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SONY Sony

Filed: 4 Nov 20, 6:05am
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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

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

the Securities Exchange Act of 1934

For the month of November 2020

Commission File Number: 001-06439

SONY CORPORATION

(Translation of registrant’s name into English)

1-7-1 KONAN, MINATO-KU, TOKYO, 108-0075, JAPAN

(Address of principal executive offices)

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

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F,

 

Form 20-F  X

 Form 40-F    

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934, Yes No X

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):82-            

SIGNATURE

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

 

SONY CORPORATION
(Registrant)

By:

 /s/ Hiroki Totoki
         (Signature)
Hiroki Totoki
Executive Deputy President and
Chief Financial Officer

Date: November 4, 2020


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Quarterly Securities Report

For the three months ended September 30, 2020

(TRANSLATION)

Sony Corporation


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Note for readers of this English translation

On November 4, 2020, Sony Corporation (the “Company” or “Sony Corporation” and together with its consolidated subsidiaries, “Sony” or “Sony Group”) filed its Japanese-language Quarterly Securities Report (Shihanki Houkokusho) for the three months ended September 30, 2020 with the Director-General of the Kanto Local Finance Bureau in Japan pursuant to the Financial Instruments and Exchange Act of Japan. This document is an English translation of the Quarterly Securities Report in its entirety, except for (i) information that had been previously filed with or submitted to the U.S. Securities and Exchange Commission (the “SEC”) in a Form 20-F, Form 6-K or any other form and (ii) a description of differences between generally accepted accounting principles in the U.S. (“U.S. GAAP”) and generally accepted accounting principles in Japan (“J-GAAP”), which are required to be described in the Quarterly Securities Report under the Financial Instruments and Exchange Act of Japan if the Company prepares its financial statements in conformity with accounting principles other than J-GAAP.

Cautionary Statement

Statements made in this Report with respect to Sony’s current plans, estimates, strategies and beliefs and other statements that are not historical facts are forward-looking statements about the future performance of Sony. Forward-looking statements include, but are not limited to, those statements using words such as “believe,” “expect,” “plans,” “strategy,” “prospects,” “forecast,” “estimate,” “project,” “anticipate,” “aim,” “intend,” “seek,” “may,” “might,” “could,” or “should,” and words of similar meaning in connection with a discussion of future operations, financial performance, events or conditions. From time to time, oral or written forward-looking statements may also be included in other materials released to the public. These statements are based on management’s assumptions, judgments and beliefs in light of the information currently available to it. Sony cautions investors that a number of important risks and uncertainties could cause actual results to differ materially from those discussed in the forward-looking statements, and therefore investors should not place undue reliance on them. Investors also should not rely on any obligation of Sony to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Sony disclaims any such obligation. Risks and uncertainties that might affect Sony include, but are not limited to:

(i)

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

(ii)

Sony’s ability to continue to design and develop and win acceptance of, as well as achieve sufficient cost reductions for, its products and services, including image sensors, game and network platforms, smartphones and televisions, which are offered in highly competitive markets characterized by severe price competition and continual new product and service introductions, rapid development in technology and subjective and changing customer preferences;

(iii)

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

(iv)

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

(v)

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

(vi)

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

(vii)

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

(viii)

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

(ix)

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

(x)

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



 

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(xi)

foreign exchange rates, particularly between the yen and the U.S. dollar, the euro and other currencies in which Sony makes significant sales and incurs production costs, or in which Sony’s assets, liabilities and operating results are denominated;

(xii)

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

(xiii)

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

(xiv)

the impact of changes in interest rates and unfavorable conditions or developments (including market fluctuations or volatility) in the Japanese equity markets on the revenue and operating income of the Financial Services segment;

(xv)

shifts in customer demand for financial services such as life insurance and Sony’s ability to conduct successful asset liability management in the Financial Services segment;

(xvi)

risks related to catastrophic disasters, pandemic disease or similar events;

(xvii)

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

(xviii) 

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

Risks and uncertainties also include the impact of any future events with material adverse impact. The continued impact of the Coronavirus Disease 2019 (“COVID-19”) could heighten many of the risks and uncertainties noted above. Important information regarding risks and uncertainties is also set forth in Sony’s most recent Form 20-F, which is on file with the SEC.



 

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I     Corporate Information

(1) Selected Consolidated Financial Data

  Yen in millions, Yen per share amounts 
  

  Six months ended  

  September 30, 2019  

  

  Six months ended  

  September 30, 2020  

  

  Fiscal year ended  

  March 31, 2020  

 

 

 
  Sales and operating revenue  4,047,983      4,082,405      8,259,885    

 

 
  Operating income  509,880      546,159      845,459    

 

 
  Income before income taxes  493,112      619,523      799,450    

 

 

Net income attributable to Sony Corporation’s stockholders

  340,009      692,885      582,191    

 

 
  Comprehensive income  348,080      651,586      666,032    

 

 
  Total equity  4,618,290      5,072,838      4,789,535    

 

 
  Total assets  21,966,296      24,951,813      23,039,343    

 

 

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

  273.52      565.97      471.64    

 

 

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

  267.65      554.82      461.23    

 

 

Ratio of stockholders’ equity to total assets (%)

  17.8      20.2      17.9    

 

 

Net cash provided by operating activities

  410,485      633,481      1,349,745    

 

 
  Net cash used in investing activities  (631,215)     (882,598)     (1,352,278)   

 

 

Net cash provided by financing activities

  28,909      636,812      65,658    

 

 

Cash and cash equivalents at end of the period

  1,252,869      1,884,368      1,512,357    

 

 
  Yen in millions, Yen per share amounts    
  

  Three months ended  

  September 30, 2019  

  

  Three months ended  

  September 30, 2020  

 

 

 

Sales and operating revenue

  2,122,259      2,113,486    

 

 

Net income attributable to Sony Corporation’s stockholders

  187,887      459,634    

 

 

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

  151.89      374.34    

 

 

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

  148.59      367.82    

 

  

  Notes:

  1.

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

  2.

The Company reports equity in net income of affiliated companies as a component of operating income.

  3.

Consumption taxes are not included in sales and operating revenue.

  4.

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

  5.

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

  6.

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

 

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(2) Business Overview

There was no significant change in the business of Sony during the six months ended September 30, 2020.

As of September 30, 2020, the Company had 1,431 subsidiaries and 148 affiliated companies, of which 1,393 companies are consolidated subsidiaries (including variable interest entities) of the Company. The Company has applied the equity accounting method for 135 affiliated companies.

 

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II    State of Business

(1) Risk Factors

 

Note for readers of this English translation:

Except for the revised risk factor below, there was no significant change from the information presented in the Risk Factors section of the Annual Report on Form 20-F filed with the Securities and Exchange Commission (the “SEC”) on June 26, 2020. The changes are indicated by underline below. Any forward-looking statements included in the descriptions below are based on management’s current judgment.

URL: The Annual Report on Form 20-F filed with the SEC on June  26, 2020

https://www.sec.gov/Archives/edgar/data/313838/000119312520179707/d831343d20f.htm

The coronavirus disease 2019 (COVID-19) pandemic has adversely affected, and is expected to continue to adversely affect, Sony’s business operations, operating results and financial condition.

The COVID-19 pandemic is adversely affecting the production, development, sale and distribution of the products and services in each of Sony’s business segments, and this negative impact is expected to continue in the future. For example, in the Game & Network Services (“G&NS”) segment, there was an adverse impact on the production of hardware due to issues in the component supply chain. In the Music segment, the release of new music is being delayed around the world primarily due to some artists being unable to record songs and music videos. Ticket, merchandising and video revenues are decreasing as concerts and other events are being restricted in Japan and other areas. Additionally, due to a global reduction in advertising spending, revenue from the licensing of music in TV commercials is decreasing. In the Pictures segment, box office revenue has been impacted by the closure of movie theaters, and Sony generally has not been able to release its already completed titles in theaters. Although the production of new motion pictures and television shows by Sony is gradually resuming, production schedules are being significantly delayed. Additionally, the global reduction in advertising spending has also led to a decrease of advertising revenue in the Pictures segment. In the Electronics Products & Solutions (“EP&S”) segment, certain of Sony’s manufacturing sites ceased production for a period of time pursuant to local government policy, and a portion of supply was temporarily insufficient to meet demand. Some partner companies that supply components to several of Sony’s businesses have reduced their operations, causing a delay in the production of some Sony products due to component shortages. Additionally, sales have decreased due to the closure of retail stores globally. In the Imaging & Sensing Solutions (“I&SS”) segment, image sensor sales are decreasing primarily due to a slowdown in the smartphone market, which is the final outlet for Sony’s image sensors. In the Financial Services segment, pursuant to the announcement of a state of emergency by the Japanese government, all in-person sales activity of the Lifeplanner® salespeople at Sony Life Insurance Co., Ltd. (“Sony Life”) was suspended from April 2020 through May 2020.

The timing and extent to which the pandemic further negatively impacts Sony’s business could vary greatly depending on future developments, such as the possible further spread of or a resurgence in COVID-19, as well as the state of lockdowns and other measures in various geographic areas around the world. For example, the impact of negative factors in each segment such as those listed above may continue or become more severe. With respect to the Pictures segment, major studios are postponing the release of large films, leading to the possibility that the future theatrical release schedule will become crowded and competition will increase. This could delay the recovery of sales and profit in the Pictures segment. The EP&S segment could continue to be adversely impacted by factory shutdowns and supply chain issues, and by the closure of retail stores globally.

The continued impact of COVID-19 could heighten many of the risks and uncertainties noted below.

As a global company, Sony is subject to a wide range of laws and regulations and a growing consumer focus on corporate social responsibility in many countries. Those laws and regulations, as well as consumer focus, might change in significant ways, leading to an increase in the costs of Sony’s operations, a curtailment of Sony’s activities, and/or an adverse effect on Sony’s reputation.

As a global company, Sony is subject to the laws and regulations of many countries throughout the world that affect its business operations in a number of areas, including advertising, promotions, consumer protection, import and export requirements, anti-corruption, anti-competition, environmental protection, privacy, data protection, content and broadcast regulation, labor, taxation, foreign investment, government procurement, foreign exchange controls, and economic sanctions, as well as laws relating to the collection, use, retention, security and transfer of personally identifiable information.

 

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Compliance with these laws and regulations may be onerous and expensive. These laws and regulations continue to develop and may be inconsistent from jurisdiction to jurisdiction, further increasing the cost of compliance and doing business. Any such developments could occur frequently and without warning, and could make Sony’s products or services less attractive to its customers, delay or prohibit introduction of new products or services in one or more regions or cause Sony to change or limit its business practices. For example, imposition of restrictive trade measures in the United States and elsewhere, as well as retaliatory actions against such measures, could result in increased customs duties applicable to Sony’s products or increased costs for procuring parts and components, and could limit or prohibit the sales of Sony’s products and services to certain of its current or potential customers, which may adversely affect Sony’s operating results and financial condition. In the I&SS segment, image sensor sales are decreasing due to the termination of product shipments to a certain customer as of September 15, 2020, pursuant to export restrictions announced by the U.S. government on August 17, 2020. Sony also recorded inventory write-downs of certain image sensors for the same customer during the six months ended September 30, 2020. In addition, changes in laws or regulations or the judicial interpretation thereof that Sony relies on or Sony is subject to in conducting its operations, including online operations, as well as Sony’s failure to anticipate such changes, may subject Sony to greater risk of liability, increase the costs of compliance, or limit Sony’s ability to engage in or expand certain operations or lead to discontinuance of certain operations.

Violation of applicable laws or regulations by Sony, its employees, third-party suppliers, business partners and agents may subject Sony to fines, penalties, legal judgments, restrictions on business operations and/or reputational damage. Additionally, there is a growing global regulatory and consumer focus on corporate social responsibility and sourcing practices and increasing regulatory obligations of public disclosure regarding these matters. In particular, there is increased attention on labor practices, including work environments at electronic component manufacturers and original design manufacturing/original equipment manufacturing, or ODM/OEM, product manufacturers operating in Asia. Increased regulation or public pressure in this area could cause Sony’s compliance costs to increase, particularly since Sony uses many parts, components and materials to manufacture its products and relies on suppliers to provide these parts, components and materials but does not directly control the suppliers’ procurement or employment practices. A finding of non-compliance, or the perception that Sony has not responded appropriately to growing consumer concern for such issues, whether or not Sony is legally required to do so, may adversely affect Sony’s reputation, operating results and financial condition.

