UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 20-F

 

☐	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

or

 

☑	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2019

or

 

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from/to

or

 

☐	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report:

Commission file number 1-6439

Sony Kabushiki Kaisha

(Exact Name of Registrant as specified in its charter)

SONY CORPORATION

(Translation of Registrant’s name into English)

Japan

(Jurisdiction of incorporation or organization)

7-1, KONAN 1-CHOME, MINATO-KU,

TOKYO 108-0075 JAPAN

(Address of principal executive offices)

J. Justin Hill, Senior Vice President, Investor Relations

Sony Corporation of America

25 Madison Avenue, 26^th Floor

New York, NY 10010-8601

Telephone: 212-833-6722

E-mail: ir@sony.com

(Name, Telephone, E-mail and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of Each Class		Trading Symbol(s)		Name of Each Exchange on Which Registered
American Depositary Shares*		SNE		New York Stock Exchange
Common Stock**		SNE		New York Stock Exchange

*	American Depositary Shares evidenced by American Depositary Receipts.

Each American Depositary Share represents one share of Common Stock.

**	No par value per share.

Not for trading, but only in connection with the listing of American Depositary Shares pursuant to the requirements of the New York Stock Exchange.

Securities registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report:

 

		Outstanding as of
		March 31, 2019				March 31, 2019
Title of Class		(Tokyo Time)				(New York Time)
Common Stock			1,250,746,867
American Depositary Shares							117,903,577

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☑    No  ☐

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ☐    No  ☑

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☑    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☑    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

☑  Large accelerated filer		☐  Accelerated filer		☐  Non-accelerated filer		☐  Emerging growth company

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.   ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

US GAAP  ☑		International Financial Reporting Standards as issued by the International Accounting Standards Board  ☐		Other  ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

 

Item 17  ☐						Item 18  ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes  ☐						No  ☑

 

 

 

Cautionary Statement

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

 

(i)

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

 

(ii)

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

 

(iii)

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

 

(iv)

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

 

(v)

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

 

(vi)

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

 

(vii)

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

 

(viii)

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

 

(ix)

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

 

(x)

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

 

(xi)

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

 

(xii)

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

 

(xiii)

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

 

(xiv)

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

 

2

(xv)

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

 

(xvi)

risks related to catastrophic disasters or similar events;

 

(xvii)

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

 

(xviii)

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

Risks and uncertainties also include the impact of any future events with material adverse impact.

Important information regarding risks and uncertainties is also set forth elsewhere in this annual report, including in “Risk Factors” under “Item 3. Key Information,” “Item 4. Information on the Company,” “Item 5. Operating and Financial Review and Prospects,” “Legal Proceedings” included in “Item 8. Financial Information,” Sony’s consolidated financial statements referenced in “Item 8. Financial Information” and “Item 11. Quantitative and Qualitative Disclosures about Market Risk.”

In this document, Sony Corporation and its consolidated subsidiaries are together referred to as “Sony” or “Sony Group.” In addition, sales and operating revenue are referred to as “sales” in the narrative description except in the consolidated financial statements.

 

3

TABLE OF CONTENTS

 

Item 1. Identity of Directors, Senior Management and Advisers			6
Item 2. Offer Statistics and Expected Timetable			6
Item 3. Key Information			6
A. Selected Financial Data			6
B. Capitalization and Indebtedness			6
C. Reasons for the Offer and Use of Proceeds			6
D. Risk Factors			6
Item 4. Information on the Company			16
A. History and Development of the Company			16
B. Business Overview			19
C. Organizational Structure			28
D. Property, Plant and Equipment			28
Item 4A. Unresolved Staff Comments			30
Item 5. Operating and Financial Review and Prospects			30
A. Operating Results			30
B. Liquidity and Capital Resources			49
C. Research and Development			50
D. Trend Information			51
E. Off-balance Sheet Arrangements			55
F. Contractual Obligations, Commitments, and Contingent Liabilities			55
Critical Accounting Policies and Estimates			56
Recently Adopted Accounting Standards			62
Recent Accounting Pronouncements			62
Item 6. Directors, Senior Management and Employees			62
A. Directors and Senior Management			62
B. Compensation			68
C. Board Practices			73
D. Employees			82
E. Share Ownership			83
Item 7. Major Shareholders and Related Party Transactions			83
A. Major Shareholders			83
B. Related Party Transactions			84
C. Interests of Experts and Counsel			84
Item 8. Financial Information			84
A. Consolidated Statements and Other Financial Information			84
Legal Proceedings			84
Dividend Policy			85
B. Significant Changes			85
Item 9. The Offer and Listