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SONY Sony

Filed: 9 Feb 21, 6:17am
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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 February 2021

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: February 9, 2021


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Quarterly Securities Report

For the three months ended December 31, 2020

(TRANSLATION)

Sony Corporation


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Note for readers of this English translation

On February 9, 2021, 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 December 31, 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 
    Nine months ended  
  December 31, 2019  
    Nine months ended  
  December 31, 2020  
    Fiscal year ended  
  March 31, 2020  
 

 

 
  Sales and operating revenue  6,511,145      6,778,941      8,259,885    

 

 
  Operating income  810,012      905,385      845,459    

 

 
  Income before income taxes  803,433      1,096,894      799,450    

 

 

Net income attributable to Sony Corporation’s stockholders

  569,547      1,064,776      582,191    

 

 
  Comprehensive income  689,995      998,674      666,032    

 

 
  Total equity  4,886,586      5,433,323      4,789,535    

 

 
  Total assets  22,637,546      25,881,122      23,039,343    

 

 

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

  460.11      867.17      471.64    

 

 

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

  450.08      852.04      461.23    

 

 

Ratio of stockholders’ equity to total assets (%)

  18.7      20.8      17.9    

 

 

Net cash provided by operating activities

  834,067      1,087,508      1,349,745    

 

 
  Net cash used in investing activities  (1,026,082)     (1,372,187)     (1,352,278)   

 

 

Net cash provided by financing activities

  145,096      676,660      65,658    

 

 

Cash and cash equivalents at end of the period

  1,408,876      1,878,047      1,512,357    

 

 
  Yen in millions, Yen per share amounts    
    Three months ended  
  December 31, 2019  
  

  Three months ended  

  December 31, 2020  

 

 

 

Sales and operating revenue

  2,463,162      2,696,536    

 

 

Net income attributable to Sony Corporation’s stockholders

  229,538      371,891    

 

 

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

  187.02      301.09    

 

 

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

  182.89      297.35    

 

  

  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 nine months ended December 31, 2020.

As of December 31, 2020, the Company had 1,448 subsidiaries and 147 affiliated companies, of which 1,413 companies are consolidated subsidiaries (including variable interest entities) of the Company. The Company has applied the equity accounting method for 131 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 some new music continues to be delayed around the world primarily due to artists being unable to record music, produce music videos or promote releases. Ticket and merchandising revenues are decreasing as in-person concerts and other events continue to be restricted in Japan and other areas. Additionally, due to a global reduction in advertising spending, revenue from the licensing of music in TV commercials has decreased. In the Pictures segment, box office revenue has been significantly impacted by the closure or limited capacity of movie theaters, and Sony has not been able to release most of its already completed titles in theaters. Although the production of new motion pictures and television shows by Sony has gradually resumed, production schedules continue to be delayed. Additionally, the global reduction in advertising spending led to a decrease in 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 have decreased primarily due to a slowdown in the smartphone market, which is the final outlet for Sonys 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 for available screen space. 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, Sony suspended product shipments of image sensors to a certain customer from September 15, 2020, pursuant to export restrictions announced by the U.S. government on August 17, 2020. As a result, image sensor sales have decreased compared to before the export restrictions came into effect, although Sony has resumed a portion of shipments to the customer after receiving a U.S. export license. Sony also recorded inventory write-downs of certain image sensors for the same customer during the nine months ended December 31, 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) 
   Nine months ended
December 31
 
    2019  2020 

  Sales and operating revenue

      ¥6,511.1  ¥6,778.9 

  Operating income

   810.0   905.4 

  Income before income taxes

   803.4   1,096.9 

  Net income attributable to Sony Corporation’s stockholders

   569.5   1,064.8 

Sales for the nine months ended December 31, 2020 (“the current nine months”) increased 267.8 billion yen compared to the same period of the previous fiscal year (“year-on-year”) to 6 trillion 778.9 billion yen. This increase was primarily due to significant increases in sales in the G&NS and Financial Services segments, partially offset primarily by a decrease in sales in the EP&S segment and a significant decrease in sales in the Pictures segment. 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 nine months increased 95.4 billion yen year-on-year to 905.4 billion yen. This increase was primarily due to significant increases in operating income in the G&NS, Music and Pictures segments, partially offset by a significant decrease in operating income in the I&SS segment.

Operating income for the current nine 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: 9.0 billion yen (I&SS segment)

  

Expenses related to the Sony Global Relief Fund for COVID-19: 4.8 billion yen (Corporate and elimination)

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

  

Remeasurement and realized gains resulting from the public listing and sale of a portion of shares of SRE Holdings Corporation: 17.3 billion yen (All Other)

 
  

Realized and remeasurement gains resulting from the transfer of a portion of shares of NSF Engagement Corporation: 6.3 billion yen (Corporate and elimination)

 

During the current nine months, restructuring charges, net, decreased 6.0 billion yen year-on-year to 8.1 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 nine months, recorded within operating income, increased 0.2 billion yen year-on-year to 6.6 billion yen.

The net effect of other income and expenses was income of 191.5 billion yen, compared to an expense of 6.6 billion yen in the same period of the previous fiscal year. This was mainly due to the recording of 205.7 billion yen in unrealized gains on Sony’s shares of Spotify Technology S.A. and Bilibili Inc. (“Bilibili”) in the current nine months. For details, please refer to “IV Financial Statements – Notes to Consolidated Financial Statements – 2. Marketable securities and securities investments.” The above unrealized gains included 11.2 billion yen of an unrealized gain on an equity security whose lockup restriction will expire within one year.

Income before income taxes increased 293.5 billion yen year-on-year to 1 trillion 96.9 billion yen.

 

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During the current nine months, Sony recorded income tax expense of 12.6 billion yen, resulting in an effective tax rate of 1.2%, which was lower than the effective tax rate of 24.5% 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, and the reversal of additional valuation allowances recorded against deferred tax assets for certain research and development credits of the consolidated tax filing group in the United States, which resulted in a tax benefit of 13.6 billion yen in the three months ended December 31, 2020.

Net income attributable to Sony Corporation’s stockholders increased 495.2 billion yen year-on-year to 1 trillion 64.8 billion yen.

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

Game & Network Services (G&NS)

Results for the Nine Months ended December 31, 2020

Sales increased 452.0 billion yen year-on-year to 1 trillion 996.0 billion yen. This significant increase in sales was primarily due to an increase in sales of game software, including add-on content, as a result of an increase in digital consumption due to COVID-19, as well as an increase in hardware sales due to the launch of PlayStation®5 (“PS5”). These positive factors were partially offset by a decrease in PlayStation®4 (“PS4”) hardware sales. Operating income increased 116.9 billion yen year-on-year to 309.2 billion yen, primarily due to the impact of the above-mentioned increase in game software, as well as an increase in Network Services sales, primarily from PlayStation®Plus, 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 Nine Months ended December 31, 2020

Sales increased 34.0 billion yen to 672.4 billion yen. The increase in sales was primarily due to higher Visual Media and Platform and Recorded Music sales. Sales for Visual Media and Platform increased primarily due to an increase in sales for the anime business primarily reflecting the contribution of Demon Slayer – Kimetsu no Yaiba – the Movie: Mugen Train. Sales for Recorded Music increased mainly due to an increase in revenue from paid subscription streaming services. Operating income increased 35.4 billion yen year-on-year to 147.4 billion yen, primarily due to the impact of the above-mentioned increase in sales, in addition 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.

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 Nine Months ended December 31, 2020

Sales decreased 124.1 billion yen, an 18% decrease year-on-year (an approximate 16% decrease on a U.S. dollar basis), to 558.6 billion yen. The significant decrease in sales on a U.S. dollar basis was primarily due to a significant decrease in sales for Motion Pictures due to the absence of any major theatrical releases in the current nine months resulting from the impact of theater closures due to COVID-19, partially offset by higher home entertainment and television licensing sales of prior year and catalog titles. Operating income increased 33.6 billion yen year-on-year to 78.7 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, as well as the impact of the above-mentioned home entertainment and television licensing sales.

 

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Electronics Products & Solutions (EP&S)

Results for the Nine Months ended December 31, 2020

Sales decreased 142.4 billion yen year-on-year to 1 trillion 485.5 billion yen. This was primarily due to a decrease in sales of digital cameras, Audio and Video and broadcast- and professional-use products resulting from lower unit sales. Operating income increased 3.9 billion yen year-on-year to 150.6 billion yen due to reductions in operating costs as well as an improvement in the product mix mainly of televisions, partially offset by the impact of the above-mentioned decrease in sales.

Imaging & Sensing Solutions (I&SS)

Results for the Nine Months ended December 31, 2020

Sales decreased 59.2 billion yen year-on-year to 780.2 billion yen. This decrease in sales was mainly due to a decrease in unit sales of image sensors and a deterioration of the product mix 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. Operating income decreased 75.4 billion yen year-on-year to 125.7 billion yen. This significant decrease was mainly due to an increase in depreciation and amortization expenses as well as research and development expenses, the impact of the above-mentioned decrease in sales, and the above-mentioned 9.0 billion yen of inventory write-downs of certain image sensors for mobile products whose shipments were suspended as a result of U.S. export restrictions. The amount of the inventory write-downs is the net amount of 17.5 billion yen of write-downs recorded in the three months ended September 30, 2020 and an 8.5 billion yen gain from the reversal of write-downs recorded in the three months ended December 31, 2020.

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 Nine Months ended December 31, 2020

Financial Services revenue increased 124.6 billion yen year-on-year to 1 trillion 246.0 billion yen, mainly due to an increase in revenue at Sony Life and a significant increase in revenue at Sony Bank. Revenue at Sony Life increased 81.9 billion yen year-on-year to 1 trillion 89.3 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 despite an increase in the policy amount in force. The increase in revenue at Sony Bank was due to an improvement in valuation gains and losses on securities. Operating income increased 20.0 billion yen year-on-year to 137.5 billion yen due to a significant increase in operating income at Sony Bank and an increase in operating income at Sony Assurance, partially offset by a 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 4.8 billion yen year-on-year to 97.0 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. This decrease in operating income at Sony Life was partially offset by an improvement in foreign exchange gains and losses in U.S. dollar-denominated insurance.

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 nine-month period ended December 31, 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 nine months, the average rates of the yen were 106.1 yen against the U.S. dollar and 122.4 yen against the euro, which were 2.6 yen higher and 1.3 yen lower year-on-year, respectively.

For the current nine months, sales were 6 trillion 778.9 billion yen, an increase of 4% year-on-year, while on a constant currency basis sales increased 5% 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 95.4 billion yen year-on-year to 905.4 billion yen for the current nine 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)
      

 

            Nine months ended             
December 31

   Impact of
changes in
foreign
exchange rates
      2019         2020 

  G&NS

      Sales   ¥1,544.0    ¥1,996.0            -¥18.8
       Operating income   192.2    309.2               +7.8

  EP&S

      Sales   1,627.8    1,485.5              -19.3
       Operating income   146.8    150.6               +1.2

  I&SS

      Sales   839.4    780.2              -16.0
       Operating income   201.1    125.7                -5.0

In addition, sales for the Music segment increased 5% year-on-year to 672.4 billion yen, an approximate 7% increase on a constant currency basis. In the Pictures segment, sales decreased 18% year-on-year to 558.6 billion yen, an approximate 16% 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 nine months, there was a net cash inflow of 1 trillion 87.5 billion yen from operating activities, an increase of 253.4 billion yen year-on-year.

For all segments excluding the Financial Services segment, there was a net cash inflow of 909.4 billion yen, an increase of 415.4 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), an increase in notes and accounts payable, trade, compared to a decrease in the same period of the previous fiscal year, as well as a smaller increase in film costs. This increase in net cash inflow was partially offset by the negative impact of an increase in other receivables from component assembly companies, included in other current assets, compared to a decrease in the same period of the previous fiscal year.

The Financial Services segment had a net cash inflow of 198.0 billion yen, a decrease of 159.4 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 nine months, Sony used 1 trillion 372.2 billion yen of net cash in investing activities, an increase of 346.1 billion yen year-on-year.

For all segments excluding the Financial Services segment, there was a net cash outflow of 453.2 billion yen, an increase of 203.7 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 919.1 billion yen of net cash in investing activities, an increase of 142.5 billion yen year-on-year. This increase was mainly due to a year-on-year increase in payments for investments and advances at Sony Bank.

Financing Activities: Net cash inflow by financing activities during the current nine months was 676.7 billion yen, an increase of 531.6 billion yen year-on-year.

For all segments excluding the Financial Services segment, there was a net cash outflow of 67.0 billion yen, a decrease of 262.2 billion yen year-on-year. In order to fund the acquisition of all shares of SFH and the related stock acquisition rights for the purpose of making SFH into a wholly-owned subsidiary of Sony Corporation, a total of 396.5 billion yen in short-term bank borrowings was secured in July and October of 2020, of which 200.0 billion yen was repaid in December 2020. Additionally, a long-term bank loan of approximately 2 billion U.S. dollars was secured in July 2020. The same period of the previous fiscal year included the redemption of straight bonds, the repayment of long-term debt and a payment related to the repurchase of shares of Sony’s own common stock.

In the Financial Services segment, there was a 723.8 billion yen net cash inflow, an increase of 266.9 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 December 31, 2020 was 1 trillion 878.0 billion yen.

Cash and cash equivalents of all segments excluding the Financial Services segment was 1 trillion 325.3 billion yen at December 31, 2020, an increase of 363.0 billion yen compared with the balance as of March 31, 2020, and an increase of 463.8 billion yen compared with the balance as of December 31, 2019.

 

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Within the Financial Services segment, the outstanding balance of cash and cash equivalents was 552.8 billion yen at December 31, 2020, an increase of 2.7 billion yen compared with the balance as of March 31, 2020, and an increase of 5.4 billion yen compared with the balance as of December 31, 2019.