 

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

i) Results of Operations

All amounts are presented on the basis of U.S. GAAP. “Sales and operating revenue” (“sales”) in each business segment represents sales and operating revenue recorded before intersegment transactions are eliminated. “Operating income (loss)” in each business segment represents operating income (loss) reported before intersegment transactions are eliminated and excludes unallocated corporate expenses. For details regarding each segment’s product categories, please refer to “IV Financial Statements – Notes to Consolidated Financial Statements – 10. Business segment information.”

Consolidated Financial Results

 

   (Billions of yen) 
   Six months ended
September 30
 
    2019  2020 

  Sales and operating revenue

      ¥4,048.0  ¥4,082.4 

  Operating income

   509.9   546.2 

  Income before income taxes

   493.1   619.5 

  Net income attributable to Sony Corporation’s stockholders

   340.0   692.9 

Sales for the six months ended September 30, 2020 (“the current six months”) increased 34.4 billion yen compared to the same period of the previous fiscal year (“year-on-year”) to 4 trillion 82.4 billion yen, essentially flat year-on year. This was primarily due to significant increases in sales in the G&NS and Financial Services segments being substantially offset by significant decreases in sales in the Pictures and EP&S segments. Sales in the same period of the previous fiscal year included 7.9 billion yen in patent royalty revenue resulting from the signing of a licensing agreement recorded within Corporate and elimination.

Operating income in the current six months increased 36.3 billion yen year-on-year to 546.2 billion yen. This increase was primarily due to significant increases in operating income in the G&NS and Pictures segments, partially offset by significant decreases in operating income in the I&SS and EP&S segments.

Operating income for the current six months included the following:

  

Gain on the sale of a portion of shares of Pledis Entertainment Co., Ltd. (“Pledis”): 6.5 billion yen (Music segment)

  

Gain recorded in connection with a business transfer: 5.4 billion yen (Music segment)

  

Inventory write-downs of certain image sensors for mobile products: 17.5 billion yen (I&SS segment)

  

Expenses related to the Sony Global Relief Fund for COVID-19: 4.2 billion yen (Corporate and elimination)

During the current six months, restructuring charges, net, decreased 5.5 billion yen year-on-year to 4.4 billion yen. Restructuring charges are recorded as an operating expense and are included in operating income.

Equity in net income of affiliated companies in the current six months, recorded within operating income, decreased 1.6 billion yen year-on-year to 2.1 billion yen.

The net effect of other income and expenses was income of 73.4 billion yen, compared to an expense of 16.8 billion yen in the same period of the previous fiscal year. This was mainly due to the recording of 85.5 billion yen in unrealized gains on Sony’s shares of Spotify Technology S.A. and Bilibili Inc. (“Bilibili”) in the current six months. For details, please refer to “IV Financial Statements – Notes to Consolidated Financial Statements – 2. Marketable securities and securities investments.”

Income before income taxes increased 126.4 billion yen year-on-year to 619.5 billion yen.

During the current six months, Sony recorded an income tax benefit of 91.0 billion yen, resulting in an effective tax rate of negative 14.7%, which was lower than the effective tax rate of 25.7% in the same period of the previous fiscal year. This lower effective tax rate was mainly due to the reversal of valuation allowances recorded against a significant portion of the deferred tax assets of Sony Corporation and its national tax filing group in Japan, which resulted in a tax benefit of 214.9 billion yen in the three months ended September 30, 2020.

Net income attributable to Sony Corporation’s stockholders increased 352.9 billion yen year-on-year to 692.9 billion yen.

 

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

Game & Network Services (G&NS)

Results for the Six Months ended September 30, 2020

Sales increased 200.9 billion yen year-on-year to 1 trillion 112.7 billion yen. This significant increase in sales was primarily due to the strong performance of first-party titles, as well as an increase in sales of game software, including add-on content, and sales of PlayStation®Plus (“PS Plus”) as a result of an increase in digital consumption due to COVID-19. These positive factors were partially offset by a decrease in PlayStation®4 (“PS4”) hardware sales. Operating income increased 90.2 billion yen year-on-year to 229.0 billion yen, primarily due to the impact of the above-mentioned increase in game software and PS Plus sales, partially offset by the impact of an increase in costs.

Music

The Music segment results include the yen-based results of Sony Music Entertainment (Japan) Inc. and the yen-translated results of Sony Music Entertainment (“SME”), Sony/ATV Music Publishing LLC (“Sony/ATV”) and EMI Music Publishing Ltd. (“EMI”), which aggregate the results of their worldwide subsidiaries on a U.S. dollar basis.

Results for the Six Months ended September 30, 2020

Sales decreased 13.5 billion yen to 408.0 billion yen. Despite an increase in revenue from paid subscription streaming services, sales decreased due to decreases in sales in each of the following categories, primarily as a result of the impact of COVID-19. Sales for Recorded Music and Music Publishing decreased mainly due to decreases in sales for physical media and advertising-supported streaming services, as well as a decrease in music licensing revenues. Visual Media and Platform sales decreased primarily due to lower sales from the production of physical media and the impact of the postponement and cancellation of live events, both primarily in Japan. Operating income increased 12.0 billion yen year-on-year to 87.7 billion yen, primarily due to a 6.5 billion yen gain recorded on the sale of a portion of shares of Pledis and a 5.4 billion yen gain recorded in connection with the transfer of an overseas business, partially offset by the impact of the above-mentioned decrease in sales.

Pictures

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

Results for the Six Months ended September 30, 2020

Sales decreased 79.3 billion yen, an 18% decrease year-on-year (an approximate 17% decrease on a U.S. dollar basis), to 367.4 billion yen. The significant decrease in sales on a U.S. dollar basis was due to significant decreases in sales for Motion Pictures and Media Networks. The decrease in sales for Motion Pictures was primarily due to the absence of any major theatrical releases in the current six months resulting from the impact of theater closures due to COVID-19, partially offset by higher digital rental and sell-through sales of prior year and catalog titles. The lower sales for Media Networks were primarily due to lower advertising revenues due to the impact of COVID-19. Operating income increased 16.8 billion yen year-on-year to 56.5 billion yen. The significant increase in operating income was primarily due to lower marketing costs in Motion Pictures as a result of the absence of major theatrical releases due to COVID-19, partially offset by the above-mentioned lower sales.

Electronics Products & Solutions (EP&S)

Results for the Six Months ended September 30, 2020

Sales decreased 140.9 billion yen year-on-year to 836.5 billion yen. This significant decrease in sales was due to a decrease in unit sales of digital cameras, Audio and Video and broadcast- and professional-use products resulting primarily from the impact of COVID-19. Operating income decreased 21.6 billion yen year-on-year to 44.9 billion yen due to the above-mentioned decrease in sales, partially offset by reductions in operating costs.

 

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Imaging & Sensing Solutions (I&SS)

Results for the Six Months ended September 30, 2020

Sales decreased 28.1 billion yen year-on-year to 513.3 billion yen. This decrease in sales was mainly due to a decrease in unit sales of image sensors for mobile products primarily resulting from the impact of U.S. export restrictions, as well as a decrease in unit sales of image sensors for digital cameras primarily as a result of the impact of COVID-19, partially offset by an improvement in the product mix of image sensors for mobile products. Operating income decreased 50.6 billion yen year-on-year to 75.3 billion yen. This significant decrease was mainly due to an increase in depreciation and amortization expenses as well as research and development expenses, the above-mentioned 17.5 billion yen of inventory write-downs of certain image sensors for mobile products whose shipments were terminated as a result of U.S. export restrictions, and the impact of the above-mentioned decrease in sales.

Financial Services

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

Results for the Six Months ended September 30, 2020

Financial Services revenue increased 106.6 billion yen year-on-year to 820.7 billion yen, mainly due to significant increases in revenue at Sony Life and Sony Bank. Revenue at Sony Life increased 74.0 billion yen year-on-year to 713.1 billion yen, mainly due to an increase in net gains on investments in the separate accounts, partially offset by a decrease in premiums from single premium insurance. The increase in revenue at Sony Bank was due to an improvement in valuation gains and losses on securities. Operating income increased 6.0 billion yen year-on-year to 90.9 billion yen, primarily due to significant increases in operating income at Sony Bank and Sony Assurance, partially offset by a significant decrease in operating income at Sony Life. The increase in operating income at Sony Bank was due to the above-mentioned improvement in valuation gains and losses on securities, and the increase in operating income at Sony Assurance was due to a decline in the loss ratio for automobile insurance. Operating income at Sony Life decreased 15.5 billion yen year-on-year to 58.5 billion yen, mainly due to expenses recorded for various provisions related to COVID-19, as well as an overall deterioration in the provision of policy reserves for minimum guarantees for variable life insurance and other products, resulting from market fluctuations and net gains and losses on derivative transactions to hedge market risks.

Operating Performance by Geographic Area

For operating performance by geographic area, please refer to “sales and operating revenue attributed to countries and areas based on location of external customers” in “IV Financial Statements – Notes to Consolidated Financial Statements – 10. Business segment information.”

 

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Foreign Exchange Fluctuations and Risk Hedging

 

Note for readers of this English translation:

Except for the information set forth below, there was no significant change from the information presented in the Foreign Exchange Fluctuations and Risk Hedging section of the Annual Report on Form 20-F filed with the SEC on June 26, 2020. Although foreign exchange rates have fluctuated during the six-month period ended September 30, 2020, there has been no significant change in Sony’s risk hedging policy as described in the Annual Report on Form 20-F.

URL: The Annual Report on Form 20-F filed with the SEC on June  26, 2020

https://www.sec.gov/Archives/edgar/data/313838/000119312520179707/d831343d20f.htm

During the current six months, the average rates of the yen were 106.9 yen against the U.S. dollar and 121.3 yen against the euro, which were 1.7 yen and 0.1 yen higher year-on-year, respectively.

For the current six months, sales were 4 trillion 82.4 billion yen, essentially flat year-on-year, while on a constant currency basis sales increased 2% year-on-year. For further details about the impact of foreign exchange rate fluctuations on sales and operating income, please refer to the below Note.

Consolidated operating income increased 36.3 billion yen year-on-year to 546.2 billion yen for the current six months. Most of the foreign exchange rate impact was attributable to the impact of foreign exchange rates in the G&NS, EP&S and I&SS segments.

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

 

      (Billions of yen)
      

 

            Six months ended             
September 30

   Impact of
changes in
foreign
exchange rates
      2019         2020 

  G&NS

      Sales   ¥911.9    ¥1,112.7            -¥12.5
       Operating income   138.8    229.0                -1.6

  EP&S

      Sales   977.4    836.5              -10.5
       Operating income   66.5    44.9                -1.9

  I&SS

      Sales   541.4    513.3                -7.0
       Operating income   125.9    75.3                -0.7

In addition, sales for the Music segment decreased 3% year-on-year to 408.0 billion yen, an approximate 2% decrease on a constant currency basis. In the Pictures segment, sales decreased 18% year-on-year to 367.4 billion yen, an approximate 17% decrease on a U.S. dollar basis. As most of the operations in Sony’s Financial Services segment are based in Japan, Sony’s management analyzes the performance of the Financial Services segment on a yen basis only.

Note:

Sales on a Constant Currency Basis and the Impact of Foreign Exchange Rate Fluctuations

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

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

 

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The impact of foreign exchange rate fluctuations on sales is calculated by applying the change in the yen’s periodic weighted average exchange rate for the same period of the previous fiscal year from the relevant period of the current fiscal year to the major transactional currencies in which the sales are denominated. The impact of foreign exchange rate fluctuations on operating income (loss) is calculated by subtracting from the impact on sales the impact on cost of sales and selling, general and administrative expenses calculated by applying the same major transactional currencies calculation process to cost of sales and selling, general and administrative expenses as for the impact on sales. The I&SS segment enters into its own foreign exchange hedging transactions, and the impact of those transactions is included in the impact of foreign exchange rate fluctuations on operating income (loss) for that segment.

