SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

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

the Securities Exchange Act of 1934

For the month of February 2021

Commission File Number: 001-06439

SONY CORPORATION

(Translation of registrant’s name into English)

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

(Address of principal executive offices)

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

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

 

Form 20-F  X		Form 40-F

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

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

SIGNATURE

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

 

Date: February 9, 2021

Quarterly Securities Report

For the three months ended December 31, 2020

(TRANSLATION)

Sony Corporation

CONTENTS

 

		Page
Note for readers of this English translation			1
Cautionary Statement			1
I   Corporate Information			3
(1)   Selected Consolidated Financial Data			3
(2)   Business Overview			4
II   State of Business			5
(1)   Risk Factors			5
(2)   Management’s Discussion and Analysis of Financial Condition, Results of Operations and Status of Cash Flows			7
(3)   Material Contracts			16
III  Company Information			17
(1)   Information on the Company’s Shares			17
(2)   Directors and Corporate Executive Officers			21
IV Financial Statements			22
(1)   Consolidated Financial Statements			23
(2)   Other Information			56

 

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I     Corporate Information

(1) Selected Consolidated Financial Data

		Yen in millions, Yen per share amounts
		Nine months ended     December 31, 2019				Nine months ended     December 31, 2020				Fiscal year ended     March 31, 2020
Sales and operating revenue			6,511,145				6,778,941				8,259,885
Operating income			810,012				905,385				845,459
Income before income taxes			803,433				1,096,894				799,450
Net income attributable to Sony Corporation’s stockholders			569,547				1,064,776				582,191
Comprehensive income			689,995				998,674				666,032
Total equity			4,886,586				5,433,323				4,789,535
Total assets			22,637,546				25,881,122				23,039,343
Net income attributable to Sony Corporation’s stockholders per share of common stock, basic (yen)			460.11				867.17				471.64
Net income attributable to Sony Corporation’s stockholders per share of common stock, diluted (yen)			450.08				852.04				461.23
Ratio of stockholders’ equity to total assets (%)			18.7				20.8				17.9
Net cash provided by operating activities			834,067				1,087,508				1,349,745
Net cash used in investing activities			(1,026,082)				(1,372,187)				(1,352,278)
Net cash provided by financing activities			145,096				676,660				65,658
Cash and cash equivalents at end of the period			1,408,876				1,878,047				1,512,357
		Yen in millions, Yen per share amounts
		Three months ended     December 31, 2019				Three months ended     December 31, 2020
Sales and operating revenue			2,463,162				2,696,536
Net income attributable to Sony Corporation’s stockholders			229,538				371,891
Net income attributable to Sony Corporation’s stockholders per share of common stock, basic (yen)			187.02				301.09
Net income attributable to Sony Corporation’s stockholders per share of common stock, diluted (yen)			182.89				297.35

  Notes:

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

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

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

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

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

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

 

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(2) Business Overview

There was no significant change in the business of Sony during the nine months ended December 31, 2020.

As of December 31, 2020, the Company had 1,448 subsidiaries and 147 affiliated companies, of which 1,413 companies are consolidated subsidiaries (including variable interest entities) of the Company. The Company has applied the equity accounting method for 131 affiliated companies.

 

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II     State of Business

(1) Risk Factors

 

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

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

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

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

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

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

 

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Compliance with these laws and regulations may be onerous and expensive. These laws and regulations continue to develop and may be inconsistent from jurisdiction to jurisdiction, further increasing the cost of compliance and doing business. Any such developments could occur frequently and without warning, and could make Sony’s products or services less attractive to its customers, delay or prohibit introduction of new products or services in one or more regions or cause Sony to change or limit its business practices. For example, imposition of restrictive trade measures in the United States and elsewhere, as well as retaliatory actions against such measures, could result in increased customs duties applicable to Sony’s products or increased costs for procuring parts and components, and could limit or prohibit the sales of Sony’s products and services to certain of its current or potential customers, which may adversely affect Sony’s operating results and financial condition. In the I&SS segment, Sony suspended product shipments of image sensors to a certain customer from September 15, 2020, pursuant to export restrictions announced by the U.S. government on August 17, 2020. As a result, image sensor sales have decreased compared to before the export restrictions came into effect, although Sony has resumed a portion of shipments to the customer after receiving a U.S. export license. Sony also recorded inventory write-downs of certain image sensors for the same customer during the nine months ended December 31, 2020. In addition, changes in laws or regulations or the judicial interpretation thereof that Sony relies on or Sony is subject to in conducting its operations, including online operations, as well as Sony’s failure to anticipate such changes, may subject Sony to greater risk of liability, increase the costs of compliance, or limit Sony’s ability to engage in or expand certain operations or lead to discontinuance of certain operations.

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

 

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

i) Results of Operations

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

Consolidated Financial Results

 

		(Billions of yen)
		Nine months ended December 31
		2019				2020
Sales and operating revenue		¥	6,511.1			¥	6,778.9
Operating income			810.0				905.4
Income before income taxes			803.4				1,096.9
Net income attributable to Sony Corporation’s stockholders			569.5				1,064.8

Sales for the nine months ended December 31, 2020 (“the current nine months”) increased 267.8 billion yen compared to the same period of the previous fiscal year (“year-on-year”) to 6 trillion 778.9 billion yen. This increase was primarily due to significant increases in sales in the G&NS and Financial Services segments, partially offset primarily by a decrease in sales in the EP&S segment and a significant decrease in sales in the Pictures segment. Sales in the same period of the previous fiscal year included 7.9 billion yen in patent royalty revenue resulting from the signing of a licensing agreement recorded within Corporate and elimination.

Operating income in the current nine months increased 95.4 billion yen year-on-year to 905.4 billion yen. This increase was primarily due to significant increases in operating income in the G&NS, Music and Pictures segments, partially offset by a significant decrease in operating income in the I&SS segment.

Operating income for the current nine months included the following:

•

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

•

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

•

Inventory write-downs of certain image sensors for mobile products: 9.0 billion yen (I&SS segment)

•

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

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

•

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

•

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

During the current nine months, restructuring charges, net, decreased 6.0 billion yen year-on-year to 8.1 billion yen. Restructuring charges are recorded as an operating expense and are included in operating income.

Equity in net income of affiliated companies in the current nine months, recorded within operating income, increased 0.2 billion yen year-on-year to 6.6 billion yen.

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

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

 

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During the current nine months, Sony recorded income tax expense of 12.6 billion yen, resulting in an effective tax rate of 1.2%, which was lower than the effective tax rate of 24.5% in the same period of the previous fiscal year. This lower effective tax rate was mainly due to the reversal of valuation allowances recorded against a significant portion of the deferred tax assets of Sony Corporation and its national tax filing group in Japan, which resulted in a tax benefit of 214.9 billion yen in the three months ended September 30, 2020, and the reversal of additional valuation allowances recorded against deferred tax assets for certain research and development credits of the consolidated tax filing group in the United States, which resulted in a tax benefit of 13.6 billion yen in the three months ended December 31, 2020.

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

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

Game & Network Services (G&NS)

Results for the Nine Months ended December 31, 2020

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

Music

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

Results for the Nine Months ended December 31, 2020

Sales increased 34.0 billion yen to 672.4 billion yen. The increase in sales was primarily due to higher Visual Media and Platform and Recorded Music sales. Sales for Visual Media and Platform increased primarily due to an increase in sales for the anime business primarily reflecting the contribution of Demon Slayer – Kimetsu no Yaiba – the Movie: Mugen Train. Sales for Recorded Music increased mainly due to an increase in revenue from paid subscription streaming services. Operating income increased 35.4 billion yen year-on-year to 147.4 billion yen, primarily due to the impact of the above-mentioned increase in sales, in addition to a 6.5 billion yen gain recorded on the sale of a portion of shares of Pledis and a 5.4 billion yen gain recorded in connection with the transfer of an overseas business.

Pictures

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

Results for the Nine Months ended December 31, 2020

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

 

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Electronics Products & Solutions (EP&S)

Results for the Nine Months ended December 31, 2020

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

Imaging & Sensing Solutions (I&SS)

Results for the Nine Months ended December 31, 2020

Sales decreased 59.2 billion yen year-on-year to 780.2 billion yen. This decrease in sales was mainly due to a decrease in unit sales of image sensors and a deterioration of the product mix for mobile products primarily resulting from the impact of U.S. export restrictions, as well as a decrease in unit sales of image sensors for digital cameras primarily as a result of the impact of COVID-19. Operating income decreased 75.4 billion yen year-on-year to 125.7 billion yen. This significant decrease was mainly due to an increase in depreciation and amortization expenses as well as research and development expenses, the impact of the above-mentioned decrease in sales, and the above-mentioned 9.0 billion yen of inventory write-downs of certain image sensors for mobile products whose shipments were suspended as a result of U.S. export restrictions. The amount of the inventory write-downs is the net amount of 17.5 billion yen of write-downs recorded in the three months ended September 30, 2020 and an 8.5 billion yen gain from the reversal of write-downs recorded in the three months ended December 31, 2020.

Financial Services

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

Results for the Nine Months ended December 31, 2020

Financial Services revenue increased 124.6 billion yen year-on-year to 1 trillion 246.0 billion yen, mainly due to an increase in revenue at Sony Life and a significant increase in revenue at Sony Bank. Revenue at Sony Life increased 81.9 billion yen year-on-year to 1 trillion 89.3 billion yen, mainly due to an increase in net gains on investments in the separate accounts, partially offset by a decrease in premiums from single premium insurance despite an increase in the policy amount in force. The increase in revenue at Sony Bank was due to an improvement in valuation gains and losses on securities. Operating income increased 20.0 billion yen year-on-year to 137.5 billion yen due to a significant increase in operating income at Sony Bank and an increase in operating income at Sony Assurance, partially offset by a decrease in operating income at Sony Life. The increase in operating income at Sony Bank was due to the above-mentioned improvement in valuation gains and losses on securities, and the increase in operating income at Sony Assurance was due to a decline in the loss ratio for automobile insurance. Operating income at Sony Life decreased 4.8 billion yen year-on-year to 97.0 billion yen, mainly due to expenses recorded for various provisions related to COVID-19, as well as an overall deterioration in the provision of policy reserves for minimum guarantees for variable life insurance and other products, resulting from market fluctuations, and net gains and losses on derivative transactions to hedge market risks. This decrease in operating income at Sony Life was partially offset by an improvement in foreign exchange gains and losses in U.S. dollar-denominated insurance.

Operating Performance by Geographic Area

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

 

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Foreign Exchange Fluctuations and Risk Hedging

 

During the current nine months, the average rates of the yen were 106.1 yen against the U.S. dollar and 122.4 yen against the euro, which were 2.6 yen higher and 1.3 yen lower year-on-year, respectively.

For the current nine months, sales were 6 trillion 778.9 billion yen, an increase of 4% year-on-year, while on a constant currency basis sales increased 5% year-on-year. For further details about the impact of foreign exchange rate fluctuations on sales and operating income, please refer to the below Note.

Consolidated operating income increased 95.4 billion yen year-on-year to 905.4 billion yen for the current nine months. Most of the foreign exchange rate impact was attributable to the impact of foreign exchange rates in the G&NS, EP&S and I&SS segments.

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

 

				(Billions of yen)
				Nine months ended              December 31								Impact of changes in foreign exchange rates
				2019				2020
G&NS		Sales			¥1,544.0				¥1,996.0			-¥18.8
		Operating income			192.2				309.2			+7.8
EP&S		Sales			1,627.8				1,485.5			-19.3
		Operating income			146.8				150.6			+1.2
I&SS		Sales			839.4				780.2			-16.0
		Operating income			201.1				125.7			-5.0

In addition, sales for the Music segment increased 5% year-on-year to 672.4 billion yen, an approximate 7% increase on a constant currency basis. In the Pictures segment, sales decreased 18% year-on-year to 558.6 billion yen, an approximate 16% decrease on a U.S. dollar basis. As most of the operations in Sony’s Financial Services segment are based in Japan, Sony’s management analyzes the performance of the Financial Services segment on a yen basis only.

Note:

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

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

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

 

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

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

Status of Cash Flows*

Operating Activities: During the current nine months, there was a net cash inflow of 1 trillion 87.5 billion yen from operating activities, an increase of 253.4 billion yen year-on-year.

For all segments excluding the Financial Services segment, there was a net cash inflow of 909.4 billion yen, an increase of 415.4 billion yen year-on-year. This increase was primarily due to a year-on-year increase in net income after taking into account non-cash adjustments (including depreciation and amortization, other operating (income) expense, net and (gain) loss on securities investments, net), an increase in notes and accounts payable, trade, compared to a decrease in the same period of the previous fiscal year, as well as a smaller increase in film costs. This increase in net cash inflow was partially offset by the negative impact of an increase in other receivables from component assembly companies, included in other current assets, compared to a decrease in the same period of the previous fiscal year.

The Financial Services segment had a net cash inflow of 198.0 billion yen, a decrease of 159.4 billion yen year-on-year. This decrease was primarily due to a year-on-year decrease in net income after taking into account non-cash adjustments such as (gain) loss on marketable securities and securities investments, net.

Investing Activities: During the current nine months, Sony used 1 trillion 372.2 billion yen of net cash in investing activities, an increase of 346.1 billion yen year-on-year.

For all segments excluding the Financial Services segment, there was a net cash outflow of 453.2 billion yen, an increase of 203.7 billion yen year-on-year. This increase was mainly due to an increase in payments for fixed asset purchases including semiconductor manufacturing equipment, as well as cash outflow resulting from a payment for the purchase of shares of Bilibili. Additionally, the same period of the previous fiscal year included the cash inflow from the sale of all of Sony’s shares of Olympus Corporation.

The Financial Services segment used 919.1 billion yen of net cash in investing activities, an increase of 142.5 billion yen year-on-year. This increase was mainly due to a year-on-year increase in payments for investments and advances at Sony Bank.

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

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

In the Financial Services segment, there was a 723.8 billion yen net cash inflow, an increase of 266.9 billion yen year-on-year. This increase was primarily due to a larger increase in deposits from customers at Sony Bank.

Total Cash and Cash Equivalents: Accounting for the above factors and the effect of fluctuations in foreign exchange rates, the total outstanding balance of cash and cash equivalents at December 31, 2020 was 1 trillion 878.0 billion yen.

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

 

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

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

 

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Condensed Statements of Cash Flows

 

		(Yen in millions)
		Nine months ended December 31
		Financial Services								Sony without Financial Services								Consolidated
		2019				2020				2019				2020				2019				2020
Cash flows from operating activities:
Net income (loss)			83,269				99,839				540,939				1,004,421				606,517				1,084,253
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization, including amortization of deferred insurance acquisition costs and contract costs			60,154				41,519				221,239				245,044				281,393				286,563
Amortization of film costs			-				-				212,684				197,849				212,684				197,849
Other operating (income) expense, net			42				62				(24,073	)			(16,553	)			(24,017	)			(16,491	)
(Gain) loss on marketable securities and securities investments, net			(127,002	)			(339,714	)			(392	)			(205,721	)			(127,394	)			(545,435	)
Changes in assets and liabilities:
(Increase) decrease in notes and accounts receivable, trade and contract assets			5,158				(12,757	)			(242,695	)			(312,712	)			(237,477	)			(300,544	)
(Increase) decrease in inventories			-				-				34,865				(41,039	)			34,865				(41,039	)
(Increase) decrease in film costs			-				-				(296,377	)			(193,344	)			(296,377	)			(193,344	)
Increase (decrease) in notes and accounts payable, trade			-				-				(12,640	)			277,309				(12,640	)			277,309
Increase (decrease) in future insurance policy benefits and other			554,596				619,049				-				-				554,596				619,049
(Increase) decrease in deferred insurance acquisition costs			(73,385	)			(69,433	)			-				-				(73,385	)			(69,433	)
(Increase) decrease in marketable securities held in the life insurance business			(103,746	)			(119,871	)			-				-				(103,746	)			(119,871	)
Other			(41,646	)			(20,692	)			60,410				(45,868	)			19,048				(91,358	)
Net cash provided by (used in) operating activities			357,440				198,002				493,960				909,386				834,067				1,087,508
Cash flows from investing activities:
Payments for purchases of fixed assets			(14,425	)			(13,851	)			(300,366	)			(377,654	)			(314,791	)			(391,439	)
Payments for investments and advances			(970,438	)			(1,197,359	)			(40,423	)			(93,368	)			(1,010,861	)			(1,290,727	)
Proceeds from sales or return of investments and collections of advances			208,164				292,090				93,526				19,604				301,690				311,694
Other			125				23				(2,229	)			(1,738	)			(2,120	)			(1,715	)
Net cash provided by (used in) investing activities			(776,574	)			(919,097	)			(249,492	)			(453,156	)			(1,026,082	)			(1,372,187	)
Cash flows from financing activities:
Increase (decrease) in borrowings, net			272,960				361,169				(73,866	)			390,290				198,773				751,459
Increase (decrease) in deposits from customers, net			211,135				392,891				-				-				211,135				392,891
Dividends paid			(27,189	)			(30,454	)			(49,621	)			(61,153	)			(49,621	)			(61,153	)
Other			62				231				(205,734	)			(396,128	)			(215,191	)			(406,537	)
Net cash provided by (used in) financing activities			456,968				723,837				(329,221	)			(66,991	)			145,096				676,660
Effect of exchange rate changes on cash and cash equivalents			-				-				(14,887	)			(28,538	)			(14,887	)			(28,538	)
Net increase (decrease) in cash and cash equivalents including restricted			37,834				2,742				(99,640	)			360,701				(61,806	)			363,443
Cash and cash equivalents, including restricted, at beginning of the fiscal year			509,595				550,039				964,218				965,256				1,473,813				1,515,295
Cash and cash equivalents, including restricted, at end of the period			547,429				552,781				864,578				1,325,957				1,412,007				1,878,738
Less – restricted cash and cash equivalents, included in other current assets and other assets			-				-				3,131				691				3,131				691
Cash and cash equivalents at end of the period			547,429				552,781				861,447				1,325,266				1,408,876				1,878,047

 

- 13 -

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

 

iii) Research and Development

 

Research and development costs for the nine months ended December 31, 2020 totaled 377.7 billion yen. There were no significant changes in research and development activities for the period.

iv) Liquidity Management and Market Access

 

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

Funding requirements that arise from maintaining liquidity are principally covered by cash flow from operating and investing activities (including asset sales) and by the available cash balance; however, Sony also raises funds as needed from financial and capital markets through means such as corporate bonds, commercial paper (“CP”) and bank loans.

Sony Corporation, Sony Global Treasury Services Plc (“SGTS”), a subsidiary in the U.K., and Sony Capital Corporation (“SCC”), a finance subsidiary in the U.S., maintain CP programs with access to the Japanese, U.S. and European CP markets. The borrowing limits under these CP programs, translated into yen, were 1,044.2 billion yen in total for Sony Corporation, SGTS and SCC as of March 31, 2020. There were no amounts outstanding under the CP programs as of March 31, 2020.

Sony Corporation borrowed 322.5 billion yen in July 2020, and 74.0 billion yen in October 2020 from a Japanese private bank, in order to procure the funds necessary to acquire the common shares and related stock acquisition rights not held by Sony of SFH, a consolidated subsidiary of Sony Corporation, with the aim of making SFH a wholly-owned subsidiary of Sony Corporation. In December 2020, Sony Corporation repaid 200.0 billion yen of the outstanding balance of 396.5 billion yen.

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

 

- 14 -

If disruption and volatility occur in financial and capital markets and Sony becomes unable to raise sufficient funds from these sources, Sony may also draw down funds from contractually committed lines of credit from various financial institutions. Sony has a total, translated into yen, of 560.5 billion yen in unused committed lines of credit, as of December 31, 2020. Details of those committed lines of credit are: a 275.0 billion yen committed line of credit contracted with a syndicate of Japanese banks, a 1.7 billion U.S. dollar multicurrency committed line of credit also contracted with a syndicate of Japanese banks and a 1.05 billion U.S. dollar multicurrency committed line of credit contracted with a syndicate of foreign banks. Sony believes that it can sustain sufficient liquidity through access to committed lines of credit with financial institutions, together with its available cash balance, even in the event that financial and capital markets become illiquid.

In the event of a downgrade in Sony’s credit ratings, there are no financial covenants in any of Sony’s material financial agreements with financial institutions that would cause an acceleration of the obligation. Even though the cost of borrowing for some committed lines of credit could change according to Sony’s credit ratings, there are no financial covenants that would cause any impairment on the ability to draw down on unused facilities.

v) Plan of Capital Investments and Asset Retirement

 

 

- 15 -

(3) Material Contracts

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

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

 

 

- 16 -

III    Company Information

  (1) Information on the Company’s Shares

i) Total Number of Shares

1) Total Number of Shares

 

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

2) Number of Shares Issued

 

Class		Number of shares issued				Name of Securities Exchanges where the shares are listed or authorized Financial Instruments Firms Association where the shares are registered		Description
		As of the end of the     third quarterly period     (December 31, 2020)		As of the filing date of     the Quarterly     Securities Report     (February 9, 2021)
Common stock		1,261,058,781		1,261,058,781		Tokyo Stock Exchange New York Stock Exchange		The number of shares constituting one full unit is one hundred (100).
Total		1,261,058,781		1,261,058,781		—		—

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

ii) Stock Acquisition Rights (“SARs”)

 

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

 

Name (Date of resolution of the Board of Directors)		Number of SARs issued				Number of shares of common stock to be issued or transferred
The forty-third series of Common Stock Acquisition Rights (October 28, 2020)			22,599				2,259,900
The forty-fourth series of Common Stock Acquisition Rights (October 28, 2020)			22,547				2,254,700

iii) Status of the Exercise of Moving Strike Convertible Bonds

Not applicable.