* 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) 
  Nine months ended December 31 
  Financial Services  Sony without
Financial Services
  Consolidated 
  2019  2020  2019  2020  2019  2020 

 

  

 

 

  

 

 

 

Cash flows from operating activities:

      

Net income (loss)

  83,269   99,839   540,939   1,004,421   606,517   1,084,253 

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

  60,154   41,519   221,239   245,044   281,393   286,563 

Amortization of film costs

  -   -   212,684   197,849   212,684   197,849 

Other operating (income) expense, net

  42   62   (24,073  (16,553  (24,017  (16,491

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

  (127,002  (339,714  (392  (205,721  (127,394  (545,435

Changes in assets and liabilities:

      

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

  5,158   (12,757  (242,695  (312,712  (237,477  (300,544

(Increase) decrease in inventories

  -   -   34,865   (41,039  34,865   (41,039

(Increase) decrease in film costs

  -   -   (296,377  (193,344  (296,377  (193,344

Increase (decrease) in notes and accounts payable, trade

  -   -   (12,640  277,309   (12,640  277,309 

Increase (decrease) in future insurance policy benefits and other

  554,596   619,049   -   -   554,596   619,049 

(Increase) decrease in deferred insurance acquisition costs

  (73,385  (69,433  -   -   (73,385  (69,433

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

  (103,746  (119,871  -   -   (103,746  (119,871

Other

  (41,646  (20,692  60,410   (45,868  19,048   (91,358

 

  

 

 

  

 

 

 

Net cash provided by (used in) operating activities

  357,440   198,002   493,960   909,386   834,067   1,087,508 

 

  

 

 

  

 

 

 

Cash flows from investing activities:

      

Payments for purchases of fixed assets

  (14,425  (13,851  (300,366  (377,654  (314,791  (391,439

Payments for investments and advances

  (970,438  (1,197,359  (40,423  (93,368  (1,010,861  (1,290,727

Proceeds from sales or return of investments and collections of advances

  208,164   292,090   93,526   19,604   301,690   311,694 

Other

  125   23   (2,229  (1,738  (2,120  (1,715

 

  

 

 

  

 

 

 

Net cash provided by (used in) investing activities

  (776,574  (919,097  (249,492  (453,156  (1,026,082  (1,372,187

 

  

 

 

  

 

 

 

Cash flows from financing activities:

      

Increase (decrease) in borrowings, net

  272,960   361,169   (73,866  390,290   198,773   751,459 

Increase (decrease) in deposits from customers, net

  211,135   392,891   -   -   211,135   392,891 

Dividends paid

  (27,189  (30,454  (49,621  (61,153  (49,621  (61,153

Other

  62   231   (205,734  (396,128  (215,191  (406,537

 

  

 

 

  

 

 

 

Net cash provided by (used in) financing activities

  456,968   723,837   (329,221  (66,991  145,096   676,660 

 

  

 

 

  

 

 

 

Effect of exchange rate changes on cash and cash equivalents

  -   -   (14,887  (28,538  (14,887  (28,538

 

  

 

 

  

 

 

 

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

  37,834   2,742   (99,640  360,701   (61,806  363,443 

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

  547,429   552,781   864,578   1,325,957   1,412,007   1,878,738 

 

  

 

 

  

 

 

 

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

  -   -   3,131   691   3,131   691 

 

  

 

 

  

 

 

 

Cash and cash equivalents at end of the period

  547,429   552,781   861,447   1,325,266   1,408,876   1,878,047 

 

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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 nine months ended December 31, 2020 totaled 377.7 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 December 2020, Sony Corporation repaid 200.0 billion yen of the outstanding balance of 396.5 billion yen.

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 560.5 billion yen in unused committed lines of credit, as of December 31, 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

Sony launched PS5 during the three months ended December 31, 2020, and therefore changed the description of “Material Contracts” in the Annual Securities Report for the fiscal year ended March 31, 2020 (Yukashoken Houkokusho) filed on June 26, 2020, as follows. The change is indicated below by underline. There were no material contracts executed or determined to be executed during the three months ended December 31, 2020.

“Sony has a number of Japanese and foreign patents relating to its products. Sony is licensed to use a number of patents owned by others, covering a wide range of products. Certain of these licenses are important to Sony’s business. Sony products that employ DVD player functionality, including PlayStation®4 (“PS4”) and PlayStation®5 (“PS5”) hardware, are substantially dependent upon patents that relate to technologies specified in the DVD specifications and are licensed from Dolby Laboratories Licensing Corporation. Sony products that employ Blu-ray Disc player functionality and DVD player functionality, including PS4 and PS5 hardware, are substantially dependent upon patents that relate to technologies specified in the Blu-ray Disc specifications and are licensed by MPEG LA LLC and One-Blue, LLC, in addition to the patents that relate to technologies specified in the DVD specifications, as described above. Sony considers its overall license position beneficial to its operations.”

 

Note for readers of this English translation:

Except for the above, 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. This disclosure does not correspond to or update Item 10.C of 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

 

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Table of Contents

III    Company Information

  (1) Information on the Company’s Shares

i) Total Number of Shares

1) Total Number of Shares

 

Class

  Total number of shares authorized to be issued

Common stock

  3,600,000,000

Total

  3,600,000,000

2) Number of Shares Issued

 

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

As of the end of the    

third quarterly period    

(December 31, 2020)    

  

As of the filing date of    

the Quarterly    

Securities Report    

(February 9, 2021)    

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”)

 

Note for readers of this English translation:

The Japanese-language Quarterly Securities Report includes a summary of the main terms and conditions of the SARs listed below which were issued during the three months ended December 31, 2020. A summary of such terms and conditions has previously been filed with or submitted to the SEC under Form 6-K or Form S-8. There has been no change to such terms and conditions since the applicable date of such filings or submissions.

URL: The list of documents previously filed or submitted by the Company

https://www.sec.gov/Archives/edgar/data/313838/000115752320001353/a52314732.htm

https://www.sec.gov/Archives/edgar/data/313838/000115752320001520/a52330127.htm

Stock acquisition rights issued during the three months ended December 31, 2020.

 

Name

(Date of resolution of the Board of Directors)

  

Number of

SARs issued

   Number of shares of
common stock to be issued
or transferred
 

The forty-third series of Common Stock Acquisition Rights

(October 28, 2020)

   22,599    2,259,900 

The forty-fourth series of Common Stock Acquisition Rights

(October 28, 2020)

   22,547    2,254,700 

iii) Status of the Exercise of Moving Strike Convertible Bonds

Not applicable.

 

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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 October 1 to December 31, 2020  —   1,261,059 —   880,214 —   1,093,907

 

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Table of Contents

v) Status of Major Shareholders

(As of December 31, 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.)

 

388 Greenwich St., 14th fl., New York,

NY 10013, U.S.A.

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

 114,553  9.27
    

The Master Trust Bank of Japan, Ltd.

(Trust account) *2

 2-11-3, Hamamatsu-cho, Minato-ku, Tokyo 108,001  8.74
    

Custody Bank of Japan, Ltd.

(Trust account) *2

 1-8-12, Harumi, Chuo-ku, Tokyo 64,363  5.21
    

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)

 29,768  2.41
    

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)

 25,473  2.06
    

Custody Bank of Japan, Ltd.

(Trust account 7) *2

 1-8-12, Harumi, Chuo-ku, Tokyo 24,389  1.97
    

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)

 20,211  1.63
    

Custody Bank of Japan, Ltd.

(Trust account 5) *2

 1-8-12, Harumi, Chuo-ku, Tokyo 19,882  1.61
    

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 )

 19,140  1.55
    

Custody Bank of Japan, Ltd.

(Trust account 6) *2

 1-8-12, Harumi, Chuo-ku, Tokyo 17,946  1.45
   
Total         443,726  35.89

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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Table of Contents
  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 December 31, 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 Holders                  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 December 31, 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 December 31, 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

 

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Table of Contents

vi) Status of Voting Rights

1) Shares Issued

(As of December 31, 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.)

      24,670,700  

Shares with full voting rights (Others)

 1,234,535,000 12,345,350 

Shares constituting less than one full unit

 1,853,081  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

             —              12,345,350 

 

Note:

 

Included in “Shares with full voting rights (Others)” under “Number of shares of common stock” are 18,900 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 189 units of voting rights relating to the shares of common stock with full voting rights held under the name of Japan Securities Depository Center, Incorporated.

2) Treasury Stock, etc.

(As of December 31, 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   24,670,700  24,670,700 1.96

 

Total

  24,670,700  24,670,700 1.96

Notes:

1.

In addition to the 24,670,700 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 mainly due to the exercise of SARs (including the exercise of unsecured convertible bonds with SARs (6th series)) from January 1, 2021 to January 31, 2021, the number of shares held decreased by 809 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 December 31,
            2020            
 

ASSETS

   

Current assets:

   

Cash and cash equivalents

   1,512,357   1,878,047 

Marketable securities (including assets pledged that secured parties are permitted to sell or repledge of 17,521 million yen and 20,548 million yen at March 31, 2020 and December 31, 2020)

   1,847,772   2,771,000 

Notes and accounts receivable, trade and contract assets

   1,028,793   1,310,227 

Allowance for credit losses

   (25,873  (25,143

Inventories

   589,969   605,437 

Other receivables

   188,106   308,178 

Prepaid expenses and other current assets

   594,021   540,302 

Total current assets

   5,735,145   7,388,048 

Film costs

   427,336   421,382 

Investments and advances:

   

Affiliated companies

   207,922   220,221 

Securities investments and other (including assets pledged that secured parties are permitted to sell or repledge of 930,882 million yen and 1,602,797 million yen at March 31, 2020 and December 31, 2020)

   12,526,210   13,635,160 

Allowance for credit losses

   -   (8,370
   12,734,132   13,847,011 

Property, plant and equipment:

   

Land

   81,482   78,285 

Buildings

   659,556   659,679 

Machinery and equipment

   1,725,720   1,683,264 

Construction in progress

   76,391   126,502 
   2,543,149   2,547,730 

Less – Accumulated depreciation

   1,634,505   1,584,620 
    908,644   963,110 

Other assets:

   

Operating lease right-of-use assets

   359,510   336,112 

Finance lease right-of-use assets

   33,100   43,763 

Intangibles, net

   906,310   920,148 

Goodwill

   783,888   791,000 

Deferred insurance acquisition costs

   600,901   639,831 

Deferred income taxes

   210,372   182,494 

Other

   340,005   348,223 
    3,234,086   3,261,571 

Total assets

   23,039,343   25,881,122 

  (Continued on following page.)

 

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Table of Contents

            Consolidated Balance Sheets (Unaudited)

 

 

               Yen in millions                 
    At March 31,
            2020             
  At December 31,
            2020             
 

LIABILITIES

   

Current liabilities:

   

Short-term borrowings

   810,176   1,320,595 

Current portion of long-term debt

   29,807   119,192 

Current portion of long-term operating lease liabilities

   68,942   73,203 

Notes and accounts payable, trade

   380,810   657,458 

Accounts payable, other and accrued expenses

   1,630,197   1,660,096 

Accrued income and other taxes

   145,996   208,063 

Deposits from customers in the banking business

   2,440,783   2,723,808 

Other

   733,732   1,108,847 

Total current liabilities

   6,240,443   7,871,262 

Long-term debt

   634,966   737,258 

Long-term operating lease liabilities

   314,836   286,235 

Accrued pension and severance costs

   324,655   314,559 

Deferred income taxes

   549,538   340,015 

Future insurance policy benefits and other

   6,246,047   6,463,972 

Policyholders’ account in the life insurance business

   3,642,271   4,159,852 

Other

   289,285   266,611 

Total liabilities

   18,242,041   20,439,764 

Redeemable noncontrolling interest

   7,767   8,035 

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

    880,214 

Additional paid-in capital

   1,289,719   1,486,104 

Retained earnings

   2,768,856   3,788,596 

Accumulated other comprehensive income –

   

Unrealized gains on securities, net

   161,191   139,369 

Unrealized gains on derivative instruments, net

   1,248   1,916 

Pension liability adjustment

   (235,520  (229,625

Foreign currency translation adjustments

   (509,872  (536,902

Debt valuation adjustments

   1,973   1,195 
   (580,980  (624,047

Treasury stock, at cost

   

Common stock

   

At March 31, 2020–40,898,841 shares

   (232,503 

At December 31, 2020–24,670,705 shares

       (140,307
    4,125,306   5,390,560 

Noncontrolling interests

   664,229   42,763 

Total equity

   4,789,535   5,433,323 

Total liabilities and equity

   23,039,343   25,881,122 

  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 
            Nine months ended December 31            
   2019  2020 

Sales and operating revenue:

  

Net sales

  5,318,782   5,481,349 

Financial services revenue

  1,115,291   1,240,455 

Other operating revenue

  77,072   57,137 
   6,511,145   6,778,941 

Costs and expenses:

  

Cost of sales

  3,629,246   3,753,504 

Selling, general and administrative

  1,105,115   1,040,308 

Financial services expenses

  997,211   1,102,877 

Other operating income, net

  (24,017  (16,491
   5,707,555   5,880,198 

Equity in net income of affiliated companies

  6,422   6,642 

Operating income

  810,012   905,385 

Other income:

  

Interest and dividends

  14,658   7,109 

Gain on equity securities, net

  372   205,727 

Other

  4,441   4,210 
   19,471   217,046 

Other expenses:

  

Interest expenses

  8,793   7,265 

Foreign exchange loss, net

  9,376   8,684 

Loss on pension plan amendment

  6,358   - 

Other

  1,523   9,588 
   26,050   25,537 

Income before income taxes

  803,433   1,096,894 

Income taxes

  196,916   12,641 

Net income

  606,517   1,084,253 

Less - Net income attributable to noncontrolling interests

  36,970   19,477 

Net income attributable to Sony Corporation’s stockholders

  569,547   1,064,776 
  Yen 
  Nine months ended December 31 
   2019  2020 

Per share data:

  

Net income attributable to Sony Corporation’s stockholders

  

– Basic

  460.11   867.17 

– Diluted

  450.08   852.04 

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 December 31             
   2019  2020 

Sales and operating revenue:

  

Net sales

  2,034,826   2,252,904 

Financial services revenue

  405,382   423,432  

Other operating revenue

  22,954   20,200 
   2,463,162   2,696,536 

Costs and expenses:

  

Cost of sales

  1,411,228   1,554,843 

Selling, general and administrative

  400,032   409,835 

Financial services expenses

  372,540   376,833 

Other operating (income) expense, net

  (18,056  295 
   2,165,744   2,341,806 

Equity in net income of affiliated companies

  2,714   4,496 

Operating income

  300,132   359,226 

Other income:

  

Interest and dividends

  3,900   1,753 

Gain on equity securities, net

  13,392   120,234 

Foreign exchange gain, net

  -   60 

Other

  1,286   1,413 
   18,578   123,460 

Other expenses:

  

Interest expenses

  1,129   2,756 

Foreign exchange loss, net

  427   - 

Loss on pension plan amendment

  6,358   - 

Other

  475   2,559 
   8,389   5,315 

Income before income taxes

  310,321   477,371 

Income taxes

  69,977   103,661 

Net income

  240,344   373,710 

Less - Net income attributable to noncontrolling interests

  10,806   1,819 

Net income attributable to Sony Corporation’s stockholders

  229,538   371,891 
  Yen 
            Three months ended December 31           
   2019  2020 

Per share data:

  

Net income attributable to Sony Corporation’s stockholders

  

– Basic

  187.02   301.09 

– Diluted

  182.89   297.35 

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 
            Nine months ended December 31           
   2019  2020 

Net income

  606,517   1,084,253 

Other comprehensive income, net of tax —

  

Unrealized gains (losses) on securities

  14,757   (64,428

Unrealized gains on derivative instruments

  60   668 

Pension liability adjustment

  86,162   6,805 

Foreign currency translation adjustments

  (17,501  (26,787

Debt valuation adjustments

  -   (1,837

Total comprehensive income

  689,995   998,674 

Less – Comprehensive income attributable to noncontrolling interests

  41,635   6,866 

Comprehensive income attributable to Sony Corporation’s stockholders

  648,360   991,808 
  Yen in millions 
            Three months ended December 31           
   2019  2020 

Net income

  240,344   373,710 

Other comprehensive income, net of tax —

  

Unrealized losses on securities

  (25,168  (26,546

Unrealized gains on derivative instruments

  368   1,539 

Pension liability adjustment

  80,122   2,346 

Foreign currency translation adjustments

  46,249   (3,317

Debt valuation adjustments

  -   (644

Total comprehensive income

  341,915   347,088 

Less – Comprehensive income attributable to noncontrolling interests

  2,538   1,758 

Comprehensive income attributable to Sony Corporation’s stockholders

     339,377      345,330 

  The accompanying notes are an integral part of these statements.