This information is not a substitute for Sony’s consolidated financial statements measured in accordance with U.S. GAAP. However, Sony believes that these disclosures provide additional useful analytical information to investors regarding the operating performance of Sony.

Status of Cash Flows*

Operating Activities: During the current six months, there was a net cash inflow of 633.5 billion yen from operating activities, an increase of 223.0 billion yen year-on-year.

For all segments excluding the Financial Services segment, there was a net cash inflow of 493.5 billion yen, an increase of 403.8 billion yen year-on-year. This increase was primarily due to a year-on-year increase in net income after taking into account non-cash adjustments (including depreciation and amortization, other operating (income) expense, net and (gain) loss on securities investments, net), a larger increase in notes and accounts payable, trade, as well as a larger decrease in notes and accounts receivable, trade and contract assets.

The Financial Services segment had a net cash inflow of 159.8 billion yen, a decrease of 178.3 billion yen year-on-year. This decrease was primarily due to a year-on-year decrease in net income after taking into account non-cash adjustments such as (gain) loss on marketable securities and securities investments, net.

Investing Activities: During the current six months, Sony used 882.6 billion yen of net cash in investing activities, an increase of 251.4 billion yen year-on-year.

For all segments excluding the Financial Services segment, there was a net cash outflow of 324.3 billion yen, an increase of 246.1 billion yen year-on-year. This increase was mainly due to an increase in payments for fixed asset purchases including semiconductor manufacturing equipment, as well as cash outflow resulting from a payment for the purchase of shares of Bilibili. Additionally, the same period of the previous fiscal year included the cash inflow from the sale of all of Sony’s shares of Olympus Corporation.

The Financial Services segment used 558.4 billion yen of net cash in investing activities, essentially flat year-on-year.

Financing Activities: Net cash inflow by financing activities during the current six months was 636.8 billion yen, an increase of 607.9 billion yen year-on-year.

For all segments excluding the Financial Services segment, there was a net cash inflow of 160.0 billion yen, compared to a net cash outflow of 230.3 billion yen in the same period of the previous fiscal year. This net cash inflow was mainly due to a long-term bank loan of approximately 2 billion U.S. dollars in July 2020, as well as the absence of the redemption of straight bonds and the repayment of long-term debt in the same period of the previous fiscal year. As part of a transaction to make SFH into a wholly-owned subsidiary of Sony Corporation, a tender offer for the shares of SFH and the related stock acquisition rights was conducted. To fund the 322.6 billion yen tender offer, 322.5 billion yen in short-term bank borrowings was secured in July 2020.

In the Financial Services segment, there was a 457.0 billion yen net cash inflow, an increase of 215.1 billion yen year-on-year. This increase was primarily due to a larger increase in deposits from customers at Sony Bank.

Total Cash and Cash Equivalents: Accounting for the above factors and the effect of fluctuations in foreign exchange rates, the total outstanding balance of cash and cash equivalents at September 30, 2020 was 1 trillion 884.4 billion yen.

Cash and cash equivalents of all segments excluding the Financial Services segment was 1 trillion 275.8 billion yen at September 30, 2020, an increase of 313.5 billion yen compared with the balance as of March 31, 2020, and an increase of 559.5 billion yen compared with the balance as of September 30, 2019.

Within the Financial Services segment, the outstanding balance of cash and cash equivalents was 608.5 billion yen at September 30, 2020, an increase of 58.5 billion yen compared with the balance as of March 31, 2020, and an increase of 72.0 billion yen compared with the balance as of September 30, 2019.

 

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

 

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Condensed Statements of Cash Flows

 

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

Sony without

Financial Services

 

 

   Consolidated 
  2019   2020   2019   2020    2019    2020 

 

  

 

 

   

 

 

 

Cash flows from operating activities:

        

Net income (loss)

  60,058   67,807   323,806   662,752    366,173    710,543 

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

        

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

  45,235   25,758   144,704   161,970    189,939    187,728 

Amortization of film costs

  -   -   138,400   117,843    138,400    117,843 

Other operating (income) expense, net

  44   58   (6,019  (16,844   (5,961   (16,786

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

  (25,820  (220,776  12,939   (85,485   (12,881   (306,261

Changes in assets and liabilities:

        

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

  914   (4,784  (145,747  (38,967   (144,399   (34,684

(Increase) decrease in inventories

  -   -   (144,148  (121,772   (144,148   (121,772

(Increase) decrease in film costs

  -   -   (176,002  (72,916   (176,002   (72,916

Increase (decrease) in notes and accounts payable, trade

  -   -   128,786   290,674    128,786    290,674 

Increase (decrease) in future insurance policy benefits and other

  338,457   435,225   -   -    338,457    435,225 

(Increase) decrease in deferred insurance acquisition costs

  (48,346  (45,460  -   -    (48,346   (45,460

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

  (88,119  (91,971  -   -    (88,119   (91,971

Other

  55,679   (6,044  (187,001  (403,742   (131,414   (418,682

 

  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

  338,102   159,813   89,718   493,513    410,485    633,481 

 

  

 

 

   

 

 

 

Cash flows from investing activities:

        

Payments for purchases of fixed assets

  (9,379  (9,653  (170,398  (265,659   (179,778   (275,281

Payments for investments and advances

  (681,965  (738,027  (32,320  (81,959   (714,285   (819,986

Proceeds from sales or return of investments and collections of advances

  138,242   189,301   91,984   14,794    230,226    204,095 

Other

  64   9   32,571   8,565    32,622    8,574 

 

  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

  (553,038  (558,370  (78,163  (324,259   (631,215   (882,598

 

  

 

 

   

 

 

 

Cash flows from financing activities:

        

Increase (decrease) in borrowings, net

  158,510   210,147   (80,880  513,811    77,309    723,957 

Increase (decrease) in deposits from customers, net

  110,514   277,354   -   -    110,514    277,354 

Dividends paid

  (27,189  (30,454  (24,994  (30,448   (24,994   (30,448

Other

  62   (3  (124,463  (323,409   (133,920   (334,051

 

  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

  241,897   457,044   (230,337  159,954    28,909    636,812 

 

  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

  -   -   (26,029  (17,842   (26,029   (17,842

 

  

 

 

   

 

 

 

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

  26,961   58,487   (244,811  311,366    (217,850   369,853 

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

  509,595   550,039   964,218   965,256    1,473,813    1,515,295 

 

  

 

 

   

 

 

 

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

  536,556   608,526   719,407   1,276,622    1,255,963    1,885,148 

 

  

 

 

   

 

 

 

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

  -   -   3,094   780    3,094    780 

 

  

 

 

   

 

 

 

Cash and cash equivalents at end of the period

  536,556   608,526   716,313   1,275,842    1,252,869    1,884,368 

 

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

 

Note for readers of this English translation:

There was no significant change from the information presented in the Trend Information section of the Annual Report on Form 20-F filed with the SEC on June 26, 2020. Any forward-looking statements included in the descriptions below are based on management’s current judgment.

URL: The Annual Report on Form 20-F filed with the SEC on June 26, 2020

https://www.sec.gov/Archives/edgar/data/313838/000119312520179707/d831343d20f.htm

iii) Research and Development

 

Note for readers of this English translation:

There was no significant change from the information presented as the Research and Development in the Annual Report on Form 20-F filed with the SEC on June 26, 2020.

URL: The Annual Report on Form 20-F filed with the SEC on June 26, 2020

https://www.sec.gov/Archives/edgar/data/313838/000119312520179707/d831343d20f.htm

Research and development costs for the six months ended September 30, 2020 totaled 248.9 billion yen. There were no significant changes in research and development activities for the period.

iv) Liquidity Management and Market Access

Note for readers of this English translation:

Except for the information related to the committed lines of credit and others set forth below, there was no significant change from the information presented in the Annual Report on Form 20-F filed with the SEC on June 26, 2020. The changes are indicated by underline below. Any forward-looking statements included in the descriptions below are based on management’s current judgment.

URL: The Annual Report on Form 20-F filed with the SEC on June 26, 2020

https://www.sec.gov/Archives/edgar/data/313838/000119312520179707/d831343d20f.htm

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

Funding requirements that arise from maintaining liquidity are principally covered by cash flow from operating 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 Corporation, Sony Global Treasury Services Plc (“SGTS”), a 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 1,044.2 billion yen in total for Sony Corporation, SGTS and SCC as of March 31, 2020. There were no amounts outstanding under the CP programs as of March 31, 2020.

Sony Corporation borrowed 322.5 billion yen in July 2020, and 74.0 billion yen in October 2020 from a Japanese private bank, in order to procure the funds necessary to acquire the common shares and related stock acquisition rights not held by Sony of SFH, a consolidated subsidiary of Sony Corporation, with the aim of making SFH a wholly-owned subsidiary of Sony Corporation.

In July 2020, in order to enhance liquidity, Sony Corporation executed an approximate 2 billion U.S. dollar bank loan from a group of lenders with eight- to ten-year maturity terms in connection with Sony’s acquisition of the remaining approximately 60% equity interest in DH Publishing, L.P., which owns EMI Music Publishing, in November 2018. This bank loan utilizes the Japan Bank for International Cooperation (“JBIC”) Facility, which was established to facilitate overseas mergers and acquisitions by Japanese companies. Approximately 60%, or 1.2 billion U.S. dollars, is from the JBIC Facility and borrowed in U.S. dollars and approximately 40%, or 86 billion yen (approximately 0.8 billion U.S. dollars), is from Japanese private banks and borrowed in yen.

 

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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 566.0 billion yen in unused committed lines of credit, as of September 30, 2020. 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. dollar multicurrency committed line of credit also contracted with a syndicate of Japanese banks and a 1.05 billion U.S. dollar multicurrency committed line of credit contracted with a syndicate of foreign banks. Sony 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.

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.

v) Plan of Capital Investments and Asset Retirement

 

Note for readers of this English translation:

There was no significant change in Sony’s plan of capital expenditures and asset retirements from the information presented in the Quarterly Securities Report for the three months ended June 30, 2020, filed with the SEC on August 11, 2020.

URL: Quarterly Securities Report for the three months ended June 30, 2020, filed with the SEC on August 11, 2020

https://www.sec.gov/Archives/edgar/data/0000313838/000119312520215557/d62798d6k.htm

 

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(3) Material Contracts

There were no material contracts executed or determined to be executed during the three months ended September 30, 2020.

 

Note for readers of this English translation:

There was no significant change from the information presented in the Annual Report on Form 20-F (“Patents and Licenses” in Item 4) filed with the SEC on June 26, 2020.

URL: The Annual Report on Form 20-F filed with the SEC on June 26, 2020

https://www.sec.gov/Archives/edgar/data/313838/000119312520179707/d831343d20f.htm

 

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  III    Company Information

  (1) Information on the Company’s Shares

i) Total Number of Shares

1) Total Number of Shares

 

Class

  Total number of shares authorized to be issued

Common stock

  3,600,000,000

Total

  3,600,000,000

2) Number of Shares Issued

 

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

As of the end of the    

second quarterly period    

(September 30, 2020)    

  

As of the filing date of    

the Quarterly    

Securities Report    

(November 4, 2020)    

Common stock    1,261,058,781  1,261,058,781  

Tokyo Stock Exchange

New York Stock Exchange

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

Total    

 

  

 

1,261,058,781

 

  

 

1,261,058,781

 

  

 

 

  

 

 

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

ii) Stock Acquisition Rights (“SARs”)

    ①Description of Stock Option

Not applicable.

    ②Other Stock Acquisition Rights

Not applicable.

 

Note for readers of this English translation:

The above means that there was no issuance of SARs during the three months ended September 30, 2020.

iii) Status of the Exercise of Moving Strike Convertible Bonds

Not applicable.

