subsidiaries in Japan | | | | | | | | | | | | | | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | Income (loss) before income taxes: | | | 997,965 | | | | 1,117,503 | | | | 1,180,313 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 156,592 | | | | 238,602 | | | | 302,379 | | | | | (202,523 | ) | | | (9,505 | ) | | | (65,688 | ) | | | | | | | | | | | | | | | | | (45,931 | ) | | | 229,097 | | | | 236,691 | | | | | | | | | | | | | | |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
A reconciliation of the differences between the Japanese statutory tax rate and the effective tax rate is as follows: | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | | | | | % | | | | % | | | | % | | | | | | | | | | | | | | | | | | ) | | | | ) | | | | ) | Change in statutory tax rate and law | | | | ) | | | | ) | | | | ) | Change in valuation allowances (other than the 2019 reversal of Sony Americas Holding Inc. (“SAHI”) and its U.S. consolidated tax filing group below) | | | | ) | | | | | | | | ) | The 2019 reversal of valuation allowances of SAHI and its U.S. consolidated tax filing group | | | | | | | | ) | | | | | Change in deferred tax liabilities on undistributed earnings of foreign subsidiaries and corporate joint ventures | | | | ) | | | | ) | | | | | Lower tax rate applied to life and non-life insurance business in Japan | | | | ) | | | | ) | | | | ) | Foreign income tax differential | | | | ) | | | | ) | | | | ) | Adjustments to tax reserves | | | | ) | | | | ) | | | | | Effect of equity in net income of affiliated companies | | | | | | | | | | | | | The remeasurement gain for the equity interest in EMI | | | | | | | | ) | | | | | Japan controlled foreign company taxation | | | | | | | | | | | | | | | | | | | | | ) | | | | ) | | | | | | | | | | | | | | Effective income tax rate | | | | % | | | | % | | | | % | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | | | | 31.5 | % | | | 31.5 | % | | | 31.5 | % | | | | 0.2 | | | | 0.2 | | | | 0.2 | | | | | (1.4 | ) | | | (1.9 | ) | | | (3.2 | ) | Change in statutory tax rate | | | (0.1 | ) | | | (0.2 | ) | | | (0.1 | ) | Change in unrecognized tax assets (other than the reversal of a previous write-down of the deferred tax assets below) | | | (5.5 | ) | | | (3.7 | ) | | | (1.1 | ) | Reversal of a previous write-down of the deferred tax assets of the consolidated tax filing group in the United States | | | (6.6 | ) | | | — | | | | — | | Reversal of a previous write-down of the deferred tax assets relating to the national tax of Sony Group Corporation and its national tax filing group in Japan | | | (21.5 | ) | | | — | | | | — | | Change in deferred tax liabilities on undistributed earnings of foreign subsidiaries and corporate joint ventures | | | 0.7 | | | | 1.0 | | | | 1.6 | | Lower tax rate applied to life and non-life insurance business in Japan | | | (0.5 | ) | | | (0.4 | ) | | | (0.6 | ) | Foreign income tax differential | | | (4.4 | ) | | | (5.5 | ) | | | (6.4 | ) | Recording or reversal of liabilities for uncertain tax positions | | | (0.4 | ) | | | 0.8 | | | | (0.3 | ) | Controlled Foreign Company taxation in Japan | | | 3.0 | | | | (1.8 | ) | | | (2.1 | ) | | | | 0.4 | | | | 0.5 | | | | 0.6 | | | | | | | | | | | | | | | Effective income tax rate | | | -4.6 | % | | | 20.5 | % | | | 20.1 | % | | | | | | | | | | | | | |
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
On December 22, 2017, the U.S. Tax Reform Act was signed into law, making significant changes to the U.S. tax rules. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning January 1, 2018 and the transition of U.S. international taxation from a worldwide tax system to a modified territorial system, with aone-time
mandatory transition tax on previously deferred foreign earnings of U.S. subsidiaries.In addition to lowering the statutory corporate tax rate from 35% to 21%, the U.S. Tax Reform Act also eliminated certain deductions, included new restrictions on the deduction for interest, introduced a new tax regime called the Base Erosion Anti-Abuse Tax or “BEAT”, and changed how foreign earnings of the U.S. group are subject to tax. The U.S. Tax Reform Act also enhanced and extended the option to claim accelerated depreciation and amortization deductions by allowing full expensing of qualified property, including film costs, through 2022. The U.S. Tax Reform Act also provided for beneficial treatment of certain income derived by a U.S. entity from outside the United States (referred to as Foreign Derived Intangible Income or “FDII”).
The BEAT creates a minimum tax on multinational corporations by requiring companies subject to the BEAT to pay the greater of their regular tax liability (less certain credits, including foreign tax credits) or 10% for taxable years beginning in 2019 (6.25% forthe
fiscal year ended March 31. 2019) of a modified tax base which adds back certain related party payments. The BEAT comparison to regular tax must be done each year if the taxpayer’s “base erosion” related party payments exceed 3% of total deductions on its U.S. tax return. The US.
Treasury Department issued regulations which allow taxpayers to elect to forego deductions in order to stay below the 3% threshold. Sony initially expected to exceed the 3% threshold for the fiscal year ended March 31, 2019, but upon further detailed analysis at the time of the tax return filing, determined that it would be below the 3% threshold and therefore could use foreign tax credits to offset its regular tax liability. Sony believes it will be below the 3% threshold for the fiscal year ended March 31, 2020, and if not, would be able to avail itself of the election in the regulations that allows it to forego deductions to come under the threshold. Accordingly, Sony has provided for its taxes assuming the U.
S.
regular tax liabilityis
offset by tax credits. Sony is required to determine if it is subject to the BEAT on an annual basis,to
account forBEAT as a period cost and to record deferred taxes at the regular statutory rate. Accordingly, Sony has recorded its U.S. deferred tax assets and liabilities at 21%.Sony provides a valuation allowance for itsrecognizes deferred tax assets, which includesinclude temporary differences, net operating losses temporary differences and tax credits, whento the extent that it is more likely than notprobable that some portion, or all, of its deferred taxtaxable profit will be available against which the assets will notcan be realized.utilized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the relevant tax jurisdiction. As of December 31, 2018, SAHI and its U.S. consolidated tax filing group has continued its profitable trend, primarily as a result of the G&NS segment and the Music segment. Based on an assessment of the available positive and negative evidence, in the quarter ended December 31, 2018, Sony reversed the valuation allowancesestablished
against a significant portion of the deferred tax assets in the United States, primarily for net operating losses, temporary differences and certain tax credits, and recorded a tax benefit of 154,201 million yen.
