Quarterly Securities Report

For the three months ended September 30, 2014

 

(TRANSLATION)

 

 

 

 

Sony Corporation

 

 

CONTENTS

 

 

			Page
Note for readers of this English translation Cautionary Statement			1 1
I	Corporate Information		2
	(1)     Selected Consolidated Financial Data		2
	(2)     Business Overview		3
II	State of Business		4
	(1)     Risk Factors		4
	(2)     Material Contracts		5
	(3)     Management’s Discussion and Analysis of Financial Condition, Results of Operations and          Status of Cash Flows		5
III	Company Information		12
	(1)     Information on the Company’s Shares		12
	(2)     Directors and Corporate Executive Officers		15
IV	Financial Statements		16
	(1)   Consolidated Financial Statements		17
	(2)   Other Information		47

 

 

 

 

I    Corporate Information

(1)   Selected Consolidated Financial Data

		Yen in millions, Yen per share amounts
		Six months ended September 30, 2013				Six months ended September 30, 2014				Fiscal year ended March 31, 2014
Sales and operating revenue			3,485,654				3,711,419			7,767,266
Operating income (loss)			49,426				(15,774	)			26,495
Income (loss) before income taxes			50,522				(21,578	)			25,741
Net loss attributable to Sony Corporation’s stockholders			(16,504	)			(109,161	)			(128,369	)
Comprehensive income (loss)			76,467				(31,169	)			121,978
Total equity			2,754,980				2,839,181				2,783,141
Total assets			14,982,872				15,569,004				15,333,720
Net loss attributable to Sony Corporation’s stockholders per share of common stock, basic (yen)			(16.25	)			(102.14	)			(124.99	)
Net loss attributable to Sony Corporation’s stockholders per share of common stock, diluted (yen)			(16.25	)			(102.14	)			(124.99	)
Ratio of stockholders’ equity to total assets (%)			15.1				14.7				14.7
Net cash provided by (used in) operating activities			(12,760	)			104,075				664,116
Net cash used in investing activities			(224,111	)			(282,859	)			(710,502	)
Net cash provided by (used in) financing activities			111,187				(273,017	)			207,877
Cash and cash equivalents at end of the period			725,668				610,509				1,046,466

 

		Yen in millions, Yen per share amounts
		Three months ended September 30, 2013				Three months ended September 30, 2014
Sales and operating revenue			1,774,235				1,901,511
Net loss attributable to Sony Corporation’s stockholders			(19,631	)			(135,969	)
Net loss attributable to Sony Corporation’s stockholders per share of common stock, basic (yen)			(19.25	)			(124.32	)

 

Notes:

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

2.      The Company reports equity in net income (loss) of affiliated companies as a component of operating income (loss).

3.      Consumption taxes are not included in sales and operating revenue.

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

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

6.      Certain figures presented in the table above have been revised from the versions previously disclosed. For further details, please refer to (4) Revisions of Note 1 of the consolidated financial statements.

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

 

 

(2)    Business Overview

There was no significant change in the business of Sony during the six months ended September 30, 2014.

 

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

 

As of September 30, 2014, the Company had 1,295 subsidiaries and 115 affiliated companies, of which 1,271 companies are consolidated subsidiaries (including variable interest entities) of the Company. The Company has applied the equity accounting method for 102 affiliated companies.

 

 

 

II    State of Business

(1)    Risk Factors

 

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

Sony continues to implement restructuring initiatives that focus on a review of the Sony group’s business strategy investment plan, the realignment of its manufacturing sites, the reallocation of its workforce and headcount reductions. As a result of these restructuring initiatives, a total of 80.6 billion yen in restructuring charges was recorded in the fiscal year ended March 31, 2014. While Sony anticipates recording approximately 85 billion yen of restructuring charges in the fiscal year ending March 31, 2015, significant additional or future restructuring charges may be recorded due to reasons such as the impact of economic downturns or exiting from unprofitable businesses. Restructuring charges are recorded primarily in cost of sales, selling, general and administrative (“SGA”) expenses and other operating (income) expense, net and thus adversely affect Sony’s operating income (loss) and net income (loss) attributable to Sony’s stockholders (Refer to Note 19 of the consolidated financial statements). Sony continues to rationalize its manufacturing operations, shift and consolidate manufacturing to lower-cost countries, and utilize outsourced manufacturing. In addition, Sony is focused on reducing SGA expenses across the group, including outsourcing its support functions and information processing operations to external partners and implementing business process optimization across functions including sales and marketing, manufacturing, logistics, procurement, quality and R&D.

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

 

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

 

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

 

 

 

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

 

(2)    Material Contracts

There were no material contracts executed or determined to be executed during the three months ended September 30, 2014.

 

 

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

i) Results of Operations

 

 

Foreign Exchange Fluctuations and Risk Hedging

 

During the three months ended September 30, 2014, the average rates of the yen were 103.9 yen against the U.S. dollar and 137.8 yen against the euro, which were 4.8 percent and 4.9 percent lower, respectively, than the same quarter of the previous fiscal year (“year-on-year”).

 

For the three months ended September 30, 2014, sales were 1,901.5 billion yen, an increase of 7.2 percent year-on-year, while on a constant currency basis, sales increased approximately 3 percent year-on-year. For references to information on a constant currency basis, see Note at the bottom of this section.

 

Consolidated operating loss of 85.6 billion yen (785 million U.S. dollars) was recorded for the three months ended September 30, 2014, a decrease of 99.5 billion yen year-on-year compared to operating income of 13.9 billion yen in the same quarter of the previous fiscal year (a deterioration of approximately 109.0 billion yen year-on-year on a constant currency basis). Most of the foreign exchange rate impact was attributable to the MC, Game & Network Services (“G&NS”), Imaging Products & Solutions (“IP&S”), Home Entertainment & Sound (“HE&S”) and Devices segments.

 

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

 

 

				(Billions of yen)
					Second quarter ended September 30								Change in yen				Change on constant currency basis				Impact of changes in foreign exchange rates
					2013				2014
MC		Sales			304.6				308.4				+1.2	%			-4	%			+14.6
		Operating income (loss)			8.8				(172.0	)			-180.8				-181.9				+1.1
G&NS		Sales			169.0				309.5				+83.2	%			+74	%			+14.7
		Operating income (loss)			(4.2	)			21.8				+26.0				+21.2				+4.8
IP&S		Sales			175.5				178.6				+1.8	%			-2	%			+6.6
		Operating income (loss)			(2.3	)			20.1				+22.4				+18.8				+3.6
HE&S		Sales			263.8				282.4				+7.0	%			+2%				+13.4
		Operating income (loss)			(12.1	)			8.0				+20.1				+19.1				+1.0
Devices		Sales			201.3				247.7				+23.1	%			+18	%			+10.1
		Operating income			11.9				29.6				+17.7				+10.3				+7.4

 

In addition, sales for the Pictures segment increased 2.4 percent year-on-year to 182.2 billion yen, an approximately 3 percent decrease on a constant currency (U.S. dollar) basis. In the Music segment, sales increased 1.5 percent year-on-year to 116.8 billion yen, an approximately 2 percent decrease on a constant currency basis. As most of the operations in Sony’s Financial Services segment are based in Japan, Sony’s management analyzes the performance of the Financial Services segment on a yen basis only.

 

 

 

Note: In this section, the descriptions of sales on a constant currency basis reflect sales obtained by applying the yen’s monthly average exchange rates from the same quarter of the previous fiscal year to local currency-denominated monthly sales in the three months ended September 30, 2014. The impact of foreign exchange rate fluctuations on operating income (loss) described herein is estimated by deducting cost of sales and selling, general and administrative (“SGA”) expenses on a constant currency basis from sales on a constant currency basis. Cost of sales and SGA expenses on a constant currency basis are obtained by applying the yen’s monthly average exchange rates from the same quarter of the previous fiscal year to the corresponding local currency-denominated monthly cost of sales and SGA expenses for the three months ended September 30, 2014. In certain cases, most significantly in the Pictures segment, and Sony Music Entertainment and Sony/ATV Music Publishing LLC in the Music segment, the constant currency amounts are after aggregation on a U.S. dollar basis. Sales and operating income (loss) on a constant currency basis are not reflected in Sony’s consolidated financial statements and are not measures in accordance with U.S. GAAP. Sony does not believe that these measures are a substitute for U.S. GAAP measures. However, Sony believes that disclosing sales and operating income information on a constant currency basis provides additional useful analytical information to investors regarding the operating performance of Sony.