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

 

Period 

Change in the  
total number

of shares

issued  
(Thousands)   

 

Balance of the   
total number

of shares

issued  
(Thousands)   

 

Change in  

the amount of  

common stock  
(Yen in Millions)   

 

Balance of  

the amount of  

common stock  
(Yen in Millions)   

 

Change in the  
legal capital  
surplus  

(Yen in Millions)   

 

Balance of the  
legal capital  
surplus  

(Yen in Millions)   

From July 1 to September 30, 2020   1,261,059 —   880,214 —   1,093,907

 

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v) Status of Major Shareholders

(As of September 30, 2020)

 

    
Name Address 

Number of
shares held

(Thousands)

 

Percentage

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

    

Citibank as Depositary Bank for Depositary

Receipt Holders *1

(Local Custodian: MUFG Bank, Ltd.)

 

New York, U.S.A.

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

 114,343  9.27
    

The Master Trust Bank of Japan, Ltd.

(Trust account) *2

 2-11-3, Hamamatsu-cho, Minato-ku, Tokyo 109,604  8.89
    

Custody Bank of Japan, Ltd.

(Trust account) *2

 1-8-12, Harumi, Chuo-ku, Tokyo 74,983  6.08
    

JP Morgan Chase Bank 385632 *3

(Local Custodian: Mizuho Bank, Ltd.)

 

25 Bank Street, Canary Wharf, London, E14 5JP, United Kingdom

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

 31,561  2.56
    

Custody Bank of Japan, Ltd.

(Trust account 7) *2

 1-8-12, Harumi, Chuo-ku, Tokyo 27,381  2.22
    

Custody Bank of Japan, Ltd.

(Trust account 5) *2

 1-8-12, Harumi, Chuo-ku, Tokyo 26,120  2.12
    

Ssbtc Client Omnibus Account *3

(Local Custodian: The Hongkong and Shanghai

Banking Corporation Limited, Tokyo Branch)

 

One Lincoln Street, Boston MA USA 02111

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

Tokyo)

 22,903  1.86
    

JP Morgan Chase Bank 385781 *3

(Local Custodian: Mizuho Bank, Ltd.)

 

25 Bank Street, Canary Wharf, London, E14 5JP, United Kingdom

(Shinagawa Intercity Tower A,

2-15-1, Konan, Minato-ku, Tokyo)

 19,998  1.62
    

State Street Bank West Client – Treaty 505234 *3

(Local Custodian: Mizuho Bank, Ltd.)

 

1776 Heritage Drive, North Quincy, MA 02171, U.S.A.

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

 19,392  1.57
    

Government of Norway

(Local Custodian: Citibank, N.A., Tokyo Branch)

 

Bankplassen 2, 0107 Oslo 1 Oslo 0107 No

(6-27-30 Shinjuku, Shinjuku-ku, Tokyo)

 17,337  1.41
   
Total         463,623  37.58

Notes:

*1.

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

*2.

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

*3.

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

 

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  4.

Nomura Asset Management Co., Ltd. filed its “Bulk Shareholding Report” with the Director-General of Kanto Local Financial Bureau in Japan as of October 6, 2020 and reported that Nomura Asset Management Co., Ltd. and three joint holders held shares of the Company as of September 30, 2020 as provided in the below table. As of September 30, 2020, the Company has not been able to confirm the entry of such parties in the register of shareholders.

Name 

Number of shares, etc. held

(Thousands)

 

Percentage of shares, etc. held

to total shares issued (%)

            Nomura Asset Management Co., Ltd. and 3 Joint Holder                   63,157 5.01
  5.

Sumitomo Mitsui Trust Asset Management Co., Ltd. filed its “Amendment to the Bulk Shareholding Report” with the Director-General of Kanto Local Financial Bureau in Japan as of September 20, 2019 and reported that Sumitomo Mitsui Trust Asset Management Co., Ltd. and one joint holder held shares of the Company as of September 13, 2019 as provided in the below table. As of September 30, 2020, the Company has not been able to confirm the entry of such parties in the register of shareholders.

   
Name 

Number of shares, etc. held

(Thousands)

 

Percentage of shares, etc. held

to total shares issued (%)

   
  Sumitomo Mitsui Trust Asset Management Co., Ltd. and 1 Joint Holder     72,546 5.70
  6.

BlackRock Japan Co., Ltd. filed its “Amendment to the Bulk Shareholding Report” with the Director-General of Kanto Local Financial Bureau in Japan as of March 22, 2017 and reported that BlackRock Japan Co., Ltd. and eight joint holders held shares of the Company as of March 15, 2017 as provided in the below table. As of September 30, 2020, the Company has not been able to confirm the entry of such parties in the register of shareholders.

   
Name 

Number of shares, etc. held 

(Thousands)

 

Percentage of shares, etc. held

to total shares issued (%)

   
  BlackRock Japan Co., Ltd. and 8 Joint Holders                                              79,185 6.27

vi) Status of Voting Rights

1) Shares Issued

(As of September 30, 2020)

 

    
Classification   Number of shares of  
  common stock  
 

  Number of voting rights  

(Units)

 Description       

Shares without voting rights

             —               

Shares with restricted voting rights

(Treasury stock, etc.)

             —               

Shares with restricted voting rights (Others)

             —               

Shares with full voting rights

(Treasury stock, etc.)

      27,501,700  

Shares with full voting rights (Others)

 1,231,668,000 12,316,680 

Shares constituting less than one full unit

        1,889,081  Shares constituting    
less than one full unit    

(100 shares)    

Total number of shares issued

 1,261,058,781  

Total voting rights held by all shareholders

             —              12,316,680 

 

Note:

 

Included in “Shares with full voting rights (Others)” under “Number of shares of common stock” are 19,000 shares of common stock held under the name of Japan Securities Depository Center, Incorporated. Also included in “Shares with full voting rights (Others)” under “Number of voting rights (Units)” are 190 units of voting rights relating to the shares of common stock with full voting rights held under the name of Japan Securities Depository Center, Incorporated.

 

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2) Treasury Stock, etc.

(As of September 30, 2020)

 

      
Name of shareholder   Address of shareholder Number of  
shares held  
under own  
name 
 Number of  
shares held  
under the names  
of others   
 Total number  
of shares  
held  
 

Percentage of  
shares held to  

total shares  
issued (%)  

Sony Corporation

(Treasury stock)

 1-7-1, Konan, Minato-ku,  Tokyo   27,501,700  27,501,700 2.18

Total

  27,501,700  27,501,700 2.18

Notes:

1.

In addition to the 27,501,700 shares listed above, there are 300 shares of common stock held in the name of the Company in the register of shareholders that the Company does not beneficially own. These shares are included in “Shares with full voting rights (Others)” in Table 1) “Shares Issued” above.

2.

Upon the disposal of treasury shares due to the exercise of SARs (including the exercise of unsecured convertible bonds with SARs (6th series)) from October 1, 2020 to October 31, 2020, the number of shares held decreased by 40 thousand shares.

(2)    Directors and Corporate Executive Officers

There was no change in directors or corporate executive officers in the period from the filing date of the Securities Report (Yukashoken Houkokusho) for the fiscal year ended March 31, 2020 to the filing date of this Quarterly Securities Report (Shihanki Houkokusho).

 

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Table of Contents

(1) Consolidated Financial Statements

(i)    Consolidated Balance Sheets (Unaudited)

 

Sony Corporation and Consolidated Subsidiaries

 

               Yen in millions                 
    At March 31,
            2020             
  At September 30,
            2020             
 

ASSETS

   

Current assets:

   

Cash and cash equivalents

   1,512,357   1,884,368 

Marketable securities (including assets pledged that secured parties are permitted to sell or repledge of 17,521 million yen and 23,578 million yen at March 31, 2020 and September 30, 2020)

   1,847,772   2,540,460 

Notes and accounts receivable, trade and contract assets

   1,028,793   1,046,907 

Allowance for credit losses

   (25,873  (25,011

Inventories

   589,969   681,685 

Other receivables

   188,106   315,989 

Prepaid expenses and other current assets

   594,021   538,298 

Total current assets

   5,735,145   6,982,696 

Film costs

   427,336   401,499 

Investments and advances:

   

Affiliated companies

   207,922   214,217 

Securities investments and other (including assets pledged that secured parties are permitted to sell or repledge of 930,882 million yen and 1,335,974 million yen at March 31, 2020 and September 30, 2020)

   12,526,210   13,176,045 

Allowance for credit losses

   -   (8,124
   12,734,132   13,382,138 

Property, plant and equipment:

   

Land

   81,482   79,341 

Buildings

   659,556   655,991 

Machinery and equipment

   1,725,720   1,656,886 

Construction in progress

   76,391   102,084 
   2,543,149   2,494,302 

Less – Accumulated depreciation

   1,634,505   1,551,922 
    908,644   942,380 

Other assets:

   

Operating lease right-of-use assets

   359,510   348,177 

Finance lease right-of-use assets

   33,100   43,253 

Intangibles, net

   906,310   899,281 

Goodwill

   783,888   778,297 

Deferred insurance acquisition costs

   600,901   627,893 

Deferred income taxes

   210,372   197,279 

Other

   340,005   348,920 
    3,234,086   3,243,100 

Total assets

   23,039,343   24,951,813 

  (Continued on following page.)

 

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            Consolidated Balance Sheets (Unaudited)

 

 

               Yen in millions                 
    At March 31,
            2020             
  At September 30,
            2020             
 

LIABILITIES

   

Current liabilities:

   

Short-term borrowings

   810,176   1,294,800 

Current portion of long-term debt

   29,807   118,832 

Current portion of long-term operating lease liabilities

   68,942   73,585 

Notes and accounts payable, trade

   380,810   669,611 

Accounts payable, other and accrued expenses

   1,630,197   1,533,438 

Accrued income and other taxes

   145,996   162,066 

Deposits from customers in the banking business

   2,440,783   2,655,330 

Other

   733,732   1,007,147 

Total current liabilities

   6,240,443   7,514,809 

Long-term debt

   634,966   745,581 

Long-term operating lease liabilities

   314,836   299,834 

Accrued pension and severance costs

   324,655   316,457 

Deferred income taxes

   549,538   325,939 

Future insurance policy benefits and other

   6,246,047   6,420,438 

Policyholders’ account in the life insurance business

   3,642,271   3,967,126 

Other

   289,285   281,117 

Total liabilities

   18,242,041   19,871,301 

Redeemable noncontrolling interest

   7,767   7,674 

Commitments and contingent liabilities

         

EQUITY

         

Sony Corporation’s stockholders’ equity:

   

Common stock, no par value –

   

At March 31, 2020–Shares authorized: 3,600,000,000, shares issued: 1,261,058,781

   880,214  

At September 30, 2020–Shares authorized: 3,600,000,000, shares issued: 1,261,058,781

    880,214 

Additional paid-in capital

   1,289,719   1,485,728 

Retained earnings

   2,768,856   3,418,107 

Accumulated other comprehensive income –

   

Unrealized gains on securities, net

   161,191   165,916 

Unrealized gains on derivative instruments, net

   1,248   377 

Pension liability adjustment

   (235,520  (231,971

Foreign currency translation adjustments

   (509,872  (533,345

Debt valuation adjustments

   1,973   1,839 
   (580,980  (597,184

Treasury stock, at cost

   

Common stock

   

At March 31, 2020–40,898,841 shares

   (232,503 

At September 30, 2020–27,501,719 shares

       (156,364
    4,125,306   5,030,501 

Noncontrolling interests

   664,229   42,337 

Total equity

   4,789,535   5,072,838 

Total liabilities and equity

   23,039,343   24,951,813 

  The accompanying notes are an integral part of these statements.