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
The significant components of deferred tax assets and liabilities are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating loss carryforwards for tax purposes | | | | | | | | | Accrued pension and severance costs | | | | | | | | | Amortization including film costs | | | | | | | | | | | | — | | | | | | Warranty reserves and accrued expenses | | | | | | | | | Future insurance policy benefits | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Loss on equity securities | | | — | | | | | | Reserve for doubtful accounts | | | | | | | | | Impairment of investments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross deferred tax assets | | | | | | | | | Less: Valuation allowance | | | | ) | | | | ) | | | | | | | | | | Total deferred tax assets | | | | | | | | | | | | | | | | | | Deferred tax liabilities: | | | | | | | | | Insurance acquisition costs | | | | ) | | | | ) | Future insurance policy benefits | | | | ) | | | | ) | Unbilled accounts receivable in the Pictures segment | | | | ) | | | | ) | | | | — | | | | | | Unrealized gains on securities | | | | ) | | | | ) | Gain on equity securities | | | | ) | | | | | Intangible assets acquired through stock exchange offerings | | | | ) | | | | ) | Intangible assets derived from EMI Music Publishing acquisition | | | | ) | | | | ) | Undistributed earnings of foreign subsidiaries and corporate joint ventures | | | | ) | | | | ) | | | | | ) | | | | ) | | | | | ) | | | | ) | | | | | | | | | | Gross deferred tax liabilities | | | | ) | | | | ) | | | | | | | | | | Net deferred tax liabilities | | | | ) | | | | ) | | | | | | | | | |
Based on the weight of the available positive and negative evidence, forDuring the fiscal year ended March 31, 2020,2021, Sony continued to maintain valuation allowances againstassessed the recoverabilityof deferred tax assets, and reversed a previous write-down of the deferred tax assets atfor general business tax credits and foreign tax credits of the consolidated tax filing group in the United States. The impact of such reversal of a previous write-down of the deferred tax assets resulted in deferred tax benefits.Despite the spread ofCOVID-19, as a result of the acquisition of SFGI in the three months ended September 30, 2020, the taxable income of Sony Group Corporation and its national tax filing group in Japan has increased and is expected to be stable going forward. Based on an assessment of the available evidence, in particular recent profit history and forecasted profitability, in the three months ended September 30, 2020, Sony reversed a previous write-down of a significant portion of the deferred tax assets of the consolidated tax filing group in Japan, primarily for temporary differences and certain net operating losses. As a result, Sony recorded a tax benefit of 214,346 million yen in the three months ended September 30, 2020. Remaining deferred tax assets in Japan, primarily foreign tax credits, are continuously not recognized due to restrictions on the use of such assets and their relatively short remaining carryforward periods.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES
The schedules of deferred tax assets and liabilities by major cause of their occurrence are as well asfollows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fiscal year ended March 31, 2022 | | | | | | | Recognized in profit or loss | | | Recognized in other comprehensive income | | | Changes accompanying business combination | | | Recognized directly in equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating loss carryforwards for tax purposes | | | 86,170 | | | | (16,573 | ) | | | — | | | | — | | | | — | | | | 1,490 | | | | 71,087 | | Defined benefit liabilities | | | 62,426 | | | | 20,721 | | | | (9,493 | ) | | | — | | | | 1,640 | | | | (2,729 | ) | | | 72,565 | | Amortization including content assets | | | 44,251 | | | | (20,323 | ) | | | — | | | | — | | | | — | | | | 2,831 | | | | 26,759 | | | | | 90,818 | | | | 5,091 | | | | — | | | | 1,244 | | | | — | | | | (1,053 | ) | | | 96,100 | | Warranty reserves and accrued expenses | | | 129,649 | | | | 8,389 | | | | — | | | | 134 | | | | — | | | | 3,172 | | | | 141,344 | | | | | 29,714 | | | | (547 | ) | | | — | | | | — | | | | — | | | | 379 | | | | 29,546 | | | | | 40,231 | | | | 2,539 | | | | — | | | | 161 | | | | — | | | | 258 | | | | 43,189 | | | | | 48,315 | | | | (12,007 | ) | | | — | | | | — | | | | — | | | | 2,576 | | | | 38,884 | | | | | 7,165 | | | | 98 | | | | — | | | | 2 | | | | — | | | | 483 | | | | 7,748 | | Impairment of investments | | | 6,800 | | | | 3,418 | | | | — | | | | — | | | | — | | | | (402 | ) | | | 9,816 | | | | | 24,502 | | | | 3,779 | | | | — | | | | — | | | | — | | | | 2,904 | | | | 31,185 | | | | | 152,242 | | | | (32,131 | ) | | | (538 | ) | | | 13,304 | | | | (125 | ) | | | 7,842 | | | | 140,594 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total deferred tax assets | | | 722,283 | | | | (37,546 | ) | | | (10,031 | ) | | | 14,845 | | | | 1,515 | | | | 17,751 | | | | 708,817 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Deferred tax liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Insurance acquisition costs | | | (176,745 | ) | | | (13,182 | ) | | | (1,261 | ) | | | — | | | | — | | | | (286 | ) | | | (191,474 | ) | Insurance contract liabilities | | | (151,061 | ) | | | (10,796 | ) | | | (5,480 | ) | | | — | | | | — | | | | — | | | | (167,337 | ) | Non-current other receivables in the Pictures segment | | | (7,894 | ) | | | 8,009 | | | | — | | | | — | | | | — | | | | (115 | ) | | | — | | | | | (84,728 | ) | | | 25,955 | | | | — | | | | (1,245 | ) | | | — | | | | 452 | | | | (59,566 | ) | Equity securities measured at FVOCI | | | (51,011 | ) | | | 1,841 | | | | 33,085 | | | | — | | | | — | | | | 116 | | | | (15,969 | ) | Equity securities measured at FVPL | | | (87,718 | ) | | | 36,915 | | | | — | | | | — | | | | — | | | | (2,336 | ) | | | (53,139 | ) | Debt securities measured at FVOCI | | | (505,914 | ) | | | 9,822 | | | | 168,937 | | | | — | | | | — | | | | (204 | ) | | | (327,359 | ) | Intangible assets acquired through stock exchange offerings | | | (23,949 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (23,949 | ) | Intangible assets derived from EMI Music Publishing acquisition | | | (93,481 | ) | | | (1,209 | ) | | | — | | | | — | | | | — | | | | (6,904 | ) | | | (101,594 | ) | Undistributed earnings of foreign subsidiaries and corporate joint ventures | | | (39,166 | ) | | | (15,031 | ) | | | — | | | | — | | | | — | | | | (1,834 | ) | | | (56,031 | ) | | | | (41,347 | ) | | | (1,345 | ) | | | — | | | | — | | | | — | | | | — | | | | (42,692 | ) | | | | (60,187 | ) | | | 6,072 | | | | (292 | ) | | | (15,230 | ) | | | 765 | | | | 1,262 | | | | (67,610 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total deferred tax liabilities | | | (1,323,201 | ) | | | 47,051 | | | | 194,989 | | | | (16,475 | ) | | | 765 | | | | (9,849 | ) | | | (1,106,720 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
* | Other mainly consists of exchange differences on translating foreign operations. |
SONY GROUP CORPORATION AND CONSOL IDATED SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fiscal year ended March 31, 2023 | | | | | | | Recognized in profit or loss | | | Recognized in other comprehensive income | | | Changes accompanying business combination | | | Recognized directly in equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating loss carryforwards for tax purposes | | | 71,087 | | | | (5,756 | ) | | | — | | | | 10,157 | | | | — | | | | 5,600 | | | | 81,088 | | Defined benefit liabilities | | | 72,565 | | | | 5,826 | | | | (8,245 | ) | | | (28 | ) | | | (1,881 | ) | | | (1,102 | ) | | | 67,135 | | Amortization including content assets | | | 26,759 | | | | (1,675 | ) | | | — | | | | (25,695 | )
| | | — | | | | 2,828 | | | | 2,217 | | | | | 96,100 | | | | 12,628 | | | | — | | | | 221 | | | | — | | | | 4,378 | | | | 113,327 | | Warranty reserves and accrued expenses | | | 141,344 | | | | 4,240 | | | | — | | | | 1,599 | | | | — | | | | 2,644 | | | | 149,827 | | | | | 29,546 | | | | 15,479 | | | | — | | | | — | | | | — | | | | (302 | ) | | | 44,723 | | | | | 43,189 | | | | (3,566 | ) | | | — | | | | — | | | | — | | | | 429 | | | | 40,052 | | Debt securities measured at FVOCI | | | — | | | | — | | | | 28,658 | | | | — | | | | — | | | | — | | | | 28,658 | | | | | 38,884 | | | | (12,297 | ) | | | — | | | | 5,792 | | | | — | | | | 3,845 | | | | 36,224 | | | | | 7,748 | | | | (1,857 | ) | | | — | | | | — | | | | — | | | | 259 | | | | 6,150 | | Impairment of investments | | | 9,816 | | | | (3,709 | ) | | | — | | | | — | | | | — | | | | (55 | ) | | | 6,052 | | | | | 31,185 | | | | 22,076 | | | | — | | | | (2,299 | ) | | | — | | | | 2,478 | | | | 53,440 | | | | | 140,594 | | | | 45,871 | | | | (2,408 | ) | | | 21,427 | | | | (985 | ) | | | 6,099 | | | | 210,598 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total deferred tax assets | | | 708,817 | | | | 77,260 | | | | 18,005 | | | | 11,174 | | | | (2,866 | ) | | | 27,101 | | | | 839,491 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Deferred tax liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Insurance acquisition costs | | | (191,474 | ) | | | (8,914 | ) | | | (5,769 | ) | | | — | | | | — | | | | (487 | ) | | | (206,644 | ) | Insurance contract liabilities | | | (167,337 | ) | | | (12,317 | ) | | | (1,398 | ) | | | — | | | | — | | | | 7,220 | | | | (173,832 | ) | Non-current other receivables in the Pictures segment | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | (59,566 | ) | | | (24,365 | ) | | | — | | | | (208 | ) | | | — | | | | (6,328 | ) | | | (90,467 | ) | Equity securities measured at FVOCI | | | (15,969 | ) | | | 923 | | | | 8,846 | | | | — | | | | — | | | | 1,823 | | | | (4,377 | ) | Equity securities measured at FVPL | | | (53,139 | ) | | | 31,952 | | | | — | | | | — | | | | — | | | | (3,380 | ) | | | (24,567 | ) | Debt securities measured at FVOCI | | | (327,359 | ) | | | 5,024 | | | | 322,581 | | | | — | | | | — | | | | (246 | ) | | | — | | Intangible assets acquired through stock exchange offerings | | | (23,949 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (23,949 | ) | Intangible assets derived from EMI Music Publishing acquisition | | | (101,594 | ) | | | 2,277 | | | | — | | | | — | | | | — | | | | (6,639 | ) | | | (105,956 | ) | Undistributed earnings of foreign subsidiaries and corporate joint ventures | | | (56,031 | ) | | | (15,318 | ) | | | — | | | | — | | | | — | | | | 1,759 | | | | (69,590 | ) | | | | (42,692 | ) | | | (4,646 | ) | | | — | | | | — | | | | — | | | | — | | | | (47,338 | ) | | | | (67,610 | ) | | | 13,812 | | | | (52 | ) | | | (3,120 | ) | | | (159 | ) | | | (7,127 | ) | | | (64,256 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total deferred tax liabilities | | | (1,106,720 | ) | | | (11,572 | ) | | | 324,208 | | | | (3,328 | ) | | | (159 | ) | | | (13,405 | ) | | | (810,976 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
* | Other mainly consists of exchange differences ontra nslatin g foreig n operations. |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES As of March 31, 2022 and 2023, based on the assessment of recoverability of deferred tax assets, Sony continued not to recognize the deferred tax assets at some entities in Japan, Sony Mobile Communications AB in Sweden, Sony Europe B.V. in the United Kingdom, certain subsidiaries in Brazil, and certain subsidiaries in other tax jurisdictions. Valuation allowances also continue to be established on As of March 31, 2022 and 2023, the remaining U.S.deductible temporary differences, operating loss carryforwards and tax credit carryforwards for which no deferred tax assets, primarily foreign tax credits and certain research and development credits. Sony Corporation and its national tax filing group in Japan establishedasset is recognized are as follows: a
valuation allowance | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | Deductible temporary differences | | | 154,581 | | | | 126,406 | | Operating loss carryforwards | | | 1,437,551 | | | | 1,384,658 | | Tax credit carryforwards | | | 19,066 | | | | 18,853 | |
As of 274,761 million yen relating to national
taxMarch 31, 2022 and 125,465 million
yen relating to local tax.
For2023, the expected expiration period of the operating loss carryforwards for which no deferred tax assets related to nationalasset is recognized are as follows:
| | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | Within 5 years | | | 599,333 | | | | 602,799 | | Over 5 years to 10 years | | | 277,418 | | | | 250,587 | | Over 10 years to 15 years | | | 23,974 | | | | 25,786 | | Over 15 years | | | 2,930 | | | | 13,245 | | No expiration period | | | 533,896 | | | | 492,241 | | | | | | | | | | | Total | | | 1,437,551 | | | | 1,384,658 | | | | | | | | | | |
As of March 31, 2022 and 2023, the expected expiration period of the tax in Sony Corporation and its nationalcredit carryforwards for which no deferred tax filing group in Japan, the valuation allowanceasset is still establishedrecognized is mostly within 5 years except for the amounts expected to be offsetamount with taxable temporary differencesno expiration period. The amount of tax credit carryforwards with no expiration date as of March 31, 2020. Due to the uncertainty of the forecast of future income impacted by the spread of COVID-19 from early 2020, the valuation allowance established against the net deferred tax assets that are attributable to Sony Corporation2022 and its national tax filing group in Japan was not reversed, even partially, in the fiscal year ended March 31, 2020 despite several years of profitability.
The net changes in the total valuation allowance were decreases of 152,129 million yen, 176,7212023 was 1,803 million yen and 114,8711,047 million yen, for the fiscal years ended March 31, 2018, 2019 and 2020, respectively.
The decrease in the valuation allowances during the fiscal year ended March 31, 2018 was primarily due to the use of net operating loss carryforwards and other deferred tax assets for both the national tax filing group in Japan and the consolidated tax filing group in the United States. The U.S. deferred tax assets were also reduced as a result of the reduction in the tax rate under the U.S. Tax Reform Act which had a corresponding reduction of the valuation allowance on those assets. In addition, valuation allowances were reversed in several jurisdictions, including France and Canada, as a result of sustained profitability.
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
The decrease in the valuation allowances during the fiscal year ended March 31, 2019 was due to the reversal of the valuation allowances on significant deferred tax assets in SAHI and its U.S. consolidated tax filing group and the use of net operating loss carryforwards and other deferred tax assets in the national tax filing group in Japan and other jurisdictions.
The decrease in the valuation allowances during the fiscal year ended March 31, 2020 was due to the use of net operating loss carryforwards and other deferred tax assets in the national tax filing group in Japan and the use of foreign tax credits and certain research and development credits in the consolidated tax filing group in the United States.
At March 31, 2020, 16,312 million yen of deferredDeferred income taxes have not been provided on taxable temporary differences for undistributed earnings of certain foreign subsidiaries and corporate joint ventures which are not expected to be remitted in the foreseeable future totaling 1,019,525future. As of March 31, 2022 and March 31, 2023, such taxable temporary differences amounted to 365,925 million yen.yen and 560,888 million yen, respectively. The tax basis of these undistributed earnings was approximately 5,855 million yen and 8,974 million yen, respectively. In addition, deferred income taxes have not been provided on the gain on the book/tax basis differencetaxable temporary differences in subsidiaries, including a gain of 61,544 million yen on a subsidiary’s sale of stock arising from the issuance of common stock of Sony Music Entertainment (Japan) Inc. in a public offering to third parties in November 1991 and the remeasurement gain on 116,939 million yen for the pre-owned equity interest in EMI (Refer to Note 25).Music Publishing acquired in November 2018. Sony does not anticipate any significant tax consequences on the possible future disposition of these investments based on its tax planning strategies. At March 31, 2020, Sony had net operating loss carryforwards, the tax effect of which totaled 348,714 million yen, which may be available as an offset against future taxable income on tax returns to be filed in various tax jurisdictions. With the exception of 96,890 million yen with no expiration period, substantially all of the total net operating loss carryforwards expire at various dates between the fiscal years ending March 31, 2021 and 2024.
Tax credit carryforwards at March 31, 2020 amounted to 94,900 million yen. With the exception of 15,059 million yen with no expiration period, substantially all of the total available tax credit carryforwards expire at various dates between the fiscal years ending March 31, 2021 and 2030.
A reconciliation of the beginning and ending gross amounts of unrecognized tax benefits is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at beginning of the fiscal year | | | | | | | | | | | | | Reductions for tax positions of prior years | | | | ) | | | | ) | | | | ) | Additions for tax positions of prior years | | | | | | | | | | | | | Additions based on tax positions related to the current year | | | | | | | | | | | | | | | | | ) | | | | ) | | | | ) | Lapse in statute of limitations | | | | ) | | | | ) | | | | ) | Foreign currency translation adjustments | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | | Balance at end of the fiscal year | | | | | | | | | | | | | | | | | | | | | | | | | | Total net amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate | | | | | | | | | | | | |
The major changes in the total gross amount of unrecognized tax benefit balances relate to transfer pricing adjustments, including as a result of the Bilateral Advance Pricing Agreements (“APAs”) and competent authority requests filed for certain subsidiaries in the G&NS, EP&S and I&SS segments and All Other, with respect to the intercompany cross-border transactions. The APAs include agreements between Sony and two taxing authorities under the authority of the mutual agreement procedure specified in income tax treaties. Sony reviews its estimated tax expense based on the progress made in these procedures, and the progress of transfer pricing audits generally, and makes adjustments to its estimates as necessary. In addition, the APAsdeductible temporary differences arising from the translation adjustments for the foreign operations for which deferred tax assets are government to government negotiations, and therefore it is possible that the final outcomesnot recognized as of the agreements may differ from Sony’s current assessment of themore-likely-than-not
outcomes of such agreements.During the fiscal year ended March 31, 2018, Sony recorded 1,053 million yen of interest expense2022 and 876 million yen of penalties. At March 31, 2018, Sony had recorded liabilities of 10,7882023 amounted to 92,252 million yen and 4,637181,037 million yen, respectively. The taxable temporary differences arising from the translation adjustments for the paymentsforeign operations for which deferred tax liabilities are not recognized as of interestMarch 31, 2022 and penalties,March 31, 2023 amounted to 429,930 million yen and 694,240 milliony en, respectively.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES During the fiscal year ended March 31, 2019, Sony reversed 1,479 million yen of interest expense and recorded 218 million yen of penalties. At March 31, 2019, Sony had recorded liabilities of 9,309 million yen and 4,855 million yen for the payments of interest and penalties, respectively.
During the fiscal year ended March 31, 2020, Sony reversed
1,276 million yen of interest expense and recorded
117 million yen of penalties. At March 31, 2020, Sony had recorded liabilities of 8,033 million yen and 4,971 million yen for the payments of interest and penalties, respectively.Sony operates in multiple jurisdictions throughout the world, and its tax returns are periodically audited by Japanese and foreign taxing authorities. As a result of audit settlements, the conclusion of current examinations, the expiration of the statute of limitations in several jurisdictions and other reevaluations of Sony’s tax positions, it is expected that the amount of unrecognized tax benefits will change in the next twelve months. Accordingly, Sony believes it is reasonably possible that its existing unrecognized tax benefits may be reduced by an amount up to 1,791 million yen within the next twelve months.