 

Status of Cash Flows

 

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

 

Issues Facing Sony and Management’s Response to those Issues

 

The Japanese economy is gradually expanding due to monetary easing and an increase in demand prior to a recent increase in the consumption tax rate, the euro zone is experiencing a gradual economic recovery, and the U.S. economy continues to be stable in spite of a reduction in scale of monetary easing policies and a political impasse over increasing public debt. However, the overall global economic outlook is uncertain due to the slowdown of emerging market economies and concerns about a slowdown in the Japanese economy resulting from an increase in the consumption tax rate.

 

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

 

To address these circumstances, on May 22, 2014, Sony announced its corporate strategy to Complete Reform of Electronics Business Structure and Establish Foundations for Sustainable Growth from FY2015 and is implementing key initiatives in the fiscal year ending March 31, 2015 for its three core electronics businesses - the game and network services, mobile and imaging businesses - and the entertainment and financial services businesses, as well as implementing new technology development and measures for new business creation to deliver further growth from the fiscal year ending March 31, 2016.

 

 

1.

Completion of Electronics Business Structural Reform

 

As announced on February 6, 2014, Sony is proceeding with the withdrawal from its PC business, the split out of its TV business and the structural reform of its sales companies and headquarters functions. Sony expects to complete these initiatives within the fiscal year ending March 31, 2015.

 

On July 1, 2014, Sony transferred its PC business operated in Japan under the VAIO brand and certain related assets to VAIO Corporation, which was established as a special purpose company funded by a subsidiary of Japan Industrial Partners, Inc. Going forward, Sony will provide customer support for PC products that have already been sold and support the smooth launch of VAIO Corporation.

On July 1, 2014, “Sony Visual Products Inc.” was established to start operation of a new TV business company. Sony is also executing fixed cost reduction measures across the sales companies, headquarters and indirect functions that support the TV business in order to help establish a business structure capable of minimizing the impact of external market fluctuations. Sony expects to return the TV business to profitability in the fiscal year ending March 31, 2015 by executing the above measures, accelerating the implementation of its strategic shift towards high value-added models, including 4K, and establishing more flexible operations capable of responding rapidly to fluctuations in demand or the business environment. Sony aims to reduce total costs in its electronics sales companies by approximately 20 percent and costs across headquarters and support functions by approximately 30 percent, by the fiscal year ending March 31, 2016, compared to the fiscal year ended March 31, 2014.

2.

Key Initiatives to be Executed in Core Businesses in the Fiscal Year ending March 31, 2015

 

Game and Network Services

 

In the game and network services business, Sony aims to expand the installed base of PlayStation 4 (“PS4™”) and reinforce its network services in order to drive increased profit growth. Sony aims to further consolidate its No.1 position in the home console market in the fiscal year ending March 31, 2015. Sony started an open beta version of the PlayStation™Now game streaming service this summer in the U.S. and plans to introduce a new, cloud-based television service within the calendar year 2014. Sales from the network business, including game, music and video services, are expected to grow going forward.

 

Mobile

 

In the mobile business, Sony revised its strategy to address the significant change in the market and competitive environment of the mobile business. The new strategy for the mobile business was revised from a strategy which relied on sales growth for profitability to a strategy that reduces risk and volatility in order to deliver more stable profits.

 

Sony’s product strategy will focus on its premium lineup which utilizes technologies from across the Sony Group. Geographically, Sony will focus on countries and areas which can be expected to deliver a high level of profitability, and will withdraw from certain countries/areas, reflecting management’s judgment that from a competitive standpoint there is a poor prospect for profitability in these countries/areas.

 

Imaging Businesses

 

In the image sensor business, Sony will continue to integrate its highly competitive, cutting-edge image sensors with its wealth of camera expertise to drive the growth of its finished product and device businesses. Sony intends to bolster its manufacturing capacity for stacked CMOS image sensors and to thereby reinforce its leading market position. Additionally, the Company aims to continue to deliver compelling, high value-added, professional and consumer imaging products in order to sustain business profitability.

 

In the component device space, Sony plans to focus on batteries in addition to image sensors. These two key components are expected to be a driving force for Sony to deliver attractive products and new services. In the medical space, the development of surgical endoscopes incorporating 3D and 4K technologies being carried out by Sony Olympus Medical Solutions, Sony’s medical business joint venture with Olympus Corporation, is proceeding as scheduled, targeting market launch in the fiscal year ending March 31, 2016.

 

 

Entertainment

 

With diversifying forms of content distribution, and the growth of network distribution channels, Sony believes its rich content assets position it for continued growth. In this environment, Sony will explore new ways to innovate in its Entertainment businesses, including collaboration with its network service businesses. In the Pictures segment, Sony is executing a cost reduction plan that aims to achieve total cost reduction of 300 million U.S. dollars by the end of March 2016. Sony expects to continue to produce quality programming in the television production business and achieve steady growth in its media networks business, both of which are focus areas for Sony. In the Music segment, Sony is targeting increased market share by cultivating new talent and expanding its presence in emerging markets.

 

Financial Services

 

Sony’s life insurance, non-life insurance and banking businesses have steadily expanded their range of services and earned high customer satisfaction ratings by providing outstanding services to customers. Sony aims to continue this stable profit growth in its Financial Services segment by continuing the pursuit of high-quality service. At the same time, Sony will be working to grow its nursing care business, launched in the fiscal year ended March 31, 2014, into the fourth pillar of its Financial Services business.

3.

New Technology Development and Measures for New Business Creation to Deliver Further Growth from the Fiscal Year ending March 31, 2016

 

Direction of New Technology Development

 

By further reinforcing Sony’s strengths in the areas of device and information processing technologies, Sony intends to differentiate its core electronics businesses and deliver new products and services that “create new lifestyles” and “enrich people’s lives” in both the home and mobile spaces. Specifically, in device technologies, Sony plans to concentrate on image sensors, batteries and low energy consumption technologies. In information processing technologies, Sony will focus on recognition, natural user interface and signal processing innovation. Sony will leverage these technologies to pursue its “Life Space UX” initiative, which will allow users to enjoy videos or music or access information they need anywhere within the home, and “wearable” products in the mobile space.

 

Accelerating Innovation and New Business Creation

 

Sony is continuing to introduce innovative products that deliver new user experiences, such as its smartphone-attachable lens-style cameras and Music Video Recorder. Its 4K ultra short throw projector developed under the “Life Space UX” initiative, and its Smart Tennis Sensor, are examples of innovative new products that go beyond the boundaries of existing businesses. In April 2014, Sony launched a dedicated new organization responsible for promoting and supporting the creation of new businesses. The organization seeks to draw on internal and external insight to provide a catalyst for innovation and to provide opportunities for new ideas to transition into successful new businesses.

 

 

 

Global Environmental Plan “Road to Zero”

 

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

•

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

•

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

•

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

•

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

 

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

•

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

•

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

 

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

 

 

 

iii) Research and Development

 

 

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

 

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

 

Research and development costs for the six months ended September 30, 2014 totaled 222.0 billion yen.

 

iv) Employees

 

 

As of September 30, 2014, Sony Corporation had 12,860 employees, a decrease of 1,782 employees from 14,642 employees as of March 31, 2014.