 

- 17 -

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

 

Period		Change in the   total number of shares issued   (Thousands)		Balance of the    total number of shares issued   (Thousands)		Change in   the amount of   common stock   (Yen in Millions)		Balance of   the amount of   common stock   (Yen in Millions)		Change in the   legal capital   surplus   (Yen  in Millions)		Balance of the   legal capital   surplus   (Yen in Millions)
From October 1 to December 31, 2020		—		1,261,059		—		880,214		—		1,093,907

 

- 18 -

v) Status of Major Shareholders

(As of December 31, 2020)

 

Name		Address		Number of shares held (Thousands)		Percentage of shares held to total shares (Excluding treasury shares) issued (%)
Citibank as Depositary Bank for Depositary Receipt Holders *1 (Local Custodian: MUFG Bank, Ltd.)		388 Greenwich St., 14th fl., New York, NY 10013, U.S.A. (2-7-1, Marunouchi, Chiyoda-ku, Tokyo)		114,553		9.27
The Master Trust Bank of Japan, Ltd. (Trust account) *2		2-11-3, Hamamatsu-cho, Minato-ku, Tokyo		108,001		8.74
Custody Bank of Japan, Ltd. (Trust account) *2		1-8-12, Harumi, Chuo-ku, Tokyo		64,363		5.21
JP Morgan Chase Bank 385632 *3 (Local Custodian: Mizuho Bank, Ltd.)		25 Bank Street, Canary Wharf, London, E14 5JP, United Kingdom (Shinagawa Intercity Tower A, 2-15-1, Konan, Minato-ku, Tokyo)		29,768		2.41
Ssbtc Client Omnibus Account *3 (Local Custodian: The Hongkong and Shanghai Banking Corporation Limited, Tokyo Branch)		One Lincoln Street, Boston MA USA 02111 (3-11-1, Nihonbashi, Chuo-ku, Tokyo)		25,473		2.06
Custody Bank of Japan, Ltd. (Trust account 7) *2		1-8-12, Harumi, Chuo-ku, Tokyo		24,389		1.97
State Street Bank West Client – Treaty 505234 *3 (Local Custodian: Mizuho Bank, Ltd.)		1776 Heritage Drive, North Quincy, MA 02171, U.S.A. (Shinagawa Intercity Tower A, 2-15-1, Konan, Minato-ku, Tokyo)		20,211		1.63
Custody Bank of Japan, Ltd. (Trust account 5) *2		1-8-12, Harumi, Chuo-ku, Tokyo		19,882		1.61
Government of Norway (Local Custodian: Citibank, N.A., Tokyo Branch)		Bankplassen 2, 0107 Oslo 1 Oslo 0107 No (6-27-30 Shinjuku, Shinjuku-ku, Tokyo )		19,140		1.55
Custody Bank of Japan, Ltd. (Trust account 6) *2		1-8-12, Harumi, Chuo-ku, Tokyo		17,946		1.45
Total				443,726		35.89

Notes:

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

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

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

 

- 19 -

4.

Nomura Asset Management Co., Ltd. filed its “Bulk Shareholding Report” with the Director-General of Kanto Local Financial Bureau in Japan as of October 6, 2020 and reported that Nomura Asset Management Co., Ltd. and three joint holders held shares of the Company as of September 30, 2020 as provided in the below table. As of December 31, 2020, the Company has not been able to confirm the entry of such parties in the register of shareholders.

5.

Sumitomo Mitsui Trust Asset Management Co., Ltd. filed its “Amendment to the Bulk Shareholding Report” with the Director-General of Kanto Local Financial Bureau in Japan as of September 20, 2019 and reported that Sumitomo Mitsui Trust Asset Management Co., Ltd. and one joint holder held shares of the Company as of September 13, 2019 as provided in the below table. As of December 31, 2020, the Company has not been able to confirm the entry of such parties in the register of shareholders.

6.

BlackRock Japan Co., Ltd. filed its “Amendment to the Bulk Shareholding Report” with the Director-General of Kanto Local Financial Bureau in Japan as of March 22, 2017 and reported that BlackRock Japan Co., Ltd. and eight joint holders held shares of the Company as of March 15, 2017 as provided in the below table. As of December 31, 2020, the Company has not been able to confirm the entry of such parties in the register of shareholders.

 

- 20 -

vi) Status of Voting Rights

1) Shares Issued

(As of December 31, 2020)

 

Classification		Number of shares of     common stock		Number of voting rights   (Units)		Description
Shares without voting rights		—		—		—
Shares with restricted voting rights (Treasury stock, etc.)		—		—		—
Shares with restricted voting rights (Others)		—		—		—
Shares with full voting rights (Treasury stock, etc.)		24,670,700		—		—
Shares with full voting rights (Others)		1,234,535,000		12,345,350		—
Shares constituting less than one full unit		1,853,081		—		Shares constituting     less than one full unit     (100 shares)
Total number of shares issued		1,261,058,781		—		—
Total voting rights held by all shareholders		—		12,345,350		—

 

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

2) Treasury Stock, etc.

(As of December 31, 2020)

 

Name of shareholder		Address of shareholder		Number of   shares held   under own   name		Number of   shares held   under the names   of others		Total number   of shares   held		Percentage of   shares held to   total shares   issued (%)
Sony Corporation (Treasury stock)		1-7-1, Konan, Minato-ku,  Tokyo		24,670,700		—		24,670,700		1.96
Total		—		24,670,700		—		24,670,700		1.96

Notes:

1.

In addition to the 24,670,700 shares listed above, there are 300 shares of common stock held in the name of the Company in the register of shareholders that the Company does not beneficially own. These shares are included in “Shares with full voting rights (Others)” in Table 1) “Shares Issued” above.

2.	Upon the disposal of treasury shares mainly due to the exercise of SARs (including the exercise of unsecured convertible bonds with SARs (6th series)) from January 1, 2021 to January 31, 2021, the number of shares held decreased by 809 thousand shares.

(2)     Directors and Corporate Executive Officers

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

 

- 21 -

IV         Financial Statements

 

				Page
(1) Consolidated Financial Statements					23
(i)         Consolidated Balance Sheets					23
(ii)        Consolidated Statements of Income					25
(iii)       Consolidated Statements of Comprehensive Income					27
(iv)       Consolidated Statements of Cash Flows					28
(2) Other Information					56

 

- 22 -

(1) Consolidated Financial Statements

(i)    Consolidated Balance Sheets (Unaudited)

 

Sony Corporation and Consolidated Subsidiaries

 

		Yen in millions
		At March 31,             2020				At December 31,             2020
ASSETS
Current assets:
Cash and cash equivalents			1,512,357				1,878,047
Marketable securities (including assets pledged that secured parties are permitted to sell or repledge of 17,521 million yen and 20,548 million yen at March 31, 2020 and December 31, 2020)			1,847,772				2,771,000
Notes and accounts receivable, trade and contract assets			1,028,793				1,310,227
Allowance for credit losses			(25,873	)			(25,143	)
Inventories			589,969				605,437
Other receivables			188,106				308,178
Prepaid expenses and other current assets			594,021				540,302
Total current assets			5,735,145				7,388,048
Film costs			427,336				421,382
Investments and advances:
Affiliated companies			207,922				220,221
Securities investments and other (including assets pledged that secured parties are permitted to sell or repledge of 930,882 million yen and 1,602,797 million yen at March 31, 2020 and December 31, 2020)			12,526,210				13,635,160
Allowance for credit losses			-				(8,370	)
			12,734,132				13,847,011
Property, plant and equipment:
Land			81,482				78,285
Buildings			659,556				659,679
Machinery and equipment			1,725,720				1,683,264
Construction in progress			76,391				126,502
			2,543,149				2,547,730
Less – Accumulated depreciation			1,634,505				1,584,620
			908,644				963,110
Other assets:
Operating lease right-of-use assets			359,510				336,112
Finance lease right-of-use assets			33,100				43,763
Intangibles, net			906,310				920,148
Goodwill			783,888				791,000
Deferred insurance acquisition costs			600,901				639,831
Deferred income taxes			210,372				182,494
Other			340,005				348,223
			3,234,086				3,261,571
Total assets			23,039,343				25,881,122

  (Continued on following page.)

 

- 23 -

            Consolidated Balance Sheets (Unaudited)

 

 

		Yen in millions
		At March 31,             2020				At December 31,             2020
LIABILITIES
Current liabilities:
Short-term borrowings			810,176				1,320,595
Current portion of long-term debt			29,807				119,192
Current portion of long-term operating lease liabilities			68,942				73,203
Notes and accounts payable, trade			380,810				657,458
Accounts payable, other and accrued expenses			1,630,197				1,660,096
Accrued income and other taxes			145,996				208,063
Deposits from customers in the banking business			2,440,783				2,723,808
Other			733,732				1,108,847
Total current liabilities			6,240,443				7,871,262
Long-term debt			634,966				737,258
Long-term operating lease liabilities			314,836				286,235
Accrued pension and severance costs			324,655				314,559
Deferred income taxes			549,538				340,015
Future insurance policy benefits and other			6,246,047				6,463,972
Policyholders’ account in the life insurance business			3,642,271				4,159,852
Other			289,285				266,611
Total liabilities			18,242,041				20,439,764
Redeemable noncontrolling interest			7,767				8,035
Commitments and contingent liabilities
EQUITY
Sony Corporation’s stockholders’ equity:
Common stock, no par value –
At March 31, 2020–Shares authorized: 3,600,000,000, shares issued: 1,261,058,781			880,214
At December 31, 2020–Shares authorized: 3,600,000,000, shares issued: 1,261,058,781							880,214
Additional paid-in capital			1,289,719				1,486,104
Retained earnings			2,768,856				3,788,596
Accumulated other comprehensive income –
Unrealized gains on securities, net			161,191				139,369
Unrealized gains on derivative instruments, net			1,248				1,916
Pension liability adjustment			(235,520	)			(229,625	)
Foreign currency translation adjustments			(509,872	)			(536,902	)
Debt valuation adjustments			1,973				1,195
			(580,980	)			(624,047	)
Treasury stock, at cost
Common stock
At March 31, 2020–40,898,841 shares			(232,503	)
At December 31, 2020–24,670,705 shares							(140,307	)
			4,125,306				5,390,560
Noncontrolling interests			664,229				42,763
Total equity			4,789,535				5,433,323
Total liabilities and equity			23,039,343				25,881,122

  The accompanying notes are an integral part of these statements.

 

- 24 -

  (ii)    Consolidated Statements of Income (Unaudited)

 

Sony Corporation and Consolidated Subsidiaries

 

		Yen in millions
		Nine months ended December 31
		2019				2020
Sales and operating revenue:
Net sales			5,318,782				5,481,349
Financial services revenue			1,115,291				1,240,455
Other operating revenue			77,072				57,137
			6,511,145				6,778,941
Costs and expenses:
Cost of sales			3,629,246				3,753,504
Selling, general and administrative			1,105,115				1,040,308
Financial services expenses			997,211				1,102,877
Other operating income, net			(24,017	)			(16,491	)
			5,707,555				5,880,198
Equity in net income of affiliated companies			6,422				6,642
Operating income			810,012				905,385
Other income:
Interest and dividends			14,658				7,109
Gain on equity securities, net			372				205,727
Other			4,441				4,210
			19,471				217,046
Other expenses:
Interest expenses			8,793				7,265
Foreign exchange loss, net			9,376				8,684
Loss on pension plan amendment			6,358				-
Other			1,523				9,588
			26,050				25,537
Income before income taxes			803,433				1,096,894
Income taxes			196,916				12,641
Net income			606,517				1,084,253
Less - Net income attributable to noncontrolling interests			36,970				19,477
Net income attributable to Sony Corporation’s stockholders			569,547				1,064,776
		Yen
		Nine months ended December 31
		2019				2020
Per share data:
Net income attributable to Sony Corporation’s stockholders
– Basic			460.11				867.17
– Diluted			450.08				852.04

The accompanying notes are an integral part of these statements.