 

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  (ii)    Consolidated Statements of Income (Unaudited)

 

Sony Corporation and Consolidated Subsidiaries

 

  Yen in millions 
            Six months ended September 30           
   2019  2020 

Sales and operating revenue:

  

Net sales

  3,283,956   3,228,445 

Financial services revenue

  709,909   817,023 

Other operating revenue

  54,118   36,937 
   4,047,983   4,082,405 

Costs and expenses:

  

Cost of sales

  2,218,018   2,198,661 

Selling, general and administrative

  705,083   630,473 

Financial services expenses

  624,671   726,044 

Other operating income, net

  (5,961  (16,786
   3,541,811   3,538,392 

Equity in net income of affiliated companies

  3,708   2,146 

Operating income

  509,880   546,159 

Other income:

  

Interest and dividends

  10,758   5,356 

Gain on equity securities, net

  -   85,493 

Other

  3,155   2,797 
   13,913   93,646 

Other expenses:

  

Interest expenses

  7,664   4,509 

Loss on equity securities, net

  13,020   - 

Foreign exchange loss, net

  8,949   8,744 

Other

  1,048   7,029 
   30,681   20,282 

Income before income taxes

  493,112   619,523 

Income taxes

  126,939   (91,020

Net income

  366,173   710,543 

Less - Net income attributable to noncontrolling interests

  26,164   17,658 

Net income attributable to Sony Corporation’s stockholders

  340,009   692,885 
  Yen 
  Six months ended September 30 
   2019  2020 

Per share data:

  

Net income attributable to Sony Corporation’s stockholders

  

– Basic

  273.52   565.97 

– Diluted

  267.65   554.82 

The accompanying notes are an integral part of these statements.

 

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            Consolidated Statements of Income (Unaudited)

 

Sony Corporation and Consolidated Subsidiaries

 

  Yen in millions 
            Three months ended September 30            
   2019  2020 

Sales and operating revenue:

  

Net sales

  1,725,310   1,723,575 

Financial services revenue

  375,089   372,107 

Other operating revenue

  21,860   17,804 
   2,122,259   2,113,486 

Costs and expenses:

  

Cost of sales

  1,156,980   1,145,988 

Selling, general and administrative

  354,916   329,307 

Financial services expenses

  336,178   328,385 

Other operating income, net

  (2,404  (5,538
   1,845,670   1,798,142 

Equity in net income of affiliated companies

  2,366   2,420 

Operating income

  278,955   317,764 

Other income:

  

Interest and dividends

  4,953   2,520 

Other

  2,036   1,524 
   6,989   4,044 

Other expenses:

  

Interest expenses

  2,784   2,704 

Loss on equity securities, net

  13,343   11,407 

Foreign exchange loss, net

  7,253   3,690 

Other

  470   4,403 
   23,850   22,204 

Income before income taxes

  262,094   299,604 

Income taxes

  61,927   (163,898

Net income

  200,167   463,502 

Less - Net income attributable to noncontrolling interests

  12,280   3,868 

Net income attributable to Sony Corporation’s stockholders

  187,887   459,634 
  Yen 
            Three months ended September 30           
       2019          2020     

Per share data:

  

Net income attributable to Sony Corporation’s stockholders

  

– Basic

  151.89   374.34 

– Diluted

  148.59   367.82 

The accompanying notes are an integral part of these statements.

 

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  (iii)    Consolidated Statements of Comprehensive Income (Unaudited)

 

Sony Corporation and Consolidated Subsidiaries

 

  Yen in millions 
            Six months ended September 30            
       2019          2020     

Net income

  366,173   710,543 

Other comprehensive income, net of tax —

  

Unrealized gains (losses) on securities

  39,925   (37,882

Unrealized losses on derivative instruments

  (308  (871

Pension liability adjustment

  6,040   4,459 

Foreign currency translation adjustments

  (63,750  (23,470

Debt valuation adjustments

  -   (1,193

Total comprehensive income

  348,080   651,586 

Less – Comprehensive income attributable to noncontrolling interests

  39,097   5,108 

Comprehensive income attributable to Sony Corporation’s stockholders

  308,983   646,478 
  Yen in millions 
          Three months ended September 30         
       2019          2020     

Net income

  200,167   463,502 

Other comprehensive income, net of tax —

  

Unrealized gains (losses) on securities

  13,624   (5,771

Unrealized losses on derivative instruments

  (1,072  (611

Pension liability adjustment

  3,126   3,893 

Foreign currency translation adjustments

  (21,052  (11,987

Debt valuation adjustments

  -   457 

Total comprehensive income

  194,793   449,483 

Less – Comprehensive income attributable to noncontrolling interests

  16,475   4,588 

Comprehensive income attributable to Sony Corporation’s stockholders

     178,318      444,895 

  The accompanying notes are an integral part of these statements.

 

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  (iv)    Consolidated Statements of Cash Flows (Unaudited)

 

Sony Corporation and Consolidated Subsidiaries

 

   Yen in millions 
         Six months ended September 30       
            2019                  2020         

Cash flows from operating activities:

   

Net income

   366,173   710,543 

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

      189,939      187,728 

Amortization of film costs

   138,400   117,843 

Accrual for pension and severance costs, less payments

   (3,744  806 

Other operating income, net

   (5,961  (16,786

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

   12,939   (85,485

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

   (25,820  (220,776

Deferred income taxes

   (17,978  (193,077

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

   (924  1,502 

Changes in assets and liabilities:

   

Increase in notes, accounts receivable, trade and contract assets

   (144,399  (34,684

Increase in inventories

   (144,148  (121,772

Increase in film costs

   (176,002  (72,916

Increase in notes and accounts payable, trade

   128,786   290,674 

Increase in accrued income and other taxes

   47,557   71,859 

Increase in future insurance policy benefits and other

   338,457   435,225 

Increase in deferred insurance acquisition costs

   (48,346  (45,460

Increase in marketable securities held in the life insurance business

   (88,119  (91,971

Increase in other current assets

   (33,747  (140,607

Decrease in other current liabilities

   (167,023  (148,652

Other

   44,445   (10,513

Net cash provided by operating activities

   410,485   633,481 

(Continued on following page.)

 

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            Consolidated Statements of Cash Flows (Unaudited)

 

 

   Yen in millions 
         Six months ended September 30       
           2019                  2020         

Cash flows from investing activities:

         

Payments for purchases of fixed assets

   (179,778  (275,281

Proceeds from sales of fixed assets

   10,611   10,024 

Payments for investments and advances by financial services business

   (681,965  (738,027

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

   (32,320  (81,959

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

   138,242   189,301 

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

   11,627   14,794 

Proceeds from sales of businesses

   7,864   1,605 

Proceeds from sales of Olympus Corporation Shares

   80,357   - 

Other

   14,147   (3,055

Net cash used in investing activities

   (631,215  (882,598

Cash flows from financing activities:

   

Proceeds from issuance of long-term debt

   6,283   301,094 

Payments of long-term debt

   (186,103  (59,725

Increase in short-term borrowings, net

   257,129   160,088 

Proceeds from issuance of short-term (more than 3 months) borrowings in connection with payment for purchase of noncontrolling interest in Sony Financial Holdings Inc.

   -   322,500 

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

   110,514   277,354 

Dividends paid

   (24,994  (30,448

Payments for purchase of treasury stock

   (125,078  (106

Payment for purchase of noncontrolling interest in Sony Financial Holdings Inc.

   -   (322,611

Other

   (8,842  (11,334

Net cash provided by financing activities

   28,909   636,812 

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

   (26,029  (17,842

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

   (217,850  369,853 

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

   1,473,813   1,515,295 

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

   1,255,963   1,885,148 

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

   3,094   780 

Cash and cash equivalents at end of the period

   1,252,869   1,884,368 

The accompanying notes are an integral part of these statements.

 

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Table of Contents

Notes to Consolidated Financial Statements (Unaudited)

 

Sony Corporation and Consolidated Subsidiaries

 

1.

Summary of significant accounting policies

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

 

(1)

Recently adopted accounting pronouncements:

Measurement of credit losses on financial instruments -

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, 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 was effective for Sony as of April 1, 2020. The adoption of this ASU did not 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 ASU 2019-02, which updates the guidance 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 a title-by-title 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 was effective for Sony as of April 1, 2020 and was applied on a prospective basis. Upon adoption, Sony reclassified broadcasting rights in the Pictures segment and animation film production costs in the Music segment included in inventories to film costs.

 

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

 

      Yen in millions 
      

March 31,

2020

      Impact of Adoption      

April 1,

2020

 

 

  ASU
2016-13
  ASU
2019-02
  Total    

ASSETS

           

Current assets:

           

Notes and accounts receivable, trade and contract assets

    1,028,793     -   -   -     1,028,793 

Allowance for credit losses *

    (25,873    (280  -   (280    (26,153

Inventories

    589,969     -   (31,517  (31,517    558,452 

Other receivables

    188,106     (30  -   (30    188,076 

Prepaid expenses and other current assets

    594,021     (12  -   (12    594,009 

Total current assets

    5,735,145     (322  (31,517  (31,839    5,703,306 

Film costs

    427,336     -   31,517   31,517     458,853 

Investments and advances:

           

Securities investments and other

    12,526,210     780   -   780     12,526,990 

Allowance for credit losses

    -     (6,341  -   (6,341    (6,341

Total investments and advances

    12,734,132     (5,561  -   (5,561    12,728,571 

Other assets:

           

Deferred income taxes

    210,372     45   -   45     210,417 

Other

    340,005     (721  -   (721    339,284 

Total other assets

    3,234,086     (676  -   (676    3,233,410 

Total assets

    23,039,343     (6,559  -   (6,559    23,032,784 

LIABILITIES

           

Deferred income taxes

    549,538     (1,504  -   (1,504    548,034 

Total liabilities

    18,242,041     (1,504  -   (1,504    18,240,537 

EQUITY

                          

Sony Corporation’s stockholders’ equity:

           

Retained earnings

    2,768,856     (3,669  -   (3,669    2,765,187 

Total Sony Corporation’s stockholders’ equity

    4,125,306     (3,669  -   (3,669    4,121,637 

Noncontrolling interests

    664,229     (1,386  -   (1,386    662,843 

Total equity

    4,789,535     (5,055  -   (5,055    4,784,480 

Total liabilities and equity

    23,039,343     (6,559  -   (6,559    23,032,784 

 

*

Under ASU 2016-13, Sony changed the presentation from “Allowance for doubtful accounts” to “Allowance for credit losses” on the consolidated balance sheets.

Disclosures for Fair Value Measurement -

In August 2018, the FASB issued ASU 2018-13, which amends disclosure requirements related to fair value measurement. This ASU was effective for Sony as of April 1, 2020. Since this ASU only impacts disclosures, the adoption had no impact on Sony’s results of operations and financial position.

Disclosures for Defined Benefit Plans -

In August 2018, the FASB issued ASU 2018-14, which amends disclosure requirements related to defined benefit pension and other postretirement plans. This ASU was effective for Sony as of April 1, 2020. Since this ASU only impacts disclosures, the adoption had no impact on Sony’s results of operations and financial position.

 

(2)

Accounting methods used specifically for interim consolidated financial statements:

Income Taxes -

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

 

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(3)

Reclassifications:

Certain reclassifications of the financial statements and accompanying footnotes for the six and three months ended September 30, 2019 have been made to conform to the presentation for the six and three months ended September 30, 2020.

 

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2.