 

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

 

v) Liquidity and Capital Resources

 

 

Sony typically raises funds through straight bonds, CP programs and bank loans (including syndicated loans). If market disruption and volatility occur and if Sony could not raise sufficient funds from these sources, Sony may also draw down funds from contractually committed lines of credit from various financial institutions. Sony has a total, translated into yen, of 749.7 billion yen in unused committed lines of credit, as of September 30, 2014. Details of those committed lines of credit are: a 475.0 billion yen committed line of credit contracted with a syndicate of Japanese banks, effective until November 2016, a 1.5 billion U.S. dollar multi-currency committed line of credit also with a syndicate of Japanese banks, effective until December 2018, and a 1.01 billion U.S. dollar multi-currency committed line of credit contracted with a syndicate of foreign banks, effective until April 2015, in all of which Sony Corporation and its consolidated subsidiary, Sony Global Treasury Services Plc, are defined as borrowers. These contracts are aimed at securing sufficient liquidity in a quick and stable manner even in the event of turmoil within the financial and capital markets.

 

 

III    Company Information

(1)    Information on the Company’s Shares

i) Total Number of Shares

1) Total Number of Shares

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

 

2) Number of Shares Issued

Class	Number of shares issued		Name of Securities Exchanges where the shares are listed or authorized Financial Instruments Firms Association where the shares are registered	Description
	As of the end of the second quarterly period (September 30, 2014)	As of the filing date of the Quarterly Securities Report (November 10, 2014)
Common stock	1,149,688,229	1,149,695,229	Tokyo Stock Exchange New York Stock Exchange *3	The number of shares constituting one full unit is one hundred (100).
Total	1,149,688,229	1,149,695,229	—	—

Notes:

1.

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

2.

The number of shares issued as of the filing date of this Quarterly Securities Report does not include shares issued upon the exercise of stock acquisition rights (“SARs”) (including the exercise of stock acquisition rights of the Zero Coupon Convertible Bonds) during November 2014, the month in which this Quarterly Securities Report (Shihanki Houkokusho) was filed.

*3.

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

 

ii) Stock Acquisition Rights

Not applicable.

 

 

iii) Status of the Exercise of Moving Strike Convertible Bonds

Not applicable.

 

iv) Description of Rights Plan

Not applicable.

 

 

 

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

Period	Change in the total number of shares issued	Balance of the total number of shares issued	Change in the amount of common stock	Balance of the amount of common stock	Change in the legal capital surplus	Balance of the legal capital surplus
	(Thousands)	(Thousands)	(Yen in Millions)	(Yen in Millions)	(Yen in Millions)	(Yen in Millions)
From July 1 to September 30, 2014	104,970	1,149,688	50,245	696,908	50,245	910,601

Notes:

1.

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

2.

Upon the exercise of SARs during the period from October 1, 2014 to October 31, 2014, the total number of shares issued increased by 7 thousand shares, the amount of common stock and the legal capital surplus increased by 5 million yen, respectively.

 

 

 

vi) Status of Major Shareholders

(As of September 30, 2014)

Name	Address	Number of shares held (Thousands)	Percentage of shares held to total shares issued (%)
Moxley and Co. LLC *1 (Local Custodian: The Bank of Tokyo-Mitsubishi UFJ, Ltd.)	New York, U.S.A. (2-7-1, Marunouchi, Chiyoda-ku, Tokyo)	123,494	10.74
Japan Trustee Services Bank, Ltd. (Trust account) *2	1-8-11, Harumi, Chuo-ku, Tokyo	52,248	4.54
The Master Trust Bank of Japan, Ltd. (Trust account) *2	2-11-3, Hamamatsu-cho, Minato-ku, Tokyo	50,327	4.38
State Street Bank and Trust Company *3 (Local Custodian: The Hongkong and Shanghai Banking Corporation Limited)	Boston, U.S.A. (3-11-1, Nihonbashi, Chuo-ku, Tokyo)	23,748	2.07
Goldman, Sachs & Co. Reg *3 (Local Custodian: Goldman Sachs Japan Co., Ltd.)	New York, U.S.A. (Roppongi Hills Mori Tower, 6-10-1, Roppongi, Minato-ku, Tokyo)	21,479	1.87
Euroclear Bank S.A./N.V. *3 (Local Custodian: The Bank of Tokyo-Mitsubishi UFJ, Ltd.)	Brussels, Belgium (2-7-1, Marunouchi, Chiyoda-ku, Tokyo)	18,684	1.63
The Bank of New York Mellon SA/NV 10 *3 (Local Custodian: The Bank of Tokyo-Mitsubishi UFJ, Ltd.)	Brussels, Belgium (2-7-1, Marunouchi, Chiyoda-ku, Tokyo)	12,456	1.08
State Street Bank West Client - Treaty *3 (Local Custodian: Mizuho Bank, Ltd.)	North Quincy, U.S.A. (4-16-13, Tsukishima, Chuo-ku, Tokyo)	12,338	1.07
State Street Bank and Trust Company *3 (Local Custodian: Mizuho Bank, Ltd.)	Boston, U.S.A. (4-16-13, Tsukishima, Chuo-ku, Tokyo)	12,187	1.06
Japan Trustee Services Bank, Ltd. (Trust account 6) *2	1-8-11, Harumi, Chuo-ku, Tokyo	11,646	1.01
Total		338,607	29.45

Notes:

	*1.		Moxley and Co. LLC is the nominee of JPMorgan Chase Bank, N.A., which was the Depositary for holders of the Company’s American depositary receipts as of September 31, 2014. On October 16, 2014, the Depositary for holders of the Company’s American depositary receipts was changed from JPMorgan Chase Bank, N.A. to Citibank, N.A. On the same date, Citibank As Depositary Bank For Depositary Receipt Holders became the nominee of Citibank, N.A .
	*2.		The shares held by each shareholder are held in trust for investors, including shares in securities investment trusts.
	*3.		Each shareholder provides depositary services for shares owned by institutional investors, mainly in Europe and North America. They are also the nominees for these investors.
	4.		BlackRock Japan Co., Ltd. sent a copy of its “Bulk Shareholding Report” (which was filed with the Kanto Financial Bureau in Japan) to the Company as of July 22, 2014 and reported that it held shares of the Company (including ADRs) as of July 15, 2014 as provided in the below table. As of September 30, 2014, the Company has not been able to confirm any entry of BlackRock Japan Co., Ltd. in the register of shareholders.

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

 

 

 

 

vii) Status of Voting Rights

1) Shares Issued

(As of September 30, 2014)

Classification	Number of shares of common stock	Number of voting rights (Units)	Description
Shares without voting rights	—	—	—
Shares with restricted voting rights (Treasury stock, etc.)	—	—	—
Shares with restricted voting rights (Others)	—	—	—
Shares with full voting rights (Treasury stock, etc.)	1,008,800	—	—
Shares with full voting rights (Others)	1,146,315,200	11,463,152	—
Shares constituting less than one full unit	2,364,229	—	Shares constituting less than one full unit (100 shares)
Total number of shares issued	1,149,688,229	—	—
Total voting rights held by all shareholders	—	11,463,152	—

Note:

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

 

2) Treasury Stock, Etc.

(As of September 30, 2014)

Name of shareholder	Address of shareholder	Number of shares held under own name	Number of shares held under the names of others	Total number of shares held	Percentage of shares held to total shares issued (%)
Sony Corporation (Treasury stock)	1-7-1, Konan, Minato-ku, Tokyo	1,008,800	—	1,008,800	0.09
Total	—	1,008,800	—	1,008,800	0.09

Note:

In addition to the 1,008,800 shares listed above, there are 300 shares of common stock held in the name of the Company in the register of shareholders that the Company does not beneficially own. These shares are included in “Shares with full voting rights (Others)” in Table 1 “Shares Issued” above.

 

(2)    Directors and Corporate Executive Officers

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, 2014 to the filing date of this Quarterly Securities Report (Shihanki Houkokusho), though the following person is planned to retire as of November 16, 2014.