 

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Table of Contents

  (iv)    Consolidated Statements of Cash Flows (Unaudited)

 

Sony Corporation and Consolidated Subsidiaries

 

   Yen in millions 
         Nine months ended December 31       
            2019                  2020         

Cash flows from operating activities:

   

Net income

   606,517   1,084,253 

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

   281,393   286,563 

Amortization of film costs

   212,684   197,849 

Accrual for pension and severance costs, less payments

   4,714   1,748 

Other operating income, net

   (24,017  (16,491

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

   (392  (205,721

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

   (127,002  (339,714

Deferred income taxes

   23,594   (155,881

Equity in net income of affiliated companies, net of dividends

   (2,737  (2,211

Changes in assets and liabilities:

   

Increase in notes, accounts receivable, trade and contract assets

   (237,477  (300,544

(Increase) decrease in inventories

   34,865   (41,039

Increase in film costs

   (296,377  (193,344

Increase (decrease) in notes and accounts payable, trade

   (12,640  277,309 

Increase in accrued income and other taxes

   34,419   136,263 

Increase in future insurance policy benefits and other

   554,596   619,049 

Increase in deferred insurance acquisition costs

   (73,385  (69,433

Increase in marketable securities held in the life insurance business

   (103,746  (119,871

Increase in other current assets

   (15,047  (150,801

Increase (decrease) in other current liabilities

   (16,443  66,950 

Other

   (9,452  12,574 

Net cash provided by operating activities

   834,067   1,087,508 

(Continued on following page.)

 

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            Consolidated Statements of Cash Flows (Unaudited)

 

 

   Yen in millions 
         Nine months ended December 31       
           2019                  2020         

Cash flows from investing activities:

         

Payments for purchases of fixed assets

   (314,791  (391,439

Proceeds from sales of fixed assets

   12,445   13,699 

Payments for investments and advances by financial services business

   (970,438  (1,197,359

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

   (40,423  (93,368

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

   208,164   292,090 

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

   13,169   19,604 

Proceeds from sales of businesses

   13,404   1,605 

Proceeds from sales of Olympus Corporation Shares

   80,357   - 

Other

   (27,969  (17,019

Net cash used in investing activities

   (1,026,082  (1,372,187

Cash flows from financing activities:

   

Proceeds from issuance of long-term debt

   110,535   336,960 

Payments of long-term debt

   (189,790  (93,913

Increase in short-term borrowings, net

   278,028   311,912 

Proceeds from issuance of short-term borrowings in connection with payment for purchase of noncontrolling interest in Sony Financial Holdings Inc.

   -   396,500 

Payments of short-term borrowings in connection with payment for purchase of noncontrolling interest in Sony Financial Holdings Inc.

   -   (200,000

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

   211,135   392,891 

Dividends paid

   (49,621  (61,153

Payments for purchase of treasury stock

   (156,187  (211

Payment for purchase of noncontrolling interest in Game Show Network, LLC

   (39,894  - 

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

   -   (396,698

Other

   (19,110  (9,628

Net cash provided by financing activities

   145,096   676,660 

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

   (14,887  (28,538

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

   (61,806  363,443 

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

   1,412,007   1,878,738 

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

   3,131   691 

Cash and cash equivalents at end of the period

   1,408,876   1,878,047 

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 nine and three months ended December 31, 2019 have been made to conform to the presentation for the nine and three months ended December 31, 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  December 31, 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, *2

  1,552,036     210,459     (566)     1,761,929     2,260,356     171,613     (16,521)     2,415,448   

Japanese local government bonds

  69,132     73     (33)     69,172     75,475     75     (24)     75,526   

Japanese corporate bonds

  202,164     19,112     (567)     220,709     260,819     14,075     (1,060)     273,834   

Foreign government bonds *1

  198,777     81,014     (14)     279,777     299,974     51,678     (5,912)     345,740   

Foreign corporate bonds

  361,422     507     (2,179)     359,750     354,910     996     (278)     355,628   

Securitized products

  205,223     0     -      205,223     221,463     -      -      221,463   

Other

  14,398     1,867     (12)     16,253     24,531     3,131     (7)     27,655   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  2,603,152     313,032     (3,371)     2,912,813     3,497,528     241,568     (23,802)     3,715,294   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Held-to-maturity securities:

        

Japanese national government bonds *2

  6,204,505     2,098,885     (1,397)     8,301,993     6,223,506     1,720,015     (12,141)     7,931,380   

Japanese local government bonds

  2,504     331     -      2,835     1,766     307     -      2,073   

Japanese corporate bonds

  482,050     61,176     (4,754)     538,472     542,204     39,863     (13,636)     568,431   

Foreign government bonds *1,*3

  723,937     302,297     -      1,026,234     775,601     221,695     (2,149)     995,147   

Foreign corporate bonds

  98     7     -      105     25,870     825     -      26,695   

Securitized products

  5,418     -      (421)     4,997     34,627     29     (13)     34,643   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  7,418,512     2,462,696     (6,572)     9,874,636     7,603,574     1,982,734     (27,939)     9,558,369   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

  10,021,664     2,775,728     (9,943)     12,787,449     11,101,102     2,224,302     (51,741)     13,273,663   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

*1

As of December 31, 2020, available-for-sale securities and held-to-maturity securities include 330,059 million yen of pledged foreign government bonds as collateral for short-term lending transactions. Also, Japanese national government bonds include 426,467 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 December 31, 2020, available-for-sale securities and held-to-maturity securities include 438,652 million yen of pledged Japanese national government bonds as collateral for short-term lending transactions.

 

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*3

As of December 31, 2020, held-to-maturity securities include 238,399 million yen of pledged foreign government bonds as collateral for short-term repurchase agreements.

During the nine months ended December 31, 2019 and 2020, respectively, with respect to equity securities included in marketable securities and securities investments, Sony recorded net realized gains of 9,976 million yen and 29,906 million yen due to the sale of equity securities and net unrealized gains of 116,667 million yen and 516,174 million yen due to revaluation of equity securities held at the end of the period for the third 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 statements 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 nine months ended December 31, 2019, the revaluation of the Spotify shares owned as of December 31, 2019 resulted in a pre-tax unrealized gain, net of costs to be paid to Sony’s artists and distributed labels, of 3,998 million yen (36 million U.S. dollars) recorded in gain on equity securities, net in the consolidated statements of income.