Marketable securities and securities investments

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

 

  Yen in millions 
  March 31, 2020  September 30, 2020 
  Cost  Gross
unrealized
gains
  Gross
unrealized
losses
  Fair value  Cost  Gross
unrealized
gains
  Gross
unrealized
losses
  Fair value 

Debt securities:

        

Available-for-sale securities:

        

Japanese national government bonds *1

  1,552,036     210,459     (566)     1,761,929     2,045,488     181,522     (10,640)     2,216,370   

Japanese local government bonds

  69,132     73     (33)     69,172     67,517     71     (21)     67,567   

Japanese corporate bonds

  202,164     19,112     (567)     220,709     239,096     15,151     (758)     253,489   

Foreign government bonds *1

  198,777     81,014     (14)     279,777     230,363     67,357     (595)     297,125   

Foreign corporate bonds

  361,422     507     (2,179)     359,750     400,512     931     (489)     400,954   

Securitized products

  205,223     0     -      205,223     224,962     0     -      224,962   

Other

  14,398     1,867     (12)     16,253     19,631     2,593     (8)     22,216   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  2,603,152     313,032     (3,371)     2,912,813     3,227,569     267,625     (12,511)     3,482,683   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Held-to-maturity securities:

        

Japanese national government bonds *2

  6,204,505     2,098,885     (1,397)     8,301,993     6,203,260     1,802,892     (9,504)     7,996,648   

Japanese local government bonds

  2,504     331     -      2,835     2,066     314     -      2,380   

Japanese corporate bonds

  482,050     61,176     (4,754)     538,472     537,762     45,724     (10,753)     572,733   

Foreign government bonds *1, *3

  723,937     302,297     -      1,026,234     721,426     270,731     (416)     991,741   

Foreign corporate bonds

  98     7     -      105     25,939     782     (0)     26,721   

Securitized products

  5,418     -      (421)     4,997     21,619     -      (36)     21,583   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  7,418,512     2,462,696     (6,572)     9,874,636     7,512,072     2,120,443     (20,709)     9,611,806   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

  10,021,664     2,775,728     (9,943)     12,787,449     10,739,641     2,388,068     (33,220)     13,094,489   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

*1

As of September 30, 2020, available-for-sale securities and held-to-maturity securities include 246,377 million yen of pledged foreign government bonds as collateral for short-term lending transactions. Also, Japanese national government bonds include 313,025 million yen as receipt of collateral, and the same amount is recorded in other current liabilities of the consolidated balance sheets for the debt of these transactions.

*2

As of September 30, 2020, held-to-maturity securities include 333,772 million yen of pledged Japanese national government bonds as collateral for short-term lending transactions.

 

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*3

As of September 30, 2020, held-to-maturity securities include 167,472 million yen of pledged foreign government bonds as collateral for short-term repurchase agreements.

During the six months ended September 30, 2019 and 2020, respectively, with respect to equity securities included in marketable securities and securities investments, Sony recorded net realized gains of 4,314 million yen and 18,291 million yen due to the sale of equity securities and net unrealized gains of 5,046 million yen and 288,248 million yen due to revaluation of equity securities held at the end of the period for the second quarter of the fiscal years ended March 31, 2020 and ending March 31, 2021, respectively. Gains or losses arising from equity securities held in the Financial Services segment are recorded in financial services revenue, and gains or losses arising from equity securities held in all segments other than the Financial Services segment are recorded in gain (loss) on equity securities, net in the consolidated statement of income. Included in the gains 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”).

During the six months ended September 30, 2019, the revaluation of the Spotify shares owned as of September 30, 2019 resulted in a pre-tax unrealized loss, net of a decrease in costs to be paid to Sony’s artists and distributed labels, of 8,721 million yen (82 million U.S. dollars) recorded in loss on equity securities, net in the consolidated statements of income.

During the six months ended September 30, 2020, the revaluation of the Spotify shares owned as of September 30, 2020 resulted in a pre-tax unrealized gain, net of costs to be paid to Sony’s artists and distributed labels, of 42,657 million yen (395 million U.S. dollars) recorded in gain on equity securities, net in the consolidated statements of income.

 

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Table of Contents
3.

Fair value measurements

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

 

   Yen in millions 
   March 31, 2020 
       Presentation in the consolidated balance sheets 
     Level 1       Level 2       Level 3       Total     Marketable
  securities  
   Securities
investments
  and other  
   Other
current
  assets  
   Other
  assets  
 

Assets:

                

Debt securities

                

Trading securities

   24,330      245,790      -      270,120      270,120      -      -      -   

Available-for-sale securities

                

Japanese national government bonds

   -      1,761,929      -      1,761,929      10,011      1,751,918      -      -   

Japanese local government bonds

   -      69,172      -      69,172      15,334      53,838      -      -   

Japanese corporate bonds

   -      220,679      30      220,709      14,774      205,935      -      -   

Foreign government bonds

   -      279,777      -      279,777      2,690      277,087      -      -   

Foreign corporate bonds

   -      343,980      15,770      359,750      94,156      265,594      -      -   

Securitized products

   -      33,383      171,840      205,223      -      205,223      -      -   

Other

   -      4,152      12,101      16,253      -      16,253      -      -   

Equity securities

      950,744      581,642      -      1,532,386      1,434,612      97,774      -      -   

Other investments *1

   7,162      816      9,242      17,220      -      17,220      -      -   

Derivative assets *2, *3

   1,310      41,073      -      42,383      -      -      40,784      1,599   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   983,546      3,582,393      208,983      4,774,922      1,841,697      2,890,842      40,784      1,599   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                   Presentation in the consolidated balance sheets 
     Level 1       Level 2       Level 3       Total     Future
insurance
policy
  benefits  
   Policyholders’
  account  
   Other
current
  liabilities  
   Other
noncurrent
  liabilities  
 

Liabilities:

                

Future insurance policy benefits and policyholders’ account in the life insurance business *4

   -      -      532,191      532,191      64,045      468,146      -      -   

Derivative liabilities *2, *3

   2,077      33,789      -      35,866      -      -      16,814      19,052   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

   2,077      33,789      532,191      568,057      64,045      468,146      16,814      19,052   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
   Yen in millions 
   September 30, 2020 
       Presentation in the consolidated balance sheets 
     Level 1       Level 2       Level 3       Total     Marketable
  securities  
   Securities
investments
  and other  
   Other
current
  assets  
   Other
  assets  
 

Assets:

                

Debt securities

                

Trading securities

   26,832      266,842      -      293,674      293,674      -      -      -   

Available-for-sale securities

                

Japanese national government bonds

   -      2,216,370      -      2,216,370      330,068      1,886,302      -      -   

Japanese local government bonds

   -      67,567      -      67,567      12,833      54,734      -      -   

Japanese corporate bonds

   -      246,182      7,307      253,489      15,210      238,279      -      -   

Foreign government bonds

   -      297,125      -      297,125      542      296,583      -      -   

Foreign corporate bonds

   -      377,456      23,498      400,954      146,813      254,141      -      -   

Securitized products

   -      43,441      181,521      224,962      -      224,962      -      -   

Other

   -      4,848      17,368      22,216      -      22,216      -      -   

Equity securities

   1,346,195      633,949      -      1,980,144      1,737,611      242,533      -      -   

Other investments *1

   6,352      3,121      8,283      17,756      -      17,756      -      -   

Derivative assets *2, *3

   581      16,497      -      17,078      -      -      15,209      1,869   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   1,379,960      4,173,398      237,977      5,791,335      2,536,751      3,237,506      15,209      1,869   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
       Presentation in the consolidated balance sheets 
     Level 1       Level 2       Level 3       Total     Future
insurance
policy
  benefits  
   Policyholders’
  account  
   Other
current
  liabilities  
   Other
noncurrent
  liabilities  
 

Liabilities:

                

Future insurance policy benefits and policyholders’ account in the life insurance business *4

   -      -      539,935      539,935      59,527      480,408      -      -   

Derivative liabilities *2, *3

   482      27,782      -      28,264      -      -      10,996      17,268   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

   482      27,782      539,935      568,199      59,527      480,408      10,996      17,268   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

*1

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

*2

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

*3

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

*4

Future insurance policy benefits and policyholders’ account in the life insurance business are those for which the fair value option has been elected.

 

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4.

Supplemental equity and comprehensive income information

 

(1)

Stockholders’ Equity

A reconciliation of the beginning and ending carrying amounts of Sony Corporation’s stockholders’ equity, noncontrolling interests and the total equity for the six months ended September 30, 2019 and 2020 are as follows:

 

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

 

 

 

Balance at March 31, 2019

   3,746,377   690,313   4,436,690    

Cumulative effect of ASU 2016-02

   (7,472  -   (7,472)   

Issuance of new shares

   954   43   997    

Exercise of stock acquisition rights

   3,599   -   3,599    

Conversion of convertible bonds

   24   -   24    

Stock-based compensation

   1,366   -   1,366    

Comprehensive income:

    

Net income

   340,009   26,164   366,173    

Other comprehensive income, net of tax —

    

Unrealized gains on securities

   25,842   14,083   39,925    

Unrealized losses on derivative instruments

   (308  -   (308)   

Pension liability adjustment

   6,027   13   6,040    

Foreign currency translation adjustments

   (62,587  (1,163  (63,750)   
  

 

 

 

Total comprehensive income

   308,983   39,097   348,080    
  

 

 

 

Dividends declared

   (24,607  (11,438  (36,045)   

Purchase of treasury stock

   (125,078  -   (125,078)   

Transactions with noncontrolling interests shareholders and other

   (716  (3,155  (3,871)   
  

 

 

 

Balance at September 30, 2019

   3,903,430   714,860   4,618,290    
  

 

 

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

 

 

 

Balance at March 31, 2020

   4,125,306   664,229   4,789,535    

Cumulative effect of ASU 2016-13

   (3,669  (1,386  (5,055)   

Exercise of stock acquisition rights

   7,469   -   7,469    

Conversion of convertible bonds

   58,194   -   58,194    

Stock-based compensation

   453   -   453    

Comprehensive income:

    

Net income

   692,885   17,658   710,543    

Other comprehensive income, net of tax —

    

Unrealized losses on securities

   (25,911  (11,971  (37,882)   

Unrealized losses on derivative instruments

   (871  -   (871)   

Pension liability adjustment

   4,458   1   4,459    

Foreign currency translation adjustments

   (23,473  3   (23,470)   

Debt valuation adjustments

   (610  (583  (1,193)   
  

 

 

 

Total comprehensive income

   646,478   5,108   651,586    
  

 

 

 

Dividends declared

   (30,839  (12,996  (43,835)   

Purchase of treasury stock

   (106  -   (106)   

Reissuance of treasury stock

   1,456   -   1,456    

Transactions with noncontrolling interests shareholders and other

   225,759   (612,618  (386,859)   
  

 

 

 

Balance at September 30, 2020

   5,030,501   42,337   5,072,838    
  

 

 

 

There was no material effect of changes in Sony Corporation’s ownership interest in its subsidiaries on Sony Corporation’s stockholders’ equity for the six months ended September 30, 2019.

 

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Table of Contents

In the quarter ended September 30, 2020, Sony Corporation acquired all the common shares and the related stock acquisition rights not held by Sony Corporation of Sony Financial Holdings Inc. (“SFH”), a consolidated subsidiary of Sony Corporation, and SFH has become a wholly-owned subsidiary of Sony Corporation. Consideration for this acquisition is 396,698 million yen. The net difference between the consideration, the decrease in the carrying amount of the noncontrolling interests of 622,364 million yen and the increase in accumulated other comprehensive income of 30,203 million yen was recognized as an increase to additional paid-in capital of 195,463 million yen. In order to procure the funds necessary to pay the consideration, in addition to the 322,500 million yen of borrowing in July 2020, Sony Corporation borrowed an additional 74,000 million yen from a Japanese private bank in October 2020.

 

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Table of Contents
(2)

Other Comprehensive Income

Changes in accumulated other comprehensive income, net of tax by component for the six months ended September 30, 2019 and 2020 are as follows:

 

   Yen in millions                     
   Unrealized
    gains (losses)    
on securities
  Unrealized
gains (losses)
on derivative
instruments
  Pension
liability
adjustment
  Foreign
currency
translation
adjustments
      Total     
  

 

 

 

Balance at March 31, 2019

   135,035   (19  (310,457  (435,229  (610,670)   

Other comprehensive income before reclassifications

   40,058       656   (121  (63,750  (23,157)   

Amounts reclassified out of accumulated other comprehensive income

   (133  (964  6,161   -   5,064    
  

 

 

 

Net current-period other comprehensive income

   39,925   (308  6,040   (63,750  (18,093)   

Less: Other comprehensive income attributable to noncontrolling interests

   14,083   -   13   (1,163  12,933    
  

 

 

 

Balance at September 30, 2019

   160,877   (327  (304,430  (497,816  (641,696)   
  

 

 

 
   Yen in millions 
   Unrealized
    gains (losses)    
on securities
  Unrealized
gains (losses)
on derivative
instruments
  Pension
liability
adjustment
  Foreign
currency
translation
adjustments
  Debt
valuation
adjustments
   Total 
  

 

 

 

Balance at March 31, 2020

   161,191   1,248   (235,520  (509,872  1,973       (580,980)   

Other comprehensive income before reclassifications

   (37,876  3,287   (3,871  (23,583  (1,177)      (63,220)   

Amounts reclassified out of accumulated other comprehensive income

   (6  (4,158  8,330   113   (16)      4,263    
  

 

 

 

Net current-period other comprehensive income

   (37,882  (871  4,459   (23,470  (1,193)      (58,957)   

Less: Other comprehensive income attributable to noncontrolling interests

   (11,971  -   1   3   (583)      (12,550)   

Transactions with noncontrolling interests shareholders and other

   30,636   -   (909  -          476       30,203    
  

 

 

 

Balance at September 30, 2020

   165,916   377   (231,971  (533,345  1,839       (597,184)   
  

 

 

 

 

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Table of Contents
5.