 

Retiring Corporate Executive Officer

 

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

 

 

 

IV   Financial Statements

			Page
(1) Consolidated Financial Statements			17
	(i)	Consolidated Balance Sheets	17
	(ii)	Consolidated Statements of Income	19
	(iii)	Consolidated Statements of Comprehensive Income	21
	(iv)	Consolidated Statements of Cash Flows	22
(2) Other Information			47

 

 

 

(1)    Consolidated Financial Statements

 

(i) Consolidated Balance Sheets (Unaudited)

Sony Corporation and Consolidated Subsidiaries

 

		Yen in millions
		At March 31, 2014				At September 30, 2014
ASSETS
Current assets:
Cash and cash equivalents			1,046,466				610,509
Marketable securities			832,566				936,729
Notes and accounts receivable, trade			946,553				1,075,558
Allowance for doubtful accounts and sales returns			(75,513	)			(73,238	)
Inventories			733,943				946,812
Other receivables			224,630				326,274
Deferred income taxes			53,068				54,064
Prepaid expenses and other current assets			443,173				475,773
Total current assets			4,204,886				4,352,481
Film costs			275,799				295,121
Investments and advances:
Affiliated companies			181,263				179,542
Securities investments and other			7,737,748				7,958,170
			7,919,011				8,137,712
Property, plant and equipment:
Land			125,890				125,995
Buildings			674,841				685,467
Machinery and equipment			1,705,774				1,732,751
Construction in progress			39,771				41,975
			2,546,276				2,586,188
Less – Accumulated depreciation			1,796,266				1,835,048
			750,010				751,140
Other assets:
Intangibles, net			675,663				663,842
Goodwill			691,803				538,131
Deferred insurance acquisition costs			497,772				512,015
Deferred income taxes			105,442				96,171
Other			213,334				222,391
			2,184,014				2,032,550
Total assets			15,333,720				15,569,004

(Continued on following page.)

 

 

Consolidated Balance Sheets (Unaudited)

 

		Yen in millions
		At March 31, 2014				At September 30, 2014
LIABILITIES
Current liabilities:
Short-term borrowings			111,836				112,143
Current portion of long-term debt			265,918				136,551
Notes and accounts payable, trade			712,829				889,973
Accounts payable, other and accrued expenses			1,175,413				1,216,547
Accrued income and other taxes			81,842				125,250
Deposits from customers in the banking business			1,890,023				1,824,665
Other			545,753				553,970
Total current liabilities			4,783,614				4,859,099
Long-term debt			916,648				745,832
Accrued pension and severance costs			284,963				281,644
Deferred income taxes			410,896				421,663
Future insurance policy benefits and other			3,824,572				3,982,461
Policyholders’ account in the life insurance business			2,023,472				2,130,408
Other			302,299				304,439
Total liabilities			12,546,464				12,725,546
Redeemable noncontrolling interest			4,115				4,277
Commitments and contingent liabilities
EQUITY
Sony Corporation’s stockholders’ equity:
Common stock, no par value –
At March 31, 2014–Shares authorized: 3,600,000,000, shares issued: 1,044,707,767			646,654
At September 30, 2014–Shares authorized: 3,600,000,000, shares issued: 1,149,688,229							696,908
Additional paid-in capital			1,127,090				1,175,267
Retained earnings			940,262				830,729
Accumulated other comprehensive income –
Unrealized gains on securities, net			127,509				137,936
Pension liability adjustment			(180,039	)			(179,251	)
Foreign currency translation adjustments			(399,055	)			(370,660	)
			(451,585	)			(411,975	)
Treasury stock, at cost
Common stock
At March 31, 2014–1,026,618 shares			(4,284	)
At September 30, 2014–1,008,811 shares							(4,160	)
			2,258,137				2,286,769
Noncontrolling interests			525,004				552,412
Total equity			2,783,141				2,839,181
Total liabilities and equity			15,333,720				15,569,004

The accompanying notes are an integral part of these statements.

 

 

(ii) Consolidated Statements of Income (Unaudited)

Sony Corporation and Consolidated Subsidiaries

 

		Yen in millions
		Six months ended September 30
		2013				2014
Sales and operating revenue:
Net sales			2,949,976				3,145,965
Financial services revenue			492,665				513,942
Other operating revenue			43,013				51,512
			3,485,654				3,711,419
Costs and expenses:
Cost of sales			2,253,995				2,319,722
Selling, general and administrative			797,371				829,650
Financial services expenses			407,893				422,509
Other operating (income) expense, net			(25,481	)			159,142
			3,433,778				3,731,023
Equity in net income (loss) of affiliated companies			(2,450	)			3,830
Operating income (loss)			49,426				(15,774	)
Other income:
Interest and dividends			9,444				5,752
Gain on sale of securities investments, net			616				7,586
Foreign exchange gain, net			447				—
Other			9,370				2,082
			19,877				15,420
Other expenses:
Interest			14,048				12,459
Foreign exchange loss, net			—				4,568
Other			4,733				4,197
			18,781				21,224
Income (loss) before income taxes			50,522				(21,578	)
Income taxes			37,807				56,124
Net income (loss)			12,715				(77,702	)
Less - Net income attributable to noncontrolling interests			29,219				31,459
Net loss attributable to Sony Corporation’s stockholders			(16,504	)			(109,161	)

 

		Yen
		Six months ended September 30
		2013				2014
Per share data:
Net loss attributable to Sony Corporation’s stockholders
– Basic			(16.25	)			(102.14	)
– Diluted			(16.25	)			(102.14	)

The accompanying notes are an integral part of these statements.

 

 

Consolidated Statements of Income (Unaudited)

Sony Corporation and Consolidated Subsidiaries

 

		Yen in millions
		Three months ended September 30
		2013				2014
Sales and operating revenue:
Net sales			1,511,040				1,606,159
Financial services revenue			242,495				268,192
Other operating revenue			20,700				27,160
			1,774,235				1,901,511
Costs and expenses:
Cost of sales			1,155,115				1,168,883
Selling, general and administrative			412,378				419,203
Financial services expenses			203,596				220,831
Other operating (income) expense, net			(12,808	)			178,811
			1,758,281				1,987,728
Equity in net income (loss) of affiliated companies			(2,025	)			629
Operating income (loss)			13,929				(85,588	)
Other income:
Interest and dividends			5,557				2,337
Gain on sale of securities investments, net			116				2,386
Other			908				1,465
			6,581				6,188
Other expenses:
Interest			7,092				6,047
Foreign exchange loss, net			5,744				2,592
Other			2,545				1,916
			15,381				10,555
Income (loss) before income taxes			5,129				(89,955	)
Income taxes			11,339				30,078
Net loss			(6,210	)			(120,033	)
Less - Net income attributable to noncontrolling interests			13,421				15,936
Net loss attributable to Sony Corporation’s stockholders			(19,631	)			(135,969	)

 

		Yen
		Three months ended September 30
		2013				2014
Per share data:
Net loss attributable to Sony Corporation’s stockholders
– Basic			(19.25	)			(124.32	)
– Diluted			(19.25	)			(124.32	)

The accompanying notes are an integral part of these statements.

 

 

 

(iii) Consolidated Statements of Comprehensive Income (Unaudited)

Sony Corporation and Consolidated Subsidiaries

 

		Yen in millions
		Six months ended September 30
		2013				2014
Net income (loss)			12,715				(77,702	)
Other comprehensive income, net of tax ―
Unrealized gains on securities			2,546				15,066
Unrealized gains on derivative instruments			595				—
Pension liability adjustment			(3,184	)			750
Foreign currency translation adjustments			63,795				30,717
Total comprehensive income (loss)			76,467				(31,169	)
Less – Comprehensive income attributable to noncontrolling interests			25,599				38,382
Comprehensive income (loss) attributable to Sony Corporation’s stockholders			50,868				(69,551	)

 

		Yen in millions
		Three months ended September 30
		2013				2014
Net loss			(6,210	)			(120,033	)
Other comprehensive income, net of tax ―
Unrealized gains on securities			17,440				13,191
Unrealized gains on derivative instruments			402				—
Pension liability adjustment			63				414
Foreign currency translation adjustments			1,423				51,557
Total comprehensive income (loss)			13,118				(54,871	)
Less – Comprehensive income attributable to noncontrolling interests			19,389				19,655
Comprehensive loss attributable to Sony Corporation’s stockholders			(6,271	)			(74,526	)

The accompanying notes are an integral part of these statements.