During the nine months ended December 31, 2020, the revaluation of the Spotify shares owned as of December 31, 2020 resulted in a pre-tax unrealized gain, net of costs to be paid to Sony’s artists and distributed labels, of 68,050 million yen (638 million U.S. dollars) recorded in gain on equity securities, net in the consolidated statements of income.

 

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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 
   December 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

   29,993      260,538      -      290,531      290,531      -      -      -   

Available-for-sale securities

                

Japanese national

government bonds

   -      2,415,448      -      2,415,448      446,497      1,968,951      -      -   

Japanese local government bonds

   -      75,526      -      75,526      19,830      55,696      -      -   

Japanese corporate bonds

   -      266,639      7,195      273,834      20,488      253,346      -      -   

Foreign government bonds

   -      345,740      -      345,740      300      345,440      -      -   

Foreign corporate bonds

   -      337,907      17,721      355,628      115,319      240,309      -      -   

Securitized products

   -      45,701      175,762      221,463      -      221,463      -      -   

Other

   -      5,397      22,258      27,655      -      27,655      -      -   

Equity securities

   1,588,999      659,963      144      2,249,106      1,875,185      373,921      -      -   

Other investments *1

   6,544      3,390      8,540      18,474      -      18,474      -      -   

Derivative assets *2,*3

   -      18,813      -      18,813      -      -      14,015      4,798   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   1,625,536      4,435,062      231,620      6,292,218      2,768,150      3,505,255      14,015      4,798   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
       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

   -      -      539,656      539,656      52,644      487,012      -      -   

Derivative liabilities *2,*3

   1,900      29,468      -      31,368      -      -      16,051      15,317   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

   1,900      29,468      539,656      571,024      52,644      487,012      16,051      15,317   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

*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 nine months ended December 31, 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

   1,058   -   1,058    

Exercise of stock acquisition rights

   7,121   -   7,121    

Conversion of convertible bonds

   42   -   42    

Stock-based compensation

   1,637   -   1,637    

Comprehensive income:

    

Net income

   569,547   36,970   606,517    

Other comprehensive income, net of tax —

    

Unrealized gains on securities

   9,563   5,194   14,757    

Unrealized gains on derivative instruments

   60   -   60    

Pension liability adjustment

   86,143   19   86,162    

Foreign currency translation adjustments

   (16,953  (548  (17,501)   
  

 

 

 

Total comprehensive income

   648,360   41,635   689,995    
  

 

 

 

Dividends declared

   (24,607  (25,577  (50,184)   

Purchase of treasury stock

   (156,187  -   (156,187)   

Transactions with noncontrolling interests shareholders and other

   15,275   (51,389  (36,114)   
  

 

 

 

Balance at December 31, 2019

   4,231,604   654,982   4,886,586    
  

 

 

 
   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

   11,544   -   11,544    

Conversion of convertible bonds

   68,819   -   68,819    

Stock-based compensation

   1,006   -   1,006    

Comprehensive income:

    

Net income

   1,064,776   19,477   1,084,253    

Other comprehensive income, net of tax —

    

Unrealized losses on securities

   (52,457  (11,971  (64,428)   

Unrealized gains on derivative instruments

   668   -   668    

Pension liability adjustment

   6,804   1   6,805    

Foreign currency translation adjustments

   (26,729  (58  (26,787)   

Debt valuation adjustments

   (1,254  (583  (1,837)   
  

 

 

 

Total comprehensive income

   991,808   6,866   998,674    
  

 

 

 

Dividends declared

   (30,839  (12,996  (43,835)   

Purchase of treasury stock

   (211  -   (211)   

Reissuance of treasury stock

   1,516   -   1,516    

Transactions with noncontrolling interests shareholders and other

   225,280   (613,950  (388,670)   
  

 

 

 

Balance at December 31, 2020

   5,390,560   42,763   5,433,323    
  

 

 

 

There was no material effect of changes in Sony Corporation’s ownership interest in its subsidiaries on Sony Corporation’s stockholders’ equity for the nine months ended December 31, 2019.

 

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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.

 

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(2)

Other Comprehensive Income

Changes in accumulated other comprehensive income, net of tax by component for the nine months ended December 31, 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

   14,899       464   (3,668  (17,427  (5,732)   

Amounts reclassified out of accumulated other comprehensive income

   (142  (404  89,830   (74  89,210    
  

 

 

 

Net current-period other comprehensive income

   14,757   60   86,162   (17,501  83,478   

Less: Other comprehensive income attributable to noncontrolling interests

   5,194   -   19   (548  4,665    
  

 

 

 

Balance at December 31, 2019

   144,598   41   (224,314  (452,182  (531,857)   
  

 

 

 
   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

   (64,518  6,167   (3,704  (26,900  (1,812)      (90,767)   

Amounts reclassified out of accumulated other comprehensive income

   90   (5,499  10,509   113   (25)      5,188    
  

 

 

 

Net current-period other comprehensive income

   (64,428  668   6,805   (26,787  (1,837)      (85,579)   

Less: Other comprehensive income attributable to noncontrolling interests

   (11,971  -   1   (58  (583)      (12,611)   

Transactions with noncontrolling interests shareholders and other

   30,635   -   (909  (301         476       29,901    
  

 

 

 

Balance at December 31, 2020

   139,369   1,916   (229,625  (536,902  1,195       (624,047)   
  

 

 

 

 

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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 nine and three months ended December 31, 2019 and 2020 is as follows:

 

   Yen in millions 
     Nine months ended December 31   
   2019   2020 

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

   569,547      1,064,776   
  

 

 

   

 

 

 
   Thousands of shares 

Weighted-average shares outstanding

   1,237,842      1,227,879   

Effect of dilutive securities:

    

Stock acquisition rights

   3,570      4,229   

Zero coupon convertible bonds

   24,009      17,564   
  

 

 

   

 

 

 

Weighted-average shares for diluted EPS computation

   1,265,421      1,249,672   
  

 

 

   

 

 

 
   Yen 

Basic EPS

   460.11      867.17   
  

 

 

   

 

 

 

Diluted EPS

               450.08                  852.04   
  

 

 

   

 

 

 

Potential shares of common stock that were excluded from the computation of diluted EPS for the nine months ended December 31, 2019 and 2020 were 4,777 thousand shares and 4,515 thousand shares, respectively. The potential shares related to stock acquisition rights were excluded as anti-dilutive for the nine months ended December 31, 2019 and 2020 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 December 31 
   2019   2020 

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

   229,538      371,891   
  

 

 

   

 

 

 
   Thousands of shares 

Weighted-average shares outstanding

   1,227,355      1,235,162   

Effect of dilutive securities:

    

Stock acquisition rights

   3,669      4,460   

Zero coupon convertible bonds

   24,006      11,071   
  

 

 

   

 

 

 

Weighted-average shares for diluted EPS computation

   1,255,030      1,250,693   
  

 

 

   

 

 

 
   Yen 

Basic EPS

   187.02      301.09   
  

 

 

   

 

 

 

Diluted EPS

               182.89                  297.35   
  

 

 

   

 

 

 

Potential shares of common stock that were excluded from the computation of diluted EPS for the three months ended December 31, 2019 and 2020 were 4,777 thousand shares and 4,515 thousand shares, respectively. The potential shares related to stock acquisition rights were excluded as anti-dilutive for the three months ended December 31, 2019 and 2020 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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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   December 31, 2020 

Receivables from contracts with customers *1

   1,126,597    1,390,987 

Contract assets *1

   13,985    15,433 

Contract liabilities *2

   271,286    295,167 

 

*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 184,423 million yen were recognized during the nine months ended December 31, 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 in the Finacial Services segment, the presentation in the consolidated balance sheet, and the maximum exposure to loss associated with these variable interests as of March 31, 2020 and December 31, 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 
   December 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

   656,602      6,624      -      663,854   

Securitized products

   -      256,090      -      256,090   

Foreign corporate bonds *2

   50,748      37,031      -      87,779   

Other investments

   -      27,655      21,000      66,239   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   707,350      327,400      21,000      1,073,962   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

*1

Equity securities primarily include investment funds.

*2

Foreign corporate bonds primarily include repackaged bonds.

 

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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 December 31, 2020, the total unused portion of the lines of credit extended under these contracts was 35,186 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 December 31, 2020 amounted to 720,856 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 December 31, 2020, these subsidiaries were committed to make payments under such contracts of 105,027 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 December 31, 2020, these subsidiaries were committed to make payments of 145,884 million yen under such contracts.

In December 2020, Funimation Global Group, LLC, a joint venture between a subsidiary in the Pictures segment and a subsidiary in the Music segment, entered into a definitive agreement to acquire 100% of the equity interest in Ellation Holdings, Inc., a subsidiary of AT&T Inc., which operates the anime business Crunchyroll. The purchase price of this transaction is 1,175 million U.S. dollars subject to customary working capital and other adjustments. This transaction is subject to customary closing conditions, including regulatory approvals.

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 seven years. As of December 31, 2020, these subsidiaries were committed to make payments of 34,360 million yen under such contracts.

Sony has entered into purchase contracts for fixed assets. As of December 31, 2020, Sony has committed to make payments of 140,262 million yen under such contracts.

Sony has entered into purchase contracts for materials. As of December 31, 2020, Sony has committed to make payments of 97,949 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 December 31, 2020, Sony has committed to make payments of 2,711 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 December 31, 2020 amounted to 554 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 
         Nine months ended December 31       

 

      2019          2020     

Sales and operating revenue:

   

Game & Network Services -

   

Customers

   1,496,372   1,959,383 

Intersegment

   47,609   36,590 
  

 

 

  

 

 

 

Total

   1,543,981   1,995,973 

Music -

   

Customers

   630,641   663,878 

Intersegment

   7,825   8,567 
  

 

 

  

 

 

 

Total

   638,466   672,445 

Pictures -

   

Customers

   681,848   557,534 

Intersegment

   858   1,063 
  

 

 

  

 

 

 

Total

   682,706   558,597 

Electronics Products & Solutions -

   

Customers

   1,612,785   1,472,634 

Intersegment

   15,058   12,858 
  

 

 

  

 

 

 

Total

   1,627,843   1,485,492 

Imaging & Sensing Solutions -

   

Customers

   774,570   726,134 

Intersegment

   64,839   54,074 
  

 

 

  

 

 

 

Total

   839,409   780,208 

Financial Services -

   

Customers

   1,115,291   1,240,455 

Intersegment

   6,053   5,523 
  

 

 

  

 

 

 

Total

   1,121,344   1,245,978 

All Other -

   

Customers

   181,704   150,434 

Intersegment

   29,057   25,362 
  

 

 

  

 

 

 

Total

   210,761   175,796 

Corporate and elimination

   (153,365  (135,548
  

 

 

  

 

 

 
Consolidated total   6,511,145   6,778,941 
  

 

 

  

 

 

 

 

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Table of Contents
   Yen in millions 
         Three months ended December 31         

 

      2019          2020     

Sales and operating revenue:

   

Game & Network Services -

   

Customers

   616,576   865,790 

Intersegment

   15,554   17,436 
  

 

 

  

 

 

 

Total

   632,130   883,226 

Music -

   

Customers

   213,861   261,724 

Intersegment

   3,077   2,738 
  

 

 

  

 

 

 

Total

   216,938   264,462 

Pictures -

   

Customers

   235,702   191,118 

Intersegment

   312   57 
  

 

 

  

 

 

 

Total

   236,014   191,175 

Electronics Products & Solutions -

   

Customers

   645,818   644,558 

Intersegment

   4,611   4,430 
  

 

 

  

 

 

 

Total

   650,429   648,988 

Imaging & Sensing Solutions -

   

Customers

   277,816   243,809 

Intersegment

   20,191   23,129 
  

 

 

  

 

 

 

Total

   298,007   266,938 

Financial Services -

   

Customers

   405,382   423,432 

Intersegment

   1,846   1,841 
  

 

 

  

 

 

 

Total

   407,228   425,273 

All Other -

   

Customers

   63,129   63,995 

Intersegment

   9,144   8,505 
  

 

 

  

 

 

 

Total

   72,273   72,500 

Corporate and elimination

   (49,857  (56,026
  

 

 

  

 

 

 
Consolidated total   2,463,162   2,696,536 
  

 

 

  

 

 

 

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 
         Nine months ended December 31       

 

  2019  2020 

Operating income (loss):

   

Game & Network Services

   192,241   309,152 

Music

   112,007   147,435 

Pictures

   45,116   78,700 

Electronics Products & Solutions

   146,789   150,649 

Imaging & Sensing Solutions

   201,088   125,657 

Financial Services

   117,518   137,516 

All Other

   20,505   14,849 
  

 

 

  

 

 

 

Total

   835,264   963,958 

Corporate and elimination

   (25,252  (58,573
  

 

 

  

 

 

 

Consolidated operating income

   810,012   905,385 
  

 

 

  

 

 

 
   Yen in millions 
           Three months ended December 31     

 

  2019  2020 

Operating income (loss):

   

Game & Network Services

   53,450   80,183 

Music

   36,250   59,692 

Pictures

   5,422   22,207 

Electronics Products & Solutions

   80,336   105,772 

Imaging & Sensing Solutions

   75,182   50,396 

Financial Services

   32,634   46,595 

All Other

   20,673   8,126 
  

 

 

  

 

 

 

Total

   303,947   372,971 

Corporate and elimination

   (3,815  (13,745
  

 

 

  

 

 

 

Consolidated operating income

   300,132   359,226 
  

 

 

  

 

 

 

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 
         Nine months ended December 31       
 Sales and operating revenue:          2019                   2020         

Game & Network Services

    

Digital Software and Add-on Content

   747,835       1,124,487    

Network Services

   253,467       284,966    

Hardware and Others

   495,070       549,930    

 

  

 

 

   

 

 

 

Total

   1,496,372       1,959,383    

Music

    

Recorded Music – Streaming

   206,091       235,790    

Recorded Music – Others

   144,012       127,732    

Music Publishing

   117,413       113,653    

Visual Media and Platform

   163,125       186,703    

 

  

 

 

   

 

 

 

Total

   630,641       663,878    

Pictures

    

Motion Pictures

   322,586       208,871    

Television Productions

   180,604       190,895    

Media Networks

   178,658       157,768    

 

  

 

 

   

 

 

 

Total

   681,848       557,534    

Electronics Products & Solutions

    

Televisions

   550,099       559,056    

Audio and Video

   284,239       247,942    

Still and Video Cameras

   321,891       258,212    

Mobile Communications

   291,764       284,430    

Other

   164,792       122,994    

 

  

 

 

   

 

 

 

Total

   1,612,785       1,472,634    

Imaging & Sensing Solutions

   774,570       726,134    

Financial Services

   1,115,291       1,240,455    

All Other

   181,704       150,434    

Corporate

   17,934       8,489    

 

  

 

 

   

 

 

 