Reconciliation of the differences between basic and diluted EPS

Reconciliation of the differences between basic and diluted net income attributable to Sony Corporation’s stockholders per share (“EPS”) for the six and three months ended September 30, 2019 and 2020 is as follows:

 

   Yen in millions 
     Six months ended September 30   
   2019   2020 

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

   340,009      692,885   
  

 

 

   

 

 

 
   Thousands of shares 

Weighted-average shares outstanding

   1,243,086      1,224,237   

Effect of dilutive securities:

    

Stock acquisition rights

   3,247      3,808   

Zero coupon convertible bonds

   24,010      20,811   
  

 

 

   

 

 

 

Weighted-average shares for diluted EPS computation

   1,270,343      1,248,856   
  

 

 

   

 

 

 
   Yen 

Basic EPS

   273.52      565.97   
  

 

 

   

 

 

 

Diluted EPS

               267.65                  554.82   
  

 

 

   

 

 

 

Potential shares of common stock that were excluded from the computation of diluted EPS for the six months ended September 30, 2019 were 2,879 thousand shares. Potential shares of common stock were not excluded from the computation of diluted EPS for the six months ended September 30, 2020. The potential shares related to stock acquisition rights were excluded as anti-dilutive for the six months ended September 30, 2019 when the exercise price for those shares was in excess of the average market value of Sony’s common stock for the period. The zero coupon convertible bonds issued in July 2015 were included in the diluted EPS calculation under the if-converted method beginning upon issuance.

 

   Yen in millions 
   Three months ended September 30 
   2019   2020 

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

   187,887      459,634   
  

 

 

   

 

 

 
   Thousands of shares 

Weighted-average shares outstanding

   1,237,011      1,227,845   

Effect of dilutive securities:

    

Stock acquisition rights

   3,407      3,982   

Zero coupon convertible bonds

   24,009      17,802   
  

 

 

   

 

 

 

Weighted-average shares for diluted EPS computation

   1,264,427      1,249,629   
  

 

 

   

 

 

 
   Yen 

Basic EPS

   151.89      374.34   
  

 

 

   

 

 

 

Diluted EPS

               148.59                  367.82   
  

 

 

   

 

 

 

Potential shares of common stock that were excluded from the computation of diluted EPS for the three months ended September 30, 2019 were 2,879 thousand shares. Potential shares of common stock were not excluded from the computation of diluted EPS for the three months ended September 30, 2020. The potential shares related to stock acquisition rights were excluded as anti-dilutive for the three months ended September 30, 2019 when the exercise price for those shares was in excess of the average market value of Sony’s common stock for the period. The zero coupon convertible bonds issued in July 2015 were included in the diluted EPS calculation under the if-converted method beginning upon issuance.

 

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Table of Contents
6.

Revenue

 

(1)

Contract balances

Receivables from contracts with customers, contract assets and contract liabilities are comprised of the following:

 

   Yen in millions 
   March 31, 2020   September 30, 2020 

Receivables from contracts with customers *1

   1,126,597    1,143,567 

Contract assets *1

   13,985    12,533 

Contract liabilities *2

   271,286    279,160 

 

*1

Receivables from contracts with customers and contract assets are included in the consolidated balance sheets as “Notes and accounts receivable, trade and contract assets” and “Other”, non-current.

*2

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

Contract liabilities principally relate to customer advances received prior to performance. Revenues of 152,680 million yen were recognized during the six months ended September 30, 2020, which were included in the balance of contract liabilities at March 31, 2020.

 

(2)

Performance obligations

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

 

(3)

Disaggregation of revenue

For the breakdown of sales and operating revenue by segments, product categories and geographies, refer to Note 10.

 

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Table of Contents
7.

Reversal of valuation allowances for deferred tax assets of Sony Corporation and its national tax filing group in Japan

Sony provides a valuation allowance for its deferred tax assets, which includes temporary differences, net operating losses and tax credits, when it is more likely than not that some portion, or all, of its deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the relevant tax jurisdiction. Despite the spread of COVID-19, as a result of the acquisition of SFH, the taxable income of Sony Corporation and its national tax filing group has increased and is expected to be stable going forward. Based on an assessment of the available positive and negative evidence, in particular recent profit history and forecasted profitability, in the quarter ended September 30, 2020, Sony reversed the valuation allowances recorded against a significant portion of the deferred tax assets in Japan, primarily for temporary differences and certain net operating losses. As a result, Sony recorded a tax benefit of 214,900 million yen in the quarter ended September 30, 2020. Valuation allowances continue to be recorded on the remaining Japan deferred tax assets, primarily foreign tax credits, due to restrictions on the use of such assets and their relatively short remaining carryforward periods.

 

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Table of Contents
8.

Unconsolidated variable interest entities

Certain accounts receivable sales programs also involve variable interest entities (“VIEs”). These VIEs 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. Sony’s maximum exposure to losses from these VIEs is considered insignificant.

In the Financial Services segment, Sony has variable interests in VIEs where Sony is not the primary beneficiary. Sony’s variable interests in such VIEs include equity securities, securitized products, foreign corporate bonds and other investments. The following tables present the carrying value of the variable interests of unconsolidated VIEs, the presentation in the consolidated balance sheet, and the maximum exposure to loss associated with these variable interests as of March 31, 2020 and September 30, 2020. 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 VIEs in which Sony is involved are limited to the amount recorded in the consolidated balance sheets and the amount of commitments.

 

   Yen in millions 
   March 31, 2020 
   Presentation in the consolidated balance sheets   Maximum exposure
to loss
 
   Marketable
securities
   Securities
investments
and other
   Prepaid expenses
and other current
assets
 

Equity securities *1

   579,773      6,229      -      587,602   

Securitized products

   -      210,641      -      210,641   

Foreign corporate bonds *2

   41,452      41,036      -      82,488   

Other investments

   -      16,253      21,000      43,719   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   621,225      274,159      21,000         924,450   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

   Yen in millions 
   September 30, 2020 
   Presentation in the consolidated balance sheets   Maximum exposure
to loss
 
   Marketable
securities
   Securities
investments
and other
   Prepaid expenses
and other current
assets
 

Equity securities *1

   629,550      6,823      -      637,250   

Securitized products

   -      250,270      -      250,270   

Foreign corporate bonds *2

   69,638      43,404      -      113,042   

Other investments

   -      22,216      21,000      49,582   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   699,188      322,713      21,000      1,050,144   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

*1

Equity securities primarily include investment funds.

*2

Foreign corporate bonds primarily include repackaged bonds.

 

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Table of Contents
9.

Commitments, contingent liabilities and other

 

(1)

Loan commitments

Subsidiaries in the Financial Services segment have lines of credit in accordance with loan agreements with their customers. As of September 30, 2020, the total unused portion of the lines of credit extended under these contracts was 30,798 million yen. Based upon the information currently available, it is not possible to estimate the aggregate amounts of future year-by-year payments for these loan commitments.

 

(2)

Purchase commitments and other

Purchase commitments and other outstanding as of September 30, 2020 amounted to 593,053 million yen. The major components of these commitments are as follows:

Certain subsidiaries in the Pictures segment have entered into agreements with creative talent for the development and production of motion pictures and television programming as well as agreements with third parties to acquire completed motion pictures, or certain rights therein, and to acquire the rights to broadcast certain live action sporting events. These agreements cover various periods mainly within three years. As of September 30, 2020, these subsidiaries were committed to make payments under such contracts of 118,073 million yen.

Certain subsidiaries in the Music segment have entered into contracts with recording artists, songwriters and companies for the future production, distribution and/or licensing of music product. These contracts cover various periods mainly within five years. As of September 30, 2020, these subsidiaries were committed to make payments of 120,688 million yen under such contracts.

Certain subsidiaries in the Game & Network Services (“G&NS”) segment have entered into long-term contracts for the development, distribution and publishing of game software. These contracts cover various periods mainly within eight years. As of September 30, 2020, these subsidiaries were committed to make payments of 25,768 million yen under such contracts.

Sony has entered into purchase contracts for fixed assets. As of September 30, 2020, Sony has committed to make payments of 154,633 million yen under such contracts.

Sony has entered into purchase contracts for materials. As of September 30, 2020, Sony has committed to make payments of 102,170 million yen under such contracts.

Sony has entered into sponsorship contracts related to advertising and promotional rights. These contracts cover various periods mainly within one year. As of September 30, 2020, Sony has committed to make payments of 3,785 million yen under such contracts.

 

(3)

Litigation

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

 

(4)

Guarantees

Sony has issued guarantees that contingently require payments to guaranteed parties if certain specified events or conditions occur. The maximum potential amount of future payments under these guarantees as of September 30, 2020 amounted to 2,215 million yen.

 

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10.

Business segment information

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

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

 

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Business segments -

Sales and operating revenue:

 

   Yen in millions 
            Six months ended September 30            

 

      2019          2020     

Sales and operating revenue:

   

Game & Network Services -

   

Customers

   879,796   1,093,593 

Intersegment

   32,055   19,154 
  

 

 

  

 

 

 

Total

   911,851   1,112,747 

Music -

   

Customers

   416,780   402,154 

Intersegment

   4,748   5,829 
  

 

 

  

 

 

 

Total

   421,528   407,983 

Pictures -

   

Customers

   446,146   366,416 

Intersegment

   546   1,006 
  

 

 

  

 

 

 

Total

   446,692   367,422 

Electronics Products & Solutions -

   

Customers

   966,967   828,076 

Intersegment

   10,447   8,428 
  

 

 

  

 

 

 

Total

   977,414   836,504 

Imaging & Sensing Solutions -

   

Customers

   496,754   482,325 

Intersegment

   44,648   30,945 
  

 

 

  

 

 

 

Total

   541,402   513,270 

Financial Services -

   

Customers

   709,909   817,023 

Intersegment

   4,207   3,682 
  

 

 

  

 

 

 

Total

   714,116   820,705 

All Other -

   

Customers

   118,575   86,439 

Intersegment

   19,913   16,857 
  

 

 

  

 

 

 

Total

   138,488   103,296 

Corporate and elimination

   (103,508  (79,522
  

 

 

  

 

 

 
Consolidated total   4,047,983   4,082,405 
  

 

 

  

 

 

 

 

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   Yen in millions 
         Three months ended September 30         

 

      2019          2020     

Sales and operating revenue:

   

Game & Network Services -

   

Customers

   438,046   494,544 

Intersegment

   16,344   12,094 
  

 

 

  

 

 

 

Total

   454,390   506,638 

Music -

   

Customers

   216,742   228,419 

Intersegment

   2,533   2,449 
  

 

 

  

 

 

 

Total

   219,275   230,868 

Pictures -

   

Customers

   260,387   191,975 

Intersegment

   217   358 
  

 

 

  

 

 

 

Total

   260,604   192,333 

Electronics Products & Solutions -

   

Customers

   486,311   500,683 

Intersegment

   7,188   3,975 
  

 

 

  

 

 

 

Total

   493,499   504,658 

Imaging & Sensing Solutions -

   

Customers

   285,579   283,954 

Intersegment

   25,145   23,130 
  

 

 

  

 

 

 

Total

   310,724   307,084 

Financial Services -

   

Customers

   375,089   372,107 

Intersegment

   2,092   1,838 
  

 

 

  

 

 

 

Total

   377,181   373,945 

All Other -

   

Customers

   57,943   40,342 

Intersegment

   10,954   8,859 
  

 

 

  

 

 

 

Total

   68,897   49,201 

Corporate and elimination

   (62,311  (51,241
  

 

 

  

 

 

 
Consolidated total   2,122,259   2,113,486 
  

 

 

  

 

 

 

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

I&SS intersegment amounts primarily consist of transactions with the G&NS segment and the EP&S segment.