 

- 25 -

            Consolidated Statements of Income (Unaudited)

 

Sony Corporation and Consolidated Subsidiaries

 

		Yen in millions
		Three months ended December 31
		2019				2020
Sales and operating revenue:
Net sales			2,034,826				2,252,904
Financial services revenue			405,382				423,432
Other operating revenue			22,954				20,200
			2,463,162				2,696,536
Costs and expenses:
Cost of sales			1,411,228				1,554,843
Selling, general and administrative			400,032				409,835
Financial services expenses			372,540				376,833
Other operating (income) expense, net			(18,056	)			295
			2,165,744				2,341,806
Equity in net income of affiliated companies			2,714				4,496
Operating income			300,132				359,226
Other income:
Interest and dividends			3,900				1,753
Gain on equity securities, net			13,392				120,234
Foreign exchange gain, net			-				60
Other			1,286				1,413
			18,578				123,460
Other expenses:
Interest expenses			1,129				2,756
Foreign exchange loss, net			427				-
Loss on pension plan amendment			6,358				-
Other			475				2,559
			8,389				5,315
Income before income taxes			310,321				477,371
Income taxes			69,977				103,661
Net income			240,344				373,710
Less - Net income attributable to noncontrolling interests			10,806				1,819
Net income attributable to Sony Corporation’s stockholders			229,538				371,891
		Yen
		Three months ended December 31
		2019				2020
Per share data:
Net income attributable to Sony Corporation’s stockholders
– Basic			187.02				301.09
– Diluted			182.89				297.35

The accompanying notes are an integral part of these statements.

 

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  (iii)    Consolidated Statements of Comprehensive Income (Unaudited)

 

Sony Corporation and Consolidated Subsidiaries

 

		Yen in millions
		Nine months ended December 31
		2019				2020
Net income			606,517				1,084,253
Other comprehensive income, net of tax —
Unrealized gains (losses) on securities			14,757				(64,428	)
Unrealized gains on derivative instruments			60				668
Pension liability adjustment			86,162				6,805
Foreign currency translation adjustments			(17,501	)			(26,787	)
Debt valuation adjustments			-				(1,837	)
Total comprehensive income			689,995				998,674
Less – Comprehensive income attributable to noncontrolling interests			41,635				6,866
Comprehensive income attributable to Sony Corporation’s stockholders			648,360				991,808
		Yen in millions
		Three months ended December 31
		2019				2020
Net income			240,344				373,710
Other comprehensive income, net of tax —
Unrealized losses on securities			(25,168	)			(26,546	)
Unrealized gains on derivative instruments			368				1,539
Pension liability adjustment			80,122				2,346
Foreign currency translation adjustments			46,249				(3,317	)
Debt valuation adjustments			-				(644	)
Total comprehensive income			341,915				347,088
Less – Comprehensive income attributable to noncontrolling interests			2,538				1,758
Comprehensive income attributable to Sony Corporation’s stockholders			339,377				345,330

  The accompanying notes are an integral part of these statements.

 

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  (iv)    Consolidated Statements of Cash Flows (Unaudited)

 

Sony Corporation and Consolidated Subsidiaries

 

		Yen in millions
		Nine months ended December 31
		2019				2020
Cash flows from operating activities:
Net income			606,517				1,084,253
Adjustments to reconcile net income to net cash provided by operating activities–
Depreciation and amortization, including amortization of deferred insurance acquisition costs and contract costs			281,393				286,563
Amortization of film costs			212,684				197,849
Accrual for pension and severance costs, less payments			4,714				1,748
Other operating income, net			(24,017	)			(16,491	)
Gain on securities investments, net (other than financial services business)			(392	)			(205,721	)
Gain on marketable securities and securities investments held in the financial services business, net			(127,002	)			(339,714	)
Deferred income taxes			23,594				(155,881	)
Equity in net income of affiliated companies, net of dividends			(2,737	)			(2,211	)
Changes in assets and liabilities:
Increase in notes, accounts receivable, trade and contract assets			(237,477	)			(300,544	)
(Increase) decrease in inventories			34,865				(41,039	)
Increase in film costs			(296,377	)			(193,344	)
Increase (decrease) in notes and accounts payable, trade			(12,640	)			277,309
Increase in accrued income and other taxes			34,419				136,263
Increase in future insurance policy benefits and other			554,596				619,049
Increase in deferred insurance acquisition costs			(73,385	)			(69,433	)
Increase in marketable securities held in the life insurance business			(103,746	)			(119,871	)
Increase in other current assets			(15,047	)			(150,801	)
Increase (decrease) in other current liabilities			(16,443	)			66,950
Other			(9,452	)			12,574
Net cash provided by operating activities			834,067				1,087,508

(Continued on following page.)

 

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            Consolidated Statements of Cash Flows (Unaudited)

 

 