Sony remains subject to examinations by Japanese taxing authorities for tax years from 2010 through 2019, and by the U.S. tax authorities for tax years from2016 through 2019 and other material foreign taxing authorities for tax years from 2006 through 2019.23. | 26. Reconciliation of the differences between basic and diluted EPS |
Reconciliation of the differences between basic and diluted EPS for the fiscal years ended March 31, 2018, 20192021, 2022 and 20202023 is as follows: | | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | Net income attributable to Sony Corporation’s stockholders for basic and diluted EPS computation | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Weighted-average shares outstanding | | | | | | | | | | | | | Effect of dilutive securities: | | | | | | | | | | | | | | | | | | | | | | | | | | Zero coupon convertible bonds | | | | | | | | | | | | | | | | | | | | | | | | | | Weighted-average shares for diluted EPS computation | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | Net income attributable to Sony Group Corporation’s stockholders | | | 1,029,610 | | | | 882,178 | | | | 937,126 | | Adjustment amount to net income attributable to Sony Group Corporation’s stockholders for diluted EPS computation: | | | | | | | | | | | | | Zero coupon convertible bonds | | | 385 | | | | 163 | | | | 51 | | | | | | | | | | | | | | | Net income attributable to Sony Group Corporation’s stockholders for diluted EPS computation | | | 1,029,995 | | | | 882,341 | | | | 937,177 | | | | | | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | Weighted-average shares outstanding for basic EPS computation | | | 1,230,480 | | | | 1,239,299 | | | | 1,235,701 | | Effect of dilutive securities: | | | | | | | | | | | | | Stock acquisition rights and other | | | 4,474 | | | | 5,470 | | | | 3,646 | | Zero coupon convertible bonds | | | 15,392 | | | | 6,491 | | | | 2,030 | | | | | | | | | | | | | | | Weighted-average shares for diluted EPS computation | | | 1,250,346 | | | | 1,251,260 | | | | 1,241,377 | | | | | | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | | | | 836.75 | | | | 711.84 | | | | 758.38 | | | | | | | | | | | | | | | | | | 823.77 | | | | 705.16 | | | | 754.95 | | | | | | | | | | | | | | |
Potential shares of common stock which were excluded from the computation of diluted EPS for the fiscal years ended March 31, 2018, 20192021, 2022 and 20202023 were 2,9214,475 thousand shares, 5,7314,790 thousand shares and 3,21211,223 thousand shares, respectively. Potential shares related to respectively,which primarily consisted of stock acquisition rights were excludedoptions. | Supplemental cash flow information |
| Classification of cash flows in Financial Services segment |
Sony classifies the cash flows from changes in assets and liabilities associated with the insurance business and banking business, such as anti-dilutiveinvestments and advances, deposits from customers, policyholders’ account and borrowings/debt, as cash flows from operating activities in the consolidated statements of cash flows. | Classification of cash flows of content assets |
Sony classifies the cash flows from the additions and disposals of content assets as cash flows from operating activities in the consolidated statements of cash flows because the additions and disposals of content assets are derived from the principal revenue-producing activities of Sony.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES | | | | | | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | | | | | | | | | | | | | | Financial services revenue | | | 198,310 | | | | 208,170 | | | | 224,137 | | | | | 8,409 | | | | 6,988 | | | | 20,872 | | | | | | | | | | | | | | | Financial services revenue | | | 19,299 | | | | 27,075 | | | | 23,409 | | | | | 1,559 | | | | 2,800 | | | | 3,488 | | | | | | | | | | | | | | | Financial services expenses | | | 9,659 | | | | 6,607 | | | | 27,352 | | | | | 8,172 | | | | 8,843 | | | | 11,663 | |
The above are items presented in the consolidated statements of income, which include cash flows for interest and dividends. Sony classifies the cash flows from interest and dividends of the above as cash flows from operating activities in the consolidated statements of cash flows. | Non-cash investing and financing activities |
There was an increase in ROU assets as a result of entering into lease contracts and the conversion of convertible bonds during the fiscal years ended March 31, 2018, 20192021, 2022 and 2020 when2023. Refer to (5) Reconciliation of liabilities arising from financing activities for more details. In addition, during the exercise price for those sharesfiscal year ended March 31, 2022, a portion of the consideration received as a result of the transfer of certain operations of Game Show Network, LLC was in excessthe form of the average market value of Sony’s common stockstock. Refer to Note 31 for those fiscal years. The zero coupon convertible bonds issued in July 2015 were included in the diluted EPS calculation under theif-convertedmore details.
method beginning upon issuance. 24. | Variable interest entities
|
Sony has entered into various arrangements with VIEs.
Sony’s U.S. subsidiary that is engaged in the recorded music business has entered into several joint ventures with companies involved in the production and creation of recorded music. Sony has reviewed these joint
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES | Reconciliation of liabilities arising from financing activities |
| | | | | | | | | | | | | | | | | | | | Balance as of April 1, 2020 | | | 66,631 | | | | 817,919 | | | | | | | | | | | Net cash flows from financing activities | | | (18,334 | ) | | | 147,017 | | Acquisitions through business combinations | | | — | | | | 59 | | | | | | | | | | | Conversion of convertible bonds | | | — | | | | (78,342 | ) | Obtaining assets by entering into lease contracts | | | — | | | | 56,247 | | | | | 106 | | | | 15,514 | | | | | 4,134 | | | | 10,630 | | | | | | | | | | | | | | (14,094 | ) | | | 151,125 | | | | | | | | | | | Balance as of March 31, 2021 | | | 52,537 | | | | 969,044 | | | | | | | | | | | Net cash flows from financing activities | | | 408 | | | | (163,104 | ) | Acquisitions through business combinations | | | — | | | | 8,346 | | | | | | | | | | | Conversion of convertible bonds | | | — | | | | (14,597 | ) | Obtaining assets by entering into lease contracts | | | — | | | | 121,937 | | | | | 1,659 | | | | 35,652 | | | | | 1,487 | | | | (6,045 | ) | | | | | | | | | | | | | 3,554 | | | | (17,811 | ) | | | | | | | | | | Balance as of March 31, 2022 | | | 56,091 | | | | 951,233 | | | | | | | | | | | Net cash flows from financing activities | | | 32,391 | | | | 229,578 | | Acquisitions through business combinations | | | — | | | | 32,009 | | | | | | | | | | | Conversion of convertible bonds | | | — | | | | (26,563 | ) | Obtaining assets by entering into lease contracts | | | — | | | | 127,322 | | | | | 4,533 | | | | 22,684 | | | | | (369 | ) | | | (13,936 | ) | | | | | | | | | | | | | 36,555 | | | | 371,094 | | | | | | | | | | | Balance as of March 31, 2023 | | | 92,646 | | | | 1,322,327 | | | | | | | | | | |
The amount of short-term borrowings and determinedlong-term debt associated with the insurance business and banking business operations, which are classified as cash flows from operating activities in the consolidated statements of cash flows, is excluded from the amount above. | Components of cash and cash equivalents |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 902,036 | | | | 1,824,912 | | | | 1,227,541 | | Time deposits with original maturities of three months or less | | | 635,848 | | | | 72,270 | | | | 76,452 | | | | | 249,098 | | | | 71,554 | | | | 116,607 | | | | | — | | | | 80,900 | | | | 60,300 | | | | | | | | | | | | | | | | | | 1,786,982 | | | | 2,049,636 | | | | 1,480,900 | | | | | | | | | | | | | | |
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Cash and demand deposits, time deposits with original maturities of three months or less and call loans are classified as financial assets required to be measured at amortized cost, whose carrying amounts approximate their fair values mainly due to their short-term nature. Money market funds are short-term and highly liquid investments with insignificant risk of changes in value. Money market funds are classified as financial assets required to be measured at fair value through profit or loss and classified within Level 1 of the fair value hierarchy. Sony has, from time to time, entered into various arrangements with structured entities. | Consolidated structured entities |
Sony consolidates investment funds as structured entities in the Financial Services segment. The investment funds are designed so that theyvoting or similar rights are VIEs. Based on a qualitative assessment,not the dominant factor in deciding who controls these entities, but it wasis determined that Sony has control over these structured entities. Sony has not provided and does not intend to provide any significant financial or other support to any of the powerconsolidated structured entities without contractual obligations to direct the activitiesinvestment funds. The assets and liabilities of structured entities that most significantly impact the VIEs’ economic performance, as well as the obligation to absorb the losses of these VIEs as Sony is responsible for providing funding to these VIEs, and in most cases absorbs all losses until the VIEs become profitable. As a result, it has been determined that Sony is the primary beneficiary and, accordingly, these VIEs are consolidated in the Financial Services segment are limited in their intended use by Sony. The assets of Sony are not available to settle the obligations of these VIEs.contractual arrangements. As of March 31, 2020,2022 and 2023, the total assets of these structured entities are 628,297 million yen and 2,486,836 million yen, respectively.The increase in the fiscal year ended March 31, 2023 is primarily due to the transfer of equity securities which were previously directly held into investment funds.