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

Corporate and elimination includes certain brand and patent royalty income.

 

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Segment profit or loss:

 

   Yen in millions 
            Six months ended September 30            

 

  2019  2020 

Operating income (loss):

   

Game & Network Services

      138,791      228,969 

Music

   75,757   87,743 

Pictures

   39,694   56,493 

Electronics Products & Solutions

   66,453   44,877 

Imaging & Sensing Solutions

   125,906   75,261 

Financial Services

   84,884   90,921 

All Other

   (168  6,723 
  

 

 

  

 

 

 

Total

   531,317   590,987 

Corporate and elimination

   (21,437  (44,828
  

 

 

  

 

 

 

Consolidated operating income

   509,880   546,159 
  

 

 

  

 

 

 
   Yen in millions 
           Three months ended September 30     

 

  2019  2020 

Operating income (loss):

   

Game & Network Services

   64,987   104,932 

Music

   37,480   52,851 

Pictures

   39,318   31,751 

Electronics Products & Solutions

   41,387   53,998 

Imaging & Sensing Solutions

   76,378   49,835 

Financial Services

   38,779   43,718 

All Other

   2,434   3,191 
  

 

 

  

 

 

 

Total

   300,763   340,276 

Corporate and elimination

   (21,808  (22,512
  

 

 

  

 

 

 

Consolidated operating income

   278,955   317,764 
  

 

 

  

 

 

 

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

 

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Sales to Customers by Product Category :

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

 

   Yen in millions 
            Six months ended September 30            
 Sales and operating revenue:          2019                   2020         

Game & Network Services

    

Digital Software and Add-on Content

   442,853       691,698    

Network Services

   167,983       189,192    

Hardware and Others

   268,960       212,703    

 

  

 

 

   

 

 

 

Total

   879,796       1,093,593    

Music

    

Recorded Music – Streaming

   133,279       147,727    

Recorded Music – Others

   90,885       73,683    

Music Publishing

   77,697       68,656    

Visual Media and Platform

   114,919       112,088    

 

  

 

 

   

 

 

 

Total

   416,780       402,154    

Pictures

    

Motion Pictures

   221,241       156,238    

Television Productions

   108,032       115,239    

Media Networks

   116,873       94,939    

 

  

 

 

   

 

 

 

Total

   446,146       366,416    

Electronics Products & Solutions

    

Televisions

   312,240       311,186    

Audio and Video

   162,497       130,968    

Still and Video Cameras

   199,860       136,642    

Mobile Communications

   178,264       173,369    

Other

   112,106       75,911    

 

  

 

 

   

 

 

 

Total

   966,967       828,076    

Imaging & Sensing Solutions

   496,754       482,325    

Financial Services

   709,909       817,023    

All Other

   118,575       86,439    

Corporate

   13,056       6,379    

 

  

 

 

   

 

 

 

Consolidated total

   4,047,983       4,082,405    
  

 

 

   

 

 

 

 

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   Yen in millions 
           Three months ended September 30         
Sales and operating revenue:          2019                   2020         

Game & Network Services

    

Digital Software and Add-on Content

   226,889       297,061    

Network Services

   84,377       95,897    

Hardware and Others

   126,780       101,586    

 

  

 

 

   

 

 

 

Total

   438,046       494,544    

Music

    

Recorded Music – Streaming

   66,797       78,827    

Recorded Music – Others

   45,405       44,497    

Music Publishing

   38,407       37,560    

Visual Media and Platform

   66,133       67,535    

 

  

 

 

   

 

 

 

Total

   216,742       228,419    

Pictures

    

Motion Pictures

   140,371       91,161    

Television Productions

   61,546       50,936    

Media Networks

   58,470       49,878    

 

  

 

 

   

 

 

 

Total

   260,387       191,975    

Electronics Products & Solutions

    

Televisions

   166,479       204,618    

Audio and Video

   83,754       83,887    

Still and Video Cameras

   99,606       90,237    

Mobile Communications

   77,714       79,140    

Other

   58,758       42,801    

 

  

 

 

   

 

 

 

Total

   486,311       500,683    

Imaging & Sensing Solutions

   285,579       283,954    

Financial Services

   375,089       372,107    

All Other

   57,943       40,342    

Corporate

   2,162       1,462    

 

  

 

 

   

 

 

 

Consolidated total

   2,122,259       2,113,486    
  

 

 

   

 

 

 

Sony has realigned its product category configuration in the Music segment with a more detailed breakdown in Recorded Music from the fourth quarter of the fiscal year ended March 31, 2020. In connection with the realignment, all prior period sales amounts by product category in the table above have been reclassified to conform to the current presentation.

In the G&NS segment, Digital Software and Add-on Content includes distribution of software titles and add-on content through network by Sony Interactive Entertainment; Network Services includes network services relating to game, video and music content; Hardware and Others includes home gaming consoles, packaged software and peripheral devices. In the Music 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 words and music of songs; Visual Media and Platform includes the production and distribution of animation titles, including game applications based on the animation titles, and various service offerings for music and visual products. In the Pictures segment, Motion Pictures includes the worldwide production, acquisition and distribution of live-action and animated motion pictures; Television Productions includes the production, acquisition and distribution of television programming; Media Networks includes the operation of television and digital networks worldwide. In the EP&S segment, Televisions includes LCD and OLED televisions; Audio and Video includes Blu-ray disc players and recorders, home audio, headphones and memory-based portable audio devices; 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.

 

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Within the EP&S segment, the operating income of Mobile Communications for the six months ended September 30, 2019 and 2020 was 1,674 million yen and 20,494 million yen, respectively. In addition, the operating income of Mobile Communications for the three months ended September 30, 2019 and 2020 was 635 million yen and 9,458 million yen, respectively.

 

   Yen in millions     
           Six months ended September 30             
   2019   2020     

Depreciation and amortization:

      

Game & Network Services

   13,690       17,694      

Music

   14,047       15,371      

Pictures

   11,115       8,881      

Electronics Products & Solutions, including contract costs

   29,631       29,802      

Imaging & Sensing Solutions

   61,567       77,573      

Financial Services, including deferred insurance acquisition costs

   45,235       25,758      

All Other

   2,653       1,844      
  

 

 

   

 

 

   

Total

   177,938       176,923      

Corporate

   12,001       10,805      
  

 

 

   

 

 

   

Consolidated total

   189,939       187,728      
  

 

 

   

 

 

   
   Yen in millions 
   Six months ended September 30, 2019 
   Total net
      restructuring      
charges
   Depreciation
associated with
  restructured assets  
           Total         

Restructuring charges and associated depreciation:

      

Game & Network Services

   -       -       -    

Music

   485       -       485    

Pictures

   191       -       191    

Electronics Products & Solutions

   6,600       -       6,600    

Imaging & Sensing Solutions

   -       -       -    

Financial Services

   -       -       -    

All Other and Corporate

   2,357       245       2,602    
  

 

 

   

 

 

   

 

 

 

Consolidated total

   9,633       245       9,878    
  

 

 

   

 

 

   

 

 

 
   Yen in millions 
   Six months ended September 30, 2020 
   Total net
      restructuring      
charges
   Depreciation
associated with
  restructured assets  
           Total         

Restructuring charges and associated depreciation:

      

Game & Network Services

   -       -       -    

Music

   1,123       -       1,123    

Pictures

   35       -       35    

Electronics Products & Solutions

   1,315       -       1,315    

Imaging & Sensing Solutions

   -       -       -    

Financial Services

   -       -       -    

All Other and Corporate

   1,882       -       1,882    
  

 

 

   

 

 

   

 

 

 

Consolidated total

   4,355       -       4,355    
  

 

 

   

 

 

   

 

 

 

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

 

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   Yen in millions     
         Three months ended September 30           
   2019   2020     

Depreciation and amortization:

      

Game & Network Services

   6,878       9,219      

Music

   7,268       7,969      

Pictures

   5,362       4,538      

Electronics Products & Solutions, including contract costs

   14,550       14,994      

Imaging & Sensing Solutions

   32,128       38,363      

Financial Services, including deferred insurance acquisition costs

   23,084       16,905      

All Other

   1,257       927      
  

 

 

   

 

 

   

Total

   90,527       92,915      

Corporate

   6,000       4,712      
  

 

 

   

 

 

   

Consolidated total

     96,527         97,627      
  

 

 

   

 

 

   
   Yen in millions 
   Three months ended September 30, 2019 
   Total net
      restructuring      
charges
   Depreciation
associated with
  restructured assets  
           Total         

Restructuring charges and associated depreciation:

      

Game & Network Services

   -       -       -    

Music

   485       -       485    

Pictures

   191       -       191    

Electronics Products & Solutions

   4,708       -       4,708    

Imaging & Sensing Solutions

   -       -       -    

Financial Services

   -       -       -    

All Other and Corporate

   896       -       896    
  

 

 

   

 

 

   

 

 

 

Consolidated total

   6,280       -       6,280    
  

 

 

   

 

 

   

 

 

 
   Yen in millions 
   Three months ended September 30, 2020 
   Total net
      restructuring      
charges
   Depreciation
associated with
  restructured assets  
           Total         

Restructuring charges and associated depreciation:

      

Game & Network Services

   -       -       -    

Music

   1,123       -       1,123    

Pictures

   33       -       33    

Electronics Products & Solutions

   1,102       -       1,102    

Imaging & Sensing Solutions

   -       -       -    

Financial Services

   -       -       -    

All Other and Corporate

   1,600       -       1,600    
  

 

 

   

 

 

   

 

 

 

Consolidated total

   3,858       -       3,858    
  

 

 

   

 

 

   

 

 

 

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

 

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Geographic Information –

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

 

   Yen in millions 
   Six months ended September 30 

  Sales and operating revenue:

              2019                           2020             

Japan

   1,296,780        1,408,223     

United States

   864,963        972,179     

Europe

   770,006        728,020     

China

   450,408        412,464     

Asia-Pacific

   433,141        368,706     

Other Areas

   232,685        192,813     

 

  

 

 

   

 

 

 

Total

   4,047,983        4,082,405     
  

 

 

   

 

 

 
   Yen in millions 
   Three months ended September 30 

  Sales and operating revenue:

              2019               2020 

Japan

   669,258        677,672     

United States

   429,935        507,563     

Europe

   407,059        367,019     

China

   249,320        232,885     

Asia-Pacific

   250,038        225,977     

Other Areas

   116,649        102,370     
  

 

 

   

 

 

 

Total

   2,122,259        2,113,486     
  

 

 

   

 

 

 

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

 

(1) Europe:

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

(2) Asia-Pacific:

  India, South Korea and Oceania

(3) Other Areas:

  The Middle East/Africa, Brazil, Mexico and Canada

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

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

There were no sales and operating revenue with any single major external customer for the six and three months ended September 30, 2019 and 2020.

 

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(2) Other Information

(i) Dividends declared

An interim cash dividend for Sony Corporation’s common stock was approved at the Board of Directors meeting held on October 28, 2020 as below:

1. Total amount of interim cash dividends:

30,839 million yen

2. Amount of interim cash dividends per share:

25.00 yen

3. Payment date:

December 1, 2020

Interim cash dividends for the fiscal year ending March 31, 2021 have been incorporated in the accompanying consolidated financial statements.

Note: Interim cash dividends are to be distributed to the shareholders recorded or registered as the holders or pledgees of shares in Sony Corporation’s register of shareholders at the end of September 30, 2020.

(ii) Litigation

For the legal proceedings, please refer to “IV Financial Statements – Notes to Consolidated Financial Statements – 9. Commitments, contingent liabilities and other”.

 

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