 

 

(iv) Consolidated Statements of Cash Flows (Unaudited)

Sony Corporation and Consolidated Subsidiaries

 

		Yen in millions
		Six months ended September 30
		2013				2014
Cash flows from operating activities:
Net income (loss)			12,715				(77,702	)
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			188,956				166,747
Amortization of film costs			116,847				127,868
Stock-based compensation expense			612				592
Accrual for pension and severance costs, less payments			(3,672	)			(5,754	)
Other operating (income) expense, net			(25,481	)			159,142
Gain on sale or devaluation of securities investments, net			(531	)			(7,582	)
Gain on revaluation of marketable securities held in the    financial services business for trading purposes, net			(35,062	)			(37,019	)
Gain on revaluation or impairment of securities investments      held in the financial services business, net			(2,778	)			(1,251	)
Deferred income taxes			(11,131	)			(1,783	)
Equity in net loss of affiliated companies, net of dividends			4,145				681
Changes in assets and liabilities:
Increase in notes and accounts receivable, trade			(70,549	)			(102,544	)
Increase in inventories			(240,382	)			(190,425	)
Increase in film costs			(148,661	)			(129,316	)
Increase in notes and accounts payable, trade			260,074				163,389
Increase in accrued income and other taxes			16,022				19,036
Increase in future insurance policy benefits and other			205,663				223,669
Increase in deferred insurance acquisition costs			(37,982	)			(38,560	)
Increase in marketable securities held in the      financial services business for trading purposes			(14,469	)			(30,631	)
Increase in other current assets			(151,311	)			(100,128	)
Increase (decrease) in other current liabilities			(39,003	)			1,836
Other			(36,782	)			(36,190	)
Net cash provided by (used in) operating activities			(12,760	)			104,075

(Continued on following page.)

 

 

Consolidated Statements of Cash Flows (Unaudited)

 

		Yen in millions
		Six months ended September 30
		2013				2014
Cash flows from investing activities:
Payments for purchases of fixed assets			(135,857	)			(95,778	)
Proceeds from sales of fixed assets			85,088				30,407
Payments for investments and advances by financial services business			(470,121	)			(459,625	)
Payments for investments and advances      (other than financial services business)			(4,059	)			(9,408	)
Proceeds from sales or return of investments and collections of advances      by financial services business			242,294				232,550
Proceeds from sales or return of investments and collections of advances      (other than financial services business)			42,260				32,916
Other			16,284				(13,921	)
Net cash used in investing activities			(224,111	)			(282,859	)
Cash flows from financing activities:
Proceeds from issuance of long-term debt			167,961				12,471
Payments of long-term debt			(44,106	)			(231,652	)
Increase (decrease) in short-term borrowings, net			10,508				(926	)
Increase (decrease) in deposits from customers in the financial services      business, net			16,660				(22,750	)
Dividends paid			(12,588	)			(13,060	)
Other			(27,248	)			(17,100	)
Net cash provided by (used in) financing activities			111,187				(273,017	)
Effect of exchange rate changes on cash and cash equivalents			24,991				15,844
Net decrease in cash and cash equivalents			(100,693	)			(435,957	)
Cash and cash equivalents at beginning of the fiscal year			826,361				1,046,466
Cash and cash equivalents at end of the period			725,668				610,509

The accompanying notes are an integral part of these statements.

 

 

 

Index to Notes to Consolidated Financial Statements

Sony Corporation and Consolidated Subsidiaries

 

Notes to Consolidated Financial Statements			Page
	1.	Summary of significant accounting policies	25
	2.	Marketable securities and securities investments	27
	3.	Sale and leaseback transactions	27
	4.	Impairment of goodwill related to mobile communications business	28
	5.	Fair value measurements	29
	6.	Supplemental equity and comprehensive income information	31
	7.	Reconciliation of the differences between basic and diluted EPS	33
	8.	Acquisition of CSC Media Group	33
	9.	Commitments, contingent liabilities and other	34
	10.	Business segment information	36

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

Sony Corporation and Consolidated Subsidiaries

1.

Summary of significant accounting policies

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

 

(1)   Recently adopted accounting pronouncements:

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

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

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

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

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

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

 

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

Income Taxes -

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

 

 

 

(3)   Reclassifications:

Certain reclassifications of the financial statements and accompanying footnotes for the six and three months ended September 30, 2013 have been made to conform to the presentation for the six and three months ended September 30, 2014. Reclassifications include changes in the presentation and disclosure related to internal-use software, effective on March 31, 2014.  Due to the changes, the amortization of internal-use software was reclassified from other to depreciation and amortization, including amortization of deferred insurance acquisition costs in the cash flows from operating activities section of the consolidated statements of cash flows.  Certain information in Note 10 was also reclassified, accordingly.

 

(4)   Revisions:

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

 

		Yen in millions
		Six months ended September 30, 2013
		As previously reported				As adjusted
Consolidated Statements of Income
Financial services revenue			495,209				492,665
Financial services expenses			408,742				407,893
Net income			13,876				12,715
Consolidated Statements of Comprehensive Income
Unrealized gains on securities			2,876				2,546
Comprehensive income attributable to Sony Corporation’s stockholders			51,762				50,868
Consolidated Statements of Cash Flows
Increase in future insurance policy benefits and other			205,633				205,663
Increase in deposits from customers in the financial services business, net			14,116				16,660

 

		Yen in millions
		Three months ended September 30, 2013
		As previously reported				As adjusted
Consolidated Statements of Income
Financial services revenue			243,746				242,495
Financial services expenses			204,012				203,596
Net loss			(5,637	)			(6,210	)
Consolidated Statements of Comprehensive Income
Unrealized gains on securities			16,807				17,440
Comprehensive loss attributable to Sony Corporation’s stockholders			(6,307	)			(6,271	)

 

 

 

2.   Marketable securities and securities investments

 

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

 

		Yen in millions
		March 31, 2014																September 30, 2014
		Cost				Gross unrealized gains				Gross unrealized losses				Fair value				Cost				Gross unrealized gains				Gross unrealized losses				Fair value
Available-for-sale:
Debt securities:
Japanese national government bonds			1,130,397				113,684				(28	)			1,244,053				1,092,123				127,882				—				1,220,005
Japanese local government bonds			62,670				468				(7	)			63,131				63,892				336				(14	)			64,214
Japanese corporate bonds			168,275				984				(8	)			169,251				140,677				706				(19	)			141,364
Foreign government bonds			27,587				3,684				(17	)			31,254				32,085				4,849				(2	)			36,932
Foreign corporate bonds			434,570				16,547				(182	)			450,935				472,709				15,105				(462	)			487,352
			1,823,499				135,367				(242	)			1,958,624				1,801,486				148,878				(497	)			1,949,867
Equity securities			84,074				91,977				(34	)			176,017				73,580				101,415				(18	)			174,977
Held-to-maturity
securities:
Japanese national government bonds			4,398,018				418,845				(3	)			4,816,860				4,608,685				508,264				—				5,116,949
Japanese local government bonds			6,222				373				—				6,595				6,096				403				—				6,499
Japanese corporate bonds			28,030				2,705				—				30,735				27,796				3,331				—				31,127
Foreign government bonds			16,359				847				(1	)			17,205				25,069				3,640				—				28,709
Foreign corporate bonds			56,284				19				—				56,303				57,609				22				—				57,631
			4,504,913				422,789				(4	)			4,927,698				4,725,255				515,660				—				5,240, 915
Total			6,412,486				650,133				(280	)			7,062,339				6,600,321				765,953				(515	)			7,365,759

 

3.   Sale and leaseback transactions

 

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

 

 

 

4.   Impairment of goodwill related to mobile communications business

 

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

 

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

 

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

 

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

 

 

 

5. Fair value measurements

 

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

 

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

 

 

 

  