also consolidates several structured entities in the Music and Pictures segment. Sony has not provided and does not intend to provide any significant financial or other support to these structured entities without contractual obligation. The total assets and liabilities for these VIEs, on an aggregate basis,structured entities were 46,154 million yen and 25,100 million yen, respectively.insignificant to Sony’s financial position. | Unconsolidated VIEsstructured entities |
As described in Note 6, certain accountsCertain trade receivable sales programs also involve VIEs.structured entities. These VIEsstructured entities are all special purpose entities associated with the sponsor banks. Based on a qualitative assessment, Sony is not the primary beneficiary and therefore does not consolidate these entities as Sony does not have the power to direct the activities, an obligation to absorb losses, or the right to receive the residual returns of these VIEs.structured entities. Sony’s maximum exposure to losses from these VIEsstructured entities is considered insignificant.
In the Financial Services segment, Sony has variable interestsenters into securitization transactions for certain housing loans, involving unconsolidated structured entities. Sony derecognizes a financial asset when the contractual right to receive the cash flows from the financial asset is transferred, or when Sony retains the contractual right to receive the cash flows from the financial asset, but assumes a contractual obligation to pay the cash flows without reinvestment or material delay to other recipients in VIEs wherean arrangement, and substantially all the risks and rewards of ownership of the financial asset are transferred to another entity. Since the above securitization transactions do not meet the requirements for derecognition of financial assets, such transferred assets are not derecognized. Sony recorded 182,417 million yen and 168,173 million yen of transferred assets that do not meet the requirement for derecognition of financial assets included in investments and advances in the Financial Services segment as of March 31, 2022 and 2023, respectively. As of March 31, 2022 and 2023, the liabilities recorded from these securitization transactions were 183,886 million yen and 169,500 million yen, respectively, which are included in the current portion of long-term debt and long-term debt. The liabilities will be settled when the payment for the transferred assets is executed and until this time, Sony is notunable to utilize the primary beneficiary.transferred assets. The transferee of the transferred assets has recourse only to the transferred asset, and as of March 31, 2022 and 2023, the fair value of the transferred assets are 187,555 million yen and 170,695 million yen, respectively and the associated liabilities are 186,702 million yen and 169,931 million yen, respectively.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES In addition to the above, in the Financial Services segment, Sony makes investments in structured entities. Sony’s variable interestsinvestments in such VIEsstructured entities include equity securities, securitized products, foreign corporate bonds and other investments. The following tables present the carrying valueamount of the variable interestsinvestments of unconsolidated VIEs,structured entities, the presentation in the consolidated balance sheet,statements of financial position, and the maximum exposure to loss associated with these variable interestsinvestments as of March 31, 20192022 and 2020.2023. Maximum exposure to loss does not reflect Sony’s estimate of the actual losses that could result from adverse changes, nor does it reflect the economic hedges Sony enters into to reduce its exposure. The risks associated with VIEsstructured entities in which Sony is involved are limited to the amount recorded in the consolidated balance sheetsstatements of financial position and the amount of commitments. | | | | | | | | | | | | | | | | | | | | | | | | | | | Presentation in the consolidated balance sheets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign corporate bonds *2 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Presentation in the consolidated statements of financial position | | | | | | | Investments and advances in the Financial Services segment
| | | Investments and advances in the Financial Services segment
| | |
| | | | | — | | | | 356,862 | | | | — | | | | 356,862 | | Foreign corporate bonds *1 | | | 28,412 | | | | 168,167 | | | | — | | | | 196,579 | | | | | 2 | | | | 247,394 | | | | 24,697 | | | | 286,662 | | | | | | | | | | | | | | | | | | | | | | 28,414 | | | | 772,423 | | | | 24,697 | | | | 840,103 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Presentation in the consolidated statements of financial position | | | | | | | Investments and advances in the Financial Services segment
| | | Investments and advances in the Financial Services segment
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| | | | | — | | | | 401,642 | | | | — | | | | 401,642 | | Foreign corporate bonds *1 | | | 20,806 | | | | 186,878 | | | | — | | | | 207,684 | | | | | — | | | | 286,066 | | | | 25,464 | | | | 332,076 | | | | | | | | | | | | | | | | | | | | | | 20,806 | | | | 874,586 | | | | 25,464 | | | | 941,402 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Presentation in the consolidated balance sheets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign corporate bonds *2 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
*1 | Equity securitiesForeign corporate bonds primarily include Investment funds.repackaged bonds.
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*2 | Foreign corporate bondsOther investments primarily include repackaged bonds.investment funds.
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SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES The following table sets forth the major consolidated subsidiaries owned, directly or indirectly, by Sony Group Corporation. | | | | | | | | |
| Sony Interactive Entertainment Inc. | | Japan | | 100.0 | Sony Music Entertainment (Japan) Inc. | | Japan | | 100.0 | Sony Corporation | | Japan | | 100.0 | Sony Global Manufacturing & Operations Corporation | | Japan | | 100.0 | Sony Semiconductor Solutions Corporation | | Japan | | 100.0 | Sony Semiconductor Manufacturing Corporation | | Japan | | 100.0 | Sony Network Communications Inc. | | Japan | | 100.0 | Sony Marketing Inc. | | Japan | | 100.0 | Sony Storage Media Solutions Corporation | | Japan | | 100.0 | Sony Financial Group Inc. | | Japan | | 100.0 | Sony Life Insurance Co., Ltd. | | Japan | | 100.0 | Sony Bank Inc. | | Japan | | 100.0 | Sony Assurance Inc. | | Japan | | 100.0 | Sony Corporation of America | | U.S.A. | | 100.0 | Sony Interactive Entertainment LLC | | U.S.A. | | 100.0 | Sony Music Entertainment | | U.S.A. | | 100.0 | Sony Music Publishing LLC | | U.S.A. | | 100.0 | Sony Pictures Entertainment Inc. | | U.S.A. | | 100.0 | Sony Electronics Inc. | | U.S.A. | | 100.0 | | | U.K. | | 100.0 | Sony Interactive Entertainment Europe Ltd. | | U.K. | | 100.0 | Sony Global Treasury Services Plc | | U.K. | | 100.0 | Sony Overseas Holding B.V. | | Netherlands | | 100.0 | | | China | | 100.0 | Sony EMCS (Malaysia) Sdn. Bhd. | | Malaysia | | 100.0 | Sony Electronics (Singapore) Pte. Ltd. | | Singapore | | 100.0 |
| Fiscal year ended March 31, 2022 |
Acquisition of Ellation Holdings, Inc. On August 9, 2021, Sony Pictures Entertainment Inc. (“SPE”), a wholly-owned subsidiary of Sony, through Funimation Global Group, LLC (“Funimation”), acquired 100% of the equity interest in Ellation Holdings, Inc. (“Ellation”), a subsidiary of AT&T Inc., which operates the anime business “Crunchyroll.” Funimation is a joint venture between SPE and Aniplex Inc., a subsidiary of Sony Music Entertainment (Japan) Inc. The consideration for the acquisition of 135,938 million yen (1,237 million U.S. dollars) was paid in cash. As a result of the acquisition, Ellation has become a wholly-owned subsidiary of Sony. On February 24, 2022, Funimation changed its company name to Crunchyroll, LLC. Crunchyroll is a DTC service, connecting anime and manga fans across more than 200 countries and territories. Crunchyroll provides services including subscriptionadvertising-basedmobile games, manga, events, merchandise and distribution. The acquisition has brought together two animation distribution brands, Funimation and Crunchyroll, allowing Sony to expandfan-centric offerings. The global unification and integration of the two brands and services under the Crunchyroll brand started in March 2022.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES (1) | EMI Music Publishing acquisition |
On November 14, 2018, Sony Corporation of America, Sony’s wholly-owned subsidiary, completed the acquisition of the entirety of the approximately 60% equity interest held by the investor consortium led by the Mubadala Investment Company in DH Publishing, L.P. (“EMI”), which owned and managed EMI Music Publishing, for the equity purchase price of 257,168 million yen (2,269 million U.S. dollars), which includes payments related to warrants and management equity plans. Sony paid all the consideration in cash upon the acquisition. As a result of this acquisition, EMI has become a wholly-owned subsidiary of Sony. This acquisition allows Sony to build upon its music publishing library by providing the Company with full ownership of the EMI Music Publishing catalog which was being administered by Sony’s wholly-owned music publishing subsidiary, Sony/ATV Music Publishing. Sony’s consolidated income statements for the fiscal year ended March 31, 2019 include revenue and operating income of 28,871 million yen (260 million U.S. dollars) and 6,432 million yen (58 million U.S. dollars), respectively, attributable to EMI since the date of acquisition. Sony’s consolidated income statements for the three months ended March 31, 2019 include revenue and operating income of 18,420 million yen (167 million U.S. dollars) and 4,522 million yen (41 million U.S. dollars), respectively, attributable to EMI.
Prior to the acquisition, Sony’s interest in EMI was accounted for under the equity method of accounting. As a result of Sony obtaining a controlling interest in EMI, Sony consolidated EMIEllation by using the acquisition method of accounting and recorded the fair value of the identifiable assets acquired, liabilities assumed and residual goodwill of EMI. Sony remeasured the approximately 40% equity interest in EMI that Sony already owned prior to the acquisition at a fair value of 141,141 million yen (1,245 million U.S. dollars) which resulted in the recognition of anon-cash
gain of 116,939 million yen (1,032 million U.S. dollars) recorded in other operating income, net for the three months ended December 31, 2018. Sony did not record any tax expense or deferred tax liability corresponding to this gain. Sony also assumed EMI’s existing interest-bearing debt of 148,621 million yen (1,311 million U.S. dollars) as a result of this acquisition, of which 108,942 million yen (961 million U.S. dollars) was repaid immediately from Sony’s existing cash.
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Ellation. The following table summarizes the preliminary and final fair values assigned to the assets and liabilities of EMIEllation that were recorded in the MusicPictures segment. Certain areas of the purchase price allocation were not yet finalized as of the fiscal year ended March 31, 2019, including the valuation of income taxes and residual goodwill. | | | | | | | | | | | | | | | | | | | Acquired assets and liabilities recorded at fair value as of acquisition date | | | Measurement period adjustments | | | Acquired assets and liabilities recorded at fair value as of acquisition date | | Cash and cash equivalents | | | | | | | | | | | | | Notes and accounts receivable, trade and contract assets | | | | | | | | | | | | | Prepaid expenses and other current assets | | | | | | | | ) | | | | | Securities investments and other | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | Notes and accounts payable, trade | | | | | | | | | | | | | Accounts payable, other and accrued expenses | | | | | | | | | | | | | Accrued income and other taxes | | | | | | | | ) | | | | | | | | | | | | | | | | | | Accrued pension and severance costs | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | |
| | | | | | | | | Cash and cash equivalents | | | 8,379 | | Trade and other receivables, and contract assets | | | 3,714 | | | | | 3,295 | | | | | 4,962 | | | | | 81,250 | | | | | 36,266 | | | | | 35,697 | | | | | 2,512 | | | | | | | | | | 176,075 | | | | | | | | | | 17,365 | | Other current liabilities | | | 7,723 | | | | | 4,386 | | | | | 9,408 | | | | | 659 | | | | | | | | | | 39,541 | | | | | | |
IntangiblesContent assets and other intangible assets mainly consistsconsist of music publishing catalogs with weighted average amortization periods of 43 years.license agreements and customer relationships. Goodwill represents unidentifiable intangible assets, such as future growth from new revenue streams and synergies with existing Sony assets and businesses, and is calculated as the excess of the purchase price over the estimated fair value of the tangible and intangible assets acquired and is not deductible for tax purposes. The goodwill recorded in connection with thisthe acquisition is included in the MusicPictures segment.
The following unaudited supplemental pro forma financial information presentsRevenue and net income attributable to Ellation since the combined resultsdate of operationsacquisition included in Sony’s consolidated statements of Sony and EMI as though the acquisition had occurred as of the beginning ofincome for the fiscal year ended March 31, 2018:
| | | | | | | | | | | | | | | Fiscal year ended March 31 | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income attributable to Sony Corporation’s stockholders | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The unaudited supplemental2022 and pro forma financial information is based on estimates and assumptions, which Sony believes are reasonable, and is not intended to represent or be indicative of what Sony’s consolidated net income attributable to Sony Corporation’s stockholders would have been had the acquisition been completed at the beginning of the fiscal year ended March 31, 2018 and should not be taken as indicative of Sony’s future
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
consolidated net income attributable to Sony Corporation’s stockholders. The unaudited supplemental pro forma financial information includes the elimination of equity in net income and consolidation of EMI, the adjustment of the gain from the remeasurement of the previously owned equity interest, incremental intangible asset amortization, net of the related tax effects and the adjustments of expenses incurred in relation to warrants and management equity plans.
(2) | Insomniac Games, Inc. acquisition |
On November 15, 2019, Sony Interactive Entertainment LLC, a wholly-owned subsidiary in the G&NS segment of Sony, completed the acquisition of Insomniac Games, Inc. (“Insomniac Games”), a game developer. The consideration for this acquisition of 24,895 million yen (229 million U.S. dollars) was mainly paid in cash. As a result of this acquisition, Insomniac Games has become a wholly-owned subsidiary of Sony.
As a result of this acquisition, Sony recorded 17,945 million yen (164 million U.S. dollars) of goodwill and 6,794 million yen (62 million U.S. dollars) of intangible assets. The cash consideration paid in this transaction, net of cash received, is included within Other in the investing activities section of the consolidated statements of cash flows. Pro forma results of operations have not been presented because the effect of the acquisition was not material.
(3) | Silvergate Media acquisitionFiscal year ended March 31, 2023 |
Acquisition of Bungie, Inc. On December 9, 2019,July 15, 2022, Sony throughInteractive Entertainment LLC (“SIE”), a wholly-owned subsidiary of Sony, completed the acquisition of 100% of the shares of Bungie, Inc. (“Bungie”), an independent videogame developer in the Pictures segment, acquired Silvergate Media Group (“Silvergate”), a company focused on developing, producing and licensing children’s animation. The consideration for this acquisition of 21,017 million yen (192 million U.S. dollars) was paid in cash.United States. As a result of this acquisition, Sony owns (1) 100%Bungie has become a wholly-owned subsidiary of Silvergate Topco Limited,Sony. This acquisition gives SIE access to Bungie’s approach to live game services and technology expertise. The total consideration of this acquisition, which holds all assets of Silvergatewas determined after customary working capital and other than certain rights held by Silvergate BP Bidco Limited, and (2) 31% of Silvergate BP Bidco Limited, the entity through which Silvergate produces its Peter Rabbit television series, and Sony recorded 11,431adjustments, was 510,459 million yen (106(3,701 million U.S. dollars), inclusive of the purchase price and committed employee incentives. Of the total consideration, 347,768 million yen (2,522 million U.S. dollars) was allocated to the purchase consideration of goodwillthis acquisition, and 3,387the remaining 162,691 million yen (32(1,179 million U.S. dollars) was mainly allocated to deferred payments to employee shareholders that are conditional upon their continuous employment, and other retention incentives. The deferred payments and other retention incentives will be expensed over the required post-acquisition service periods. The fair value of intangible assets. Thethe purchase consideration of this acquisition as of the acquisition date was 333,859 million yen (2,421 million U.S. dollars) which consisted of upfront cash consideration paidof 207,511 million yen (1,505 million U.S. dollars), deferred consideration of 84,410 million yen (612 million U.S. dollars), and contingent consideration of 41,938 million yen (304 million U.S. dollars) that is subject to employee shareholders’ continuous employment and represents the vested portion of the total vesting term of replacement awards that existed as of the acquisition date. Deferred consideration and contingent consideration are included in this transaction, net of cash received, is included within Other other financial liabilities (current andnon-current) in the investing activities section of the consolidated statements of cash flows. Pro forma resultsfinancial position.
SONY GROUP CORPORATION AND CONSOLIDATED SUBSIDIARIES Sony’s consolidated statements of income for the fiscal year ended March 31, 2023 include net loss after income taxes of 47,420 million yen (338 million U.S. dollars), attributable to Bungie since the acquisition date, including the deferred payments and other retention incentives arising out of this acquisition and amortization of intangible assets recognized as of the acquisition date. Revenue after elimination of intercompany transactions attributable to Bungie since the acquisition date for the fiscal year ended March 31, 2023 has not been presented because the effect of the acquisitionrevenue was not material. (4) | Acquisition of equity interests in joint ventures in the life insurance business |
On January 29, 2020, Sony Life, Sony’s consolidated subsidiary, acquired 50% of the shares of AEGON Sony Life Insurance Co., Ltd. and SA Reinsurance Ltd. (collectively, the “JVs”) from AEGON International B.V. The purchase price for the acquisition was 18,750 million yen and Sony Life paid all the consideration in cash upon the acquisition. As a result of this acquisition, Sony Life owns 100% of the shares of the JVs and the JVs have become consolidated subsidiaries of Sony. Sony Life will endeavor to make use of the strength andknow-how
of the variable annuity business accumulated by AEGON Sony Life Insurance Co., Ltd, strengthen the initiatives for the senior market, and improve earnings in an early stage by enhancing efficiency through integrated operation and organizational management. AEGON Sony Life Insurance Co., Ltd. has changed its name to “Sony Life With Insurance Co., Ltd.,”April 1, 2020.Prior to the acquisition, Sony’s interest in the JVs was accounted for under the equity method of accounting. As a result of Sony obtaining a controlling interest in the JVs, Sony consolidated the JVsBungie by using the acquisition method of accounting and recorded the fair value of the identifiable assets acquired, liabilities assumed and residual goodwill of the JVs. Sony remeasured
the 50%equity interest in the JVs that Sony already owned prior to the acquisition at a fair value
of 13,932 million yen which resulted in the recognition of anon-cash
gainof 1,827 million yen recorded in other operating income, net. Sony did not record any tax expense or deferred tax liability corresponding to this gain.
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Bungie. The following table summarizes the final fair values assigned to the assets and liabilities of the JVsBungie that were recorded in the Financial ServicesG&NS segment. The measurement period adjustments were not material. | | | | | | | | | | | | | | Cash and cash equivalents | | | 37,800 | | Marketable securitiesTrade and other receivables, and contract assets
| | | 5,093 | | Prepaid expenses and otherOther current assets
| | | 3,412 | | Securities investmentsProperty, plant and otherequipment
| | | 7,481 | | |
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