Consolidated total

   6,511,145       6,778,941    
  

 

 

   

 

 

 

 

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Table of Contents
   Yen in millions 
           Three months ended December 31        
Sales and operating revenue:          2019                   2020         

Game & Network Services

    

Digital Software and Add-on Content

   304,982       432,789    

Network Services

   85,484       95,774    

Hardware and Others

   226,110       337,227    

 

  

 

 

   

 

 

 

Total

   616,576       865,790    

Music

    

Recorded Music – Streaming

   72,812       88,063    

Recorded Music – Others

   53,127       54,049    

Music Publishing

   39,716       44,997    

Visual Media and Platform

   48,206       74,615    

 

  

 

 

   

 

 

 

Total

   213,861       261,724    

Pictures

    

Motion Pictures

   101,345       52,633    

Television Productions

   72,572       75,656    

Media Networks

   61,785       62,829    

 

  

 

 

   

 

 

 

Total

   235,702       191,118    

Electronics Products & Solutions

    

Televisions

   235,859       247,870    

Audio and Video

   121,742       116,974    

Still and Video Cameras

   122,031       121,570    

Mobile Communications

   113,500       111,061    

Other

   52,686       47,083    

 

  

 

 

   

 

 

 

Total

   645,818       644,558    

Imaging & Sensing Solutions

   277,816       243,809    

Financial Services

   405,382       423,432    

All Other

   63,129       63,995    

Corporate

   4,878       2,110    

 

  

 

 

   

 

 

 

Consolidated total

   2,463,162       2,696,536    
  

 

 

   

 

 

 

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 nine months ended December 31, 2019 and 2020 was 8,639 million yen and 41,786 million yen, respectively. In addition, the operating income of Mobile Communications for the three months ended December 31, 2019 and 2020 was 6,965 million yen and 21,292 million yen, respectively.

 

   Yen in millions     
         Nine months ended December 31       
   2019   2020 

Depreciation and amortization:

    

Game & Network Services

   20,920       27,493    

Music

   21,223       23,723    

Pictures

   16,266       13,467    

Electronics Products & Solutions, including contract costs

   44,846       45,502    

Imaging & Sensing Solutions

   96,228       114,973    

Financial Services, including deferred insurance acquisition costs

   60,154       41,519    

All Other

   3,639       2,886    
  

 

 

   

 

 

 

Total

   263,276       269,563    

Corporate

   18,117       17,000    
  

 

 

   

 

 

 

Consolidated total

   281,393       286,563    
  

 

 

   

 

 

 
   Yen in millions 
   Nine months ended December 31, 2019 
   Total net
      restructuring      
charges
   Depreciation
associated with
  restructured assets  
           Total         

Restructuring charges and associated depreciation:

      

Game & Network Services

   -       -       -    

Music

   890       -       890    

Pictures

   278       -       278    

Electronics Products & Solutions

   9,376       -       9,376    

Imaging & Sensing Solutions

   -       -       -    

Financial Services

   -       -       -    

All Other and Corporate

   3,296       245       3,541    
  

 

 

   

 

 

   

 

 

 

Consolidated total

   13,840       245       14,085    
  

 

 

   

 

 

   

 

 

 
   Yen in millions 
   Nine months ended December 31, 2020 
   Total net
      restructuring      
charges
   Depreciation
associated with
  restructured assets  
           Total         

Restructuring charges and associated depreciation:

      

Game & Network Services

   482       -       482    

Music

   646       -       646    

Pictures

   740       -       740    

Electronics Products & Solutions

   3,307       -       3,307    

Imaging & Sensing Solutions

   1,237       -       1,237    

Financial Services

   -       -       -    

All Other and Corporate

   1,669       -       1,669    
  

 

 

   

 

 

   

 

 

 

Consolidated total

   8,081       -       8,081    
  

 

 

   

 

 

   

 

 

 

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 December 31           
   2019   2020     

Depreciation and amortization:

      

Game & Network Services

   7,230       9,799      

Music

   7,176       8,352      

Pictures

   5,151       4,586      

Electronics Products & Solutions, including contract costs

   15,215       15,700      

Imaging & Sensing Solutions

   34,661       37,400      

Financial Services, including deferred insurance acquisition costs

   14,919       15,761      

All Other

   986       1,042      
  

 

 

   

 

 

   

Total

   85,338       92,640      

Corporate

   6,116       6,195      
  

 

 

   

 

 

   

Consolidated total

   91,454       98,835      
  

 

 

   

 

 

   
   Yen in millions 
   Three months ended December 31, 2019 
   Total net
      restructuring      
charges
   Depreciation
associated with
  restructured assets  
           Total         

Restructuring charges and associated depreciation:

      

Game & Network Services

   -       -       -    

Music

   405       -       405    

Pictures

   87       -       87    

Electronics Products & Solutions

   2,776       -       2,776    

Imaging & Sensing Solutions

   -       -       -    

Financial Services

   -       -       -    

All Other and Corporate

   939       -       939    
  

 

 

   

 

 

   

 

 

 

Consolidated total

   4,207       -       4,207    
  

 

 

   

 

 

   

 

 

 
   Yen in millions 
   Three months ended December 31, 2020 
   Total net
      restructuring      
charges
   Depreciation
associated with
  restructured assets  
           Total         

Restructuring charges and associated depreciation:

      

Game & Network Services

   482       -       482    

Music

   (477)      -       (477)   

Pictures

   705       -       705    

Electronics Products & Solutions

   1,992       -       1,992    

Imaging & Sensing Solutions

   1,237       -       1,237    

Financial Services

   -       -       -    

All Other and Corporate

   (213)      -       (213)   
  

 

 

   

 

 

   

 

 

 

Consolidated total

   3,726       -       3,726    
  

 

 

   

 

 

   

 

 

 

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

 

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Table of Contents

Geographic Information –

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

 

   Yen in millions 
   Nine months ended December 31 

  Sales and operating revenue:

              2019                           2020             

Japan

   2,026,005        2,210,809     

United States

   1,410,544        1,624,525     

Europe

   1,313,715        1,363,893     

China

   696,530        595,193     

Asia-Pacific

   696,167        649,006     

Other Areas

   368,184        335,515     

 

  

 

 

   

 

 

 

Total

   6,511,145        6,778,941     
  

 

 

   

 

 

 
   Yen in millions 
   Three months ended December 31 

  Sales and operating revenue:

              2019               2020 

Japan

   729,225        802,586     

United States

   545,581        652,346     

Europe

   543,709        635,873     

China

   246,122        182,729     

Asia-Pacific

   263,026        280,300     

Other Areas

   135,499        142,702     
  

 

 

   

 

 

 

Total

   2,463,162        2,696,536     
  

 

 

   

 

 

 

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 nine and three months ended December 31, 2019 and 2020.

 

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11.

Subsequent event

Acquisition of certain of Kobalt Music Group Limited’s operations

On January 31, 2021, Sony Music Entertainment (“SME”), a wholly-owned subsidiary of Sony, entered into a definitive agreement with Kobalt Music Group Limited (“Kobalt”) to acquire 100% of the shares and related assets of certain Kobalt subsidiaries in order to obtain AWAL, Kobalt’s recorded music label and distribution business mainly for independent recording artists, and Kobalt Neighbouring Rights, Kobalt’s music neighboring rights management business. The purchase price of this transaction is 430 million U.S. dollars, subject to customary working capital and other adjustments. This transaction is subject to customary closing conditions, including regulatory approvals.

 

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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

Note: Interim cash dividends were 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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