		Yen in millions
		September 30, 2014
																		Presentation in the consolidated balance sheets
		Level 1				Level 2				Level 3				Total				Marketable securities				Securities investments and other				Other current assets/ liabilities				Other noncurrent assets/ liabilities
Assets:
Trading securities			397,460				293,413				—				690,873				690,873				—				—				—
Available-for-sale securities
Debt securities
Japanese national government bonds			—				1,220,005				—				1,220,005				16,089				1,203,916				—				—
Japanese local government bonds			—				64,214				—				64,214				2,040				62,174				—				—
Japanese corporate bonds			—				140,355				1,009				141,364				58,161				83,203				—				—
Foreign corporate bonds			—				466,908				20,444				487,352				162,065				325,287				—				—
Other			3,034				33,898				—				36,932				52				36,880				—				—
Equity securities			174,877				100				—				174,977				—				174,977				—				—
Other investments *1			8,057				4,005				76,849				89,611				—				89,611				—				—
Derivative assets *2, *3			—				32,566				—				32,566				—				—				31,503				1,063
Total assets			584,128				2,255,464				98,302				2,937,894				929,280				1,976,048				31,503				1,063
Liabilities:
Derivative liabilities*2,*3			—				43,336				—				43,336				—				—				24,702				18,634
Total liabilities			—				43,336				—				43,336				—				—				24,702				18,634

 

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

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

*3 The potential effect of offsetting on assets and liabilities, which primarily consists of derivatives subject to master netting

agreements and/or collateral, is insignificant.

 

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

 

 

6.   Supplemental equity and comprehensive income information

(1)    Stockholders’ Equity

 

A reconciliation of the beginning and ending carrying amounts of Sony Corporation’s stockholders’ equity, noncontrolling interests and the total equity for the six months ended September 30, 2013 and 2014 are as follows:

 

		Yen in millions
		Sony Corporation’s stockholders’ equity				Noncontrolling interests				Total equity
Balance at March 31,2013			2,192,262				479,742				2,672,004
Exercise of stock acquisition rights			38								38
Conversion of zero coupon convertible bonds			25,520								25,520
Stock-based compensation			471								471
Comprehensive income:
Net income (loss)			(16,504	)			29,219				12,715
Other comprehensive income, net of tax ―
Unrealized gains (losses) on securities			6,312				(3,766	)			2,546
Unrealized gains on derivative instruments			595								595
Pension liability adjustment			(3,191	)			7				(3,184	)
Foreign currency translation adjustments			63,656				139				63,795
Total comprehensive income			50,868				25,599				76,467
Dividends declared			(12,970	)			(6,878	)			(19,848	)
Transactions with noncontrolling interests   shareholders and other			101				227				328
Balance at September 30, 2013			2,256,290				498,690				2,754,980

 

		Yen in millions
		Sony Corporation’s stockholders’ equity				Noncontrolling interests				Total equity
Balance at March 31,2014			2,258,137				525,004				2,783,141
Exercise of stock acquisition rights			91								91
Conversion of zero coupon convertible bonds			100,400								100,400
Stock-based compensation			529								529
Comprehensive income:
Net income (loss)			(109,161	)			31,459				(77,702	)
Other comprehensive income, net of tax ―
Unrealized gains on securities			10,427				4,639				15,066
Pension liability adjustment			788				(38	)			750
Foreign currency translation adjustments			28,395				2,322				30,717
Total comprehensive income (loss)			(69,551	)			38,382				(31,169	)
Dividends declared							(12,270	)			(12,270	)
Transactions with noncontrolling interests   shareholders and other			(2,837	)			1,296				(1,541	)
Balance at September 30, 2014			2,286,769				552,412				2,839,181

 

There was no material effect of changes in Sony Corporation’s ownership interest in its subsidiaries on Sony Corporation’s stockholders’ equity for the six months ended September 30, 2013 and 2014.

 

 

 

(2)     Other Comprehensive Income

Changes in accumulated other comprehensive income, net of tax by component for the six months ended September 30, 2013 and 2014 are as follows:

 

		Yen in millions
		Unrealized gains (losses) on securities				Unrealized gains (losses) on derivative instruments				Pension liability adjustment				Foreign currency translation adjustments				Total
Balance at March 31, 2013			109,079				(742	)			(191,816	)			(556,016	)			(639,495	)
Other comprehensive income (loss)      before reclassifications			2,761				394				(4,395	)			63,795				62,555
Amounts reclassified out of accumulated other      comprehensive income			(215	)			201				1,211								1,197
Net current-period other comprehensive      income (loss)			2,546				595				(3,184	)			63,795				63,752
Less: Other comprehensive income (loss)      attributable to noncontrolling interests			(3,766	)							7				139				(3,620	)
Balance at September 30, 2013			115,391				(147	)			(195,007	)			(492,360	)			(572,123	)

 

		Yen in millions
		Unrealized gains (losses) on securities				Pension liability adjustment				Foreign currency translation adjustments				Total
Balance at March 31, 2014			127,509				(180,039	)			(399,055	)			(451,585	)
Other comprehensive income      before reclassifications			20,487				48				30,717				51,252
Amounts reclassified out of accumulated other      comprehensive income			(5,421	)			702								(4,719	)
Net current-period other comprehensive       income			15,066				750				30,717				46,533
Less: Other comprehensive income (loss)      attributable to noncontrolling interests			4,639				(38	)			2,322				6,923
Balance at September 30, 2014			137,936				(179,251	)			(370,660	)			(411,975	)

 

 

 

7.   Reconciliation of the differences between basic and diluted EPS

 

Reconciliation of the differences between basic and diluted net income (loss) attributable to Sony Corporation’s stockholders per share (“EPS”) for the six and three months ended September 30, 2013 and 2014 is as follows:

 

		Yen in millions
		Six months ended September 30
		2013				2014
Net loss attributable to Sony Corporation’s      stockholders for basic and diluted EPS computation			(16,504	)			(109,161	)

 

		Thousands of shares
Weighted-average shares outstanding			1,015,395				1,068,703
Effect of dilutive securities:
Stock acquisition rights			—				—
Convertible bonds			—				—
Weighted-average shares for diluted EPS computation			1,015,395				1,068,703

 

		Yen
Basic EPS			(16.25	)			(102.14	)
Diluted EPS			(16.25	)			(102.14	)

 

Potential shares of common stock which were excluded from the computation of diluted EPS for the six months ended September 30, 2013 and 2014 were 148,374 thousand shares and 36,397 thousand shares, respectively. The potential shares were excluded as anti-dilutive for the six months ended September 30, 2013 and 2014 due to Sony incurring a net loss attributable to Sony Corporation’s stockholders for these periods.

 

		Yen in millions
		Three months ended September 30
		2013				2014
Net loss attributable to Sony Corporation’s      stockholders for basic and diluted EPS computation			(19,631	)			(135,969	)

 

		Thousands of shares
Weighted-average shares outstanding			1,019,875				1,093,725
Effect of dilutive securities:
Stock acquisition rights			—				—
Convertible bonds			—				—
Weighted-average shares for diluted EPS computation			1,019,875				1,093,725

 

		Yen
Basic EPS			(19.25	)			(124.32	)
Diluted EPS			(19.25	)			(124.32	)

 

Potential shares of common stock which were excluded from the computation of diluted EPS for the three months ended September 30, 2013 and 2014 were 148,374 thousand shares and 36,397 thousand shares, respectively. The potential shares were excluded as anti-dilutive for the three months ended September 30, 2013 and 2014 due to Sony incurring a net loss attributable to Sony Corporation’s stockholders for these periods.

 

8.   Acquisition of CSC Media Group

 

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

 

 

 

9.   Commitments, contingent liabilities and other

(1)   Loan commitments

Subsidiaries in the Financial Services segment have entered into loan agreements with their customers in accordance with the condition of the contracts. As of September 30, 2014, the total unused portion of the lines of credit extended under these contracts was 23,486 million yen. The aggregate amounts of future year-by-year payments for these loan commitments cannot be determined.

(2)   Purchase commitments and other

Purchase commitments and other outstanding as of September 30, 2014 amounted to 337,220 million yen. The major components of these commitments are as follows:

 

Certain subsidiaries in the Pictures segment have entered into agreements with creative talent for the development and production of motion pictures and television programming as well as agreements with third parties to acquire completed motion pictures, or certain rights therein, and to acquire the rights to broadcast certain live action sporting events. These agreements cover various periods mainly within five years. As of September 30, 2014, these subsidiaries were committed to make payments under such contracts of 128,568 million yen.

 

Certain subsidiaries in the Music segment have entered into long-term contracts with recording artists, songwriters and companies for the future production, distribution and/or licensing of music product. These contracts cover various periods mainly within five years. As of September 30, 2014, these subsidiaries were committed to make payments of 62,181 million yen under such long-term contracts.

 

Sony has entered into long-term sponsorship contracts related to advertising and promotional rights. These contracts cover various periods mainly within ten years. As of September 30, 2014, Sony has committed to make payments of 55,186 million yen under such long-term contracts.

(3)   Litigation

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

 

Beginning in early 2011, the network services of PlayStation®Network, Qriocity™, Sony Online Entertainment LLC and websites of other subsidiaries came under cyber-attack. As of November 10, 2014, Sony has not received any confirmed reports of customer identity theft issues or misuse of credit cards from such cyber-attacks. However, in connection with certain of these matters, Sony has received inquiries from authorities in a number of jurisdictions, including formal and/or informal requests for information from Attorneys General from a number of states in the United States. Additionally, Sony Corporation and/or certain of its subsidiaries have been named in a number of purported class actions in certain jurisdictions, including the United States. A proposed settlement of the U.S. class action suits has received preliminary court approval, and is subject to final approval by the court. The settlement of a set of non-U.S. class actions has received court approval, and one non-U.S. class action suit remains pending. Based on the stage of these inquiries and proceedings, it is not possible to estimate the amount of loss or range of possible loss, if any, that might result from adverse judgments, settlements or other resolution of all of these matters.

 

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

 

 

 

Trial was set for September 2014 in a lawsuit brought by the liquidating trust for a former customer of Sony Corporation’s U.S. subsidiary, Sony Electronics Inc., seeking recovery in connection with the former customer’s bankruptcy filing. In September 2014, the parties reached an agreement to settle the lawsuit and received court approval on October 22, 2014. Settlement of this matter had no material impact on Sony’s results of operations, financial position or cash flows.

 

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

(4)   Guarantees

Sony has issued guarantees that contingently require payments to guaranteed parties if certain specified events or conditions occur. The maximum potential amount of future payments under these guarantees as of September 30, 2014 amounted to 42,122 million yen.

 

Sony has agreed to repay the outstanding principal plus accrued interest up to a maximum of 284 million U.S. dollars to the creditor of the third-party investor of Sony’s U.S. based music publishing subsidiary should the third-party investor default on its obligation. The obligation of the third-party investor is collateralized by its 50% interest in Sony’s music publishing subsidiary. Should Sony have to make a payment under the terms of the guarantee, Sony would assume the creditor’s rights to the underlying collateral. As of September 30, 2014, the fair value of the collateral exceeded 284 million U.S. dollars.

 

 

 

10.   Business segment information

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

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

 

 

 

Business segments -

Sales and operating revenue:

 

		Yen in millions
		Six months ended September 30
		2013				2014
Sales and operating revenue:
Mobile Communications -
Customers			589,993				622,649
Intersegment			61				32
Total			590,054				622,681
Game & Network Services -
Customers			260,167				517,122
Intersegment			40,374				49,887
Total			300,541				567,009
Imaging Products & Solutions -
Customers			354,449				341,288
Intersegment			1,945				1,922
Total			356,394				343,210
Home Entertainment & Sound -
Customers			537,497				566,612
Intersegment			1,459				1,490
Total			538,956				568,102
Devices -
Customers			290,429				325,881
Intersegment			101,236				105,919
Total			391,665				431,800
Pictures -
Customers			336,522				376,573
Intersegment			233				380
Total			336,755				376,953
Music -
Customers			221,906				228,147
Intersegment			5,024				5,468
Total			226,930				233,615
Financial Services -
Customers			492,665				513,942
Intersegment			2,454				2,601
Total			495,119				516,543
All Other -
Customers			370,990				192,429
Intersegment			35,512				44,987
Total			406,502				237,416
Corporate and elimination			(157,262	)			(185,910	)
Consolidated total			3,485,654				3,711,419

 

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

 

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

 

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

 

Corporate and elimination includes certain brand and patent royalty income.

 

 

 

		Yen in millions
		Three months ended September 30
		2013				2014
Sales and operating revenue:
Mobile Communications -
Customers			304,536				308,339
Intersegment			52				24
Total			304,588				308,363
Game & Network Services -
Customers			145,073				285,754
Intersegment			23,881				23,725
Total			168,954				309,479
Imaging Products & Solutions -
Customers			174,624				177,152
Intersegment			882				1,458
Total			175,506				178,610
Home Entertainment & Sound -
Customers			263,383				281,559
Intersegment			397				795
Total			263,780				282,354
Devices -
Customers			144,752				181,143
Intersegment			56,537				66,569
Total			201,289				247,712
Pictures -
Customers			177,720				181,907
Intersegment			120				276
Total			177,840				182,183
Music -
Customers			112,731				114,671
Intersegment			2,240				2,081
Total			114,971				116,752
Financial Services -
Customers			242,495				268,192
Intersegment			1,219				1,384
Total			243,714				269,576
All Other -
Customers			193,306				87,797
Intersegment			18,712				20,847
Total			212,018				108,644
Corporate and elimination			(88,425	)			(102,162	)
Consolidated total			1,774,235				1,901,511

 

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

 

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

 

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

 

Corporate and elimination includes certain brand and patent royalty income.

 

 

Segment profit or loss:

 

		Yen in millions
		Six months ended September 30
		2013				2014
Operating income (loss):
Mobile Communications			21,368				(174,738	)
Game & Network Services			(20,534	)			26,109
Imaging Products & Solutions			6,789				37,507
Home Entertainment & Sound			(8,727	)			15,627
Devices			22,724				42,109
Pictures			(14,014	)			6,790
Music			20,467				23,201
Financial Services			83,497				91,458
All Other			(19,394	)			(36,595	)
Total			92,176				31,468
Corporate and elimination			(42,750	)			(47,242	)
Consolidated operating income (loss)			49,426				(15,774	)
Other income			19,877				15,420
Other expenses			(18,781	)			(21,224	)
Consolidated income (loss) before income taxes			50,522				(21,578	)

 

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

 

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

 

Within the Home Entertainment & Sound (“HE&S”) segment, the operating income (loss) of Televisions, which primarily consists of LCD televisions, for the six months ended September 30, 2013 and 2014 was (4,055) million yen and 12,838 million yen, respectively. The operating income (loss) of Televisions excludes restructuring charges which are included in the overall segment results and not allocated to product categories.

 

 

 

		Yen in millions
		Three months ended September 30
		2013				2014
Operating income (loss):
Mobile Communications			8,802				(171,998	)
Game & Network Services			(4,164	)			21,790
Imaging Products & Solutions			(2,308	)			20,098
Home Entertainment & Sound			(12,094	)			7,966
Devices			11,879				29,573
Pictures			(17,756	)			(1,041	)
Music			9,696				11,815
Financial Services			38,388				47,686
All Other			(2,473	)			(18,163	)
Total			29,970				(52,274	)
Corporate and elimination			(16,041	)			(33,314	)
Consolidated operating income (loss)			13,929				(85,588	)
Other income			6,581				6,188
Other expenses			(15,381	)			(10,555	)
Consolidated income (loss) before income taxes			5,129				(89,955	)

 

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

 

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

 

Within the HE&S segment, the operating income (loss) of Televisions, which primarily consists of LCD televisions, for the three months ended September 30, 2013 and 2014 was (9,262) million yen and 4,922 million yen, respectively. The operating income (loss) of Televisions excludes restructuring charges which are included in the overall segment results and not allocated to product categories.