		Yen in millions
		Nine months ended December 31
		2019				2020
Cash flows from investing activities:
Payments for purchases of fixed assets			(314,791	)			(391,439	)
Proceeds from sales of fixed assets			12,445				13,699
Payments for investments and advances by financial services business			(970,438	)			(1,197,359	)
Payments for investments and advances (other than financial services business)			(40,423	)			(93,368	)
Proceeds from sales or return of investments and collections of advances by financial services business			208,164				292,090
Proceeds from sales or return of investments and collections of advances (other than financial services business)			13,169				19,604
Proceeds from sales of businesses			13,404				1,605
Proceeds from sales of Olympus Corporation Shares			80,357				-
Other			(27,969	)			(17,019	)
Net cash used in investing activities			(1,026,082	)			(1,372,187	)
Cash flows from financing activities:
Proceeds from issuance of long-term debt			110,535				336,960
Payments of long-term debt			(189,790	)			(93,913	)
Increase in short-term borrowings, net			278,028				311,912
Proceeds from issuance of short-term borrowings in connection with payment for purchase of noncontrolling interest in Sony Financial Holdings Inc.			-				396,500
Payments of short-term borrowings in connection with payment for purchase of noncontrolling interest in Sony Financial Holdings Inc.			-				(200,000	)
Increase in deposits from customers in the financial services business, net			211,135				392,891
Dividends paid			(49,621	)			(61,153	)
Payments for purchase of treasury stock			(156,187	)			(211	)
Payment for purchase of noncontrolling interest in Game Show Network, LLC			(39,894	)			-
Payment for purchase of noncontrolling interest in Sony Financial Holdings Inc.			-				(396,698	)
Other			(19,110	)			(9,628	)
Net cash provided by financing activities			145,096				676,660
Effect of exchange rate changes on cash and cash equivalents, including restricted			(14,887	)			(28,538	)
Net increase (decrease) in cash and cash equivalents, including restricted			(61,806	)			363,443
Cash and cash equivalents, including restricted, at beginning of the fiscal year			1,473,813				1,515,295
Cash and cash equivalents, including restricted, at end of the period			1,412,007				1,878,738
Less - restricted cash and cash equivalents, included in other current assets and other assets			3,131				691
Cash and cash equivalents at end of the period			1,408,876				1,878,047

The accompanying notes are an integral part of these statements.

 

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    Index to Notes to Consolidated Financial Statements

 

 

Sony Corporation and Consolidated Subsidiaries

 

Notes to Consolidated Financial Statements		Page
1.   Summary of significant accounting policies			31
2.   Marketable securities and securities investments			34
3.   Fair value measurements			36
4.   Supplemental equity and comprehensive income information			38
5.   Reconciliation of the differences between basic and diluted EPS			41
6.   Revenue			42
7.     Reversal of valuation allowances for deferred tax assets of Sony Corporation and its national tax filing group in Japan			43
8.   Unconsolidated variable interest entities			44
9.   Commitments, contingent liabilities and other			45
10.   Business segment information			46
11.   Subsequent event			55

 

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Notes to Consolidated Financial Statements (Unaudited)

 

Sony Corporation and Consolidated Subsidiaries

 

1.	Summary of significant accounting policies

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

 

(1)	Recently adopted accounting pronouncements:

Measurement of credit losses on financial instruments -

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, which amends the accounting guidance for credit losses on financial instruments. The ASU requires the consideration of all available relevant information when estimating expected credit losses, including past events, current conditions and forecasts and their implications for expected credit losses. This ASU was effective for Sony as of April 1, 2020. The adoption of this ASU did not have a material impact on Sony’s results of operations and financial position.

Improvements to Accounting for Costs of Films and License Agreements for Program Materials -

In March 2019, the FASB issued ASU 2019-02, which updates the guidance for the capitalization of film costs associated with episodic television series, requires the use of fair value rather than net realizable value when determining potential impairments of broadcasting rights, and modifies the presentation and disclosure requirements for films and broadcasting rights. In addition, upon capitalization of film costs entities are required to determine qualitatively whether the predominant monetization strategy is on a title-by-title basis or together with other films and/or broadcast rights as part of a film group, such as in the case of a release of a film as part of a library of content on a streaming service. In the case of a film group, impairments are evaluated at the overall film group level rather than the individual title level. This ASU was effective for Sony as of April 1, 2020 and was applied on a prospective basis. Upon adoption, Sony reclassified broadcasting rights in the Pictures segment and animation film production costs in the Music segment included in inventories to film costs.

 

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

 

						Yen in millions
						March 31, 2020								Impact of Adoption																April 1, 2020
														ASU 2016-13				ASU 2019-02				Total
ASSETS
Current assets:
Notes and accounts receivable, trade and contract assets							1,028,793								-				-				-								1,028,793
Allowance for credit losses *							(25,873	)							(280	)			-				(280	)							(26,153	)
Inventories							589,969								-				(31,517	)			(31,517	)							558,452
Other receivables							188,106								(30	)			-				(30	)							188,076
Prepaid expenses and other current assets							594,021								(12	)			-				(12	)							594,009
Total current assets							5,735,145								(322	)			(31,517	)			(31,839	)							5,703,306
Film costs							427,336								-				31,517				31,517								458,853
Investments and advances:
Securities investments and other							12,526,210								780				-				780								12,526,990
Allowance for credit losses							-								(6,341	)			-				(6,341	)							(6,341	)
Total investments and advances							12,734,132								(5,561	)			-				(5,561	)							12,728,571
Other assets:
Deferred income taxes							210,372								45				-				45								210,417
Other							340,005								(721	)			-				(721	)							339,284
Total other assets							3,234,086								(676	)			-				(676	)							3,233,410
Total assets							23,039,343								(6,559	)			-				(6,559	)							23,032,784
LIABILITIES
Deferred income taxes							549,538								(1,504	)			-				(1,504	)							548,034
Total liabilities							18,242,041								(1,504	)			-				(1,504	)							18,240,537
EQUITY
Sony Corporation’s stockholders’ equity:
Retained earnings							2,768,856								(3,669	)			-				(3,669	)							2,765,187
Total Sony Corporation’s stockholders’ equity							4,125,306								(3,669	)			-				(3,669	)							4,121,637
Noncontrolling interests							664,229								(1,386	)			-				(1,386	)							662,843
Total equity							4,789,535								(5,055	)			-				(5,055	)							4,784,480
Total liabilities and equity							23,039,343								(6,559	)			-				(6,559	)							23,032,784

 

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

Disclosures for Fair Value Measurement -

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

Disclosures for Defined Benefit Plans -

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

 

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

Income Taxes -

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

 

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