 

 

Other Significant Items:

 

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

 

		Yen in millions
		Six months ended September 30
Sales and operating revenue:		2013				2014
Mobile Communications			589,993				622,649
Game & Network Services			260,167				517,122
Imaging Products & Solutions
Digital Imaging Products			220,135				215,700
Professional Solutions			127,198				120,538
Other			7,116				5,050
Total			354,449				341,288
Home Entertainment & Sound
Televisions			359,692				404,731
Audio and Video			174,948				161,137
Other			2,857				744
Total			537,497				566,612
Devices
Semiconductors			168,599				200,874
Components			120,664				121,795
Other			1,166				3,212
Total			290,429				325,881
Pictures
Motion Pictures			168,790				201,965
Television Productions			85,318				86,621
Media Networks			82,414				87,987
Total			336,522				376,573
Music
Recorded Music			158,731				159,824
Music Publishing			30,854				32,654
Visual Media and Platform			32,321				35,669
Total			221,906				228,147
Financial Services			492,665				513,942
All Other			370,990				192,429
Corporate			31,036				26,776
Consolidated total			3,485,654				3,711,419

 

 

 

		Yen in millions
		Three months ended September 30
Sales and operating revenue:		2013				2014
Mobile Communications			304,536				308,339
Game & Network Services			145,073				285,754
Imaging Products & Solutions
Digital Imaging Products			105,715				109,565
Professional Solutions			65,734				64,822
Other			3,175				2,765
Total			174,624				177,152
Home Entertainment & Sound
Televisions			174,113				199,742
Audio and Video			87,567				81,717
Other			1,703				100
Total			263,383				281,559
Devices
Semiconductors			83,342				115,846
Components			60,768				62,330
Other			642				2,967
Total			144,752				181,143
Pictures
Motion Pictures			97,556				97,339
Television Productions			45,288				44,259
Media Networks			34,876				40,309
Total			177,720				181,907
Music
Recorded Music			78,057				80,429
Music Publishing			18,273				16,366
Visual Media and Platform			16,401				17,876
Total			112,731				114,671
Financial Services			242,495				268,192
All Other			193,306				87,797
Corporate			15,615				14,997
Consolidated total			1,774,235				1,901,511

 

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

 

 

 

 

		Yen in millions
		Six months ended September 30
		2013				2014
Depreciation and amortization:
Mobile Communications			10,921				10,879
Game & Network Services			7,867				8,426
Imaging Products & Solutions			19,322				15,260
Home Entertainment & Sound			13,228				12,243
Devices			51,860				42,602
Pictures			8,986				9,256
Music			7,191				6,767
Financial Services, including deferred insurance acquisition costs			29,503				29,221
All Other			14,576				6,692
Total			163,454				141,346
Corporate			25,502				25,401
Consolidated total			188,956				166,747

 

		Yen in millions
		Six months ended September 30, 2013
		Total net restructuring charges				Depreciation associated with restructured assets				Total
Restructuring charges and associated depreciation:
Mobile Communications			3,146				—				3,146
Game & Network Services			382				—				382
Imaging Products & Solutions			2,132				—				2,132
Home Entertainment & Sound			713				19				732
Devices			2,429				—				2,429
Pictures			871				—				871
Music			104				—				104
Financial Services			—				—				—
All Other and Corporate			2,320				344				2,664
Consolidated total			12,097				363				12,460

 

 

 

 

 

		Yen in millions
		Six months ended September 30, 2014
		Total net restructuring charges				Depreciation associated with restructured assets				Total
Restructuring charges and associated depreciation:
Mobile Communications			57				—				57
Game & Network Services			64				—				64
Imaging Products & Solutions			199				—				199
Home Entertainment & Sound			577				—				577
Devices			2,813				552				3,365
Pictures			16				—				16
Music			60				—				60
Financial Services			—				—				—
All Other and Corporate			19,558				790				20,348
Consolidated total			23,344				1,342				24,686

 

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

 

		Yen in millions
		Three months ended September 30
		2013				2014
Depreciation and amortization:
Mobile Communications			5,502				4,435
Game & Network Services			4,221				4,426
Imaging Products & Solutions			9,472				8,293
Home Entertainment & Sound			6,620				6,138
Devices			26,171				21,588
Pictures			4,639				4,691
Music			3,601				3,420
Financial Services, including deferred insurance acquisition costs			15,546				13,602
All Other			7,393				3,226
Total			83,165				69,819
Corporate			12,862				12,630
Consolidated total			96,027				82,449

 

 

 

 

 

		Yen in millions
		Three months ended September 30, 2013
		Total net restructuring charges				Depreciation associated with restructured assets				Total
Restructuring charges and associated depreciation:
Mobile Communications			2,391				—				2,391
Game & Network Services			381				—				381
Imaging Products & Solutions			1,403				—				1,403
Home Entertainment & Sound			553				—				553
Devices			1,053				—				1,053
Pictures			456				—				456
Music			78				—				78
Financial Services			—				—				—
All Other and Corporate			1,381				110				1,491
Consolidated total			7,696				110				7,806

 

 

		Yen in millions
		Three months ended September 30, 2014
		Total net restructuring charges				Depreciation associated with restructured assets				Total
Restructuring charges and associated depreciation:
Mobile Communications			43				—				43
Game & Network Services			—				—				—
Imaging Products & Solutions			71				—				71
Home Entertainment & Sound			38				—				38
Devices			2,271				552				2,823
Pictures			16				—				16
Music			34				—				34
Financial Services			—				—				—
All Other and Corporate			6,278				121				6,399
Consolidated total			8,751				673				9,424

 

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

 

 

Geographic Information –

 

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

 

		Yen in millions
		Six months ended September 30
Sales and operating revenue:		2013				2014
Japan			1,042,587				1,010,924
United States			519,414				633,124
Europe			708,055				853,591
China			269,114				277,581
Asia-Pacific			502,787				504,269
Other Areas			443,697				431,930
Total			3,485,654				3,711,419

 

 

		Yen in millions
		Three months ended September 30
Sales and operating revenue:		2013				2014
Japan			510,837				499,545
United States			266,872				327,838
Europe			379,851				461,395
China			145,883				144,540
Asia-Pacific			245,377				259,396
Other Areas			225,415				208,797
Total			1,774,235				1,901,511

 

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

 

(1) Europe:	United Kingdom, France, Germany, Russia, Spain and Sweden
(2) Asia-Pacific:	India, South Korea and Oceania
(3) Other Areas:	The Middle East/Africa, Brazil, Mexico and Canada

 

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

 

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

 

There were no sales and operating revenue with any single major external customer for the six and three months ended September 30, 2013 and 2014.

 

 

(2)   Other Information

 

Litigation

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

 

Beginning in early 2011, the network services of PlayStation®Network, Qriocity™, Sony Online Entertainment LLC and websites of other subsidiaries came under cyber-attack. As of November 10, 2014, Sony has not received any confirmed reports of customer identity theft issues or misuse of credit cards from such cyber-attacks. However, in connection with certain of these matters, Sony has received inquiries from authorities in a number of jurisdictions, including formal and/or informal requests for information from Attorneys General from a number of states in the United States. Additionally, Sony Corporation and/or certain of its subsidiaries have been named in a number of purported class actions in certain jurisdictions, including the United States. A proposed settlement of the U.S. class action suits has received preliminary court approval, and is subject to final approval by the court. The settlement of a set of non-U.S. class actions has received court approval, and one non-U.S. class action suit remains pending. Based on the stage of these inquiries and proceedings, it is not possible to estimate the amount of loss or range of possible loss, if any, that might result from adverse judgments, settlements or other resolution of all of these matters.

 

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

 

Trial was set for September 2014 in a lawsuit brought by the liquidating trust for a former customer of Sony Corporation’s U.S. subsidiary, Sony Electronics Inc., seeking recovery in connection with the former customer’s bankruptcy filing. In September 2014, the parties reached an agreement to settle the lawsuit and received court approval on October 22, 2014. Settlement of this matter had no material impact on Sony’s results of operations, financial position or cash flows.

 

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

 

 

SIGNATURE

 

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

 

 

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

 

November 10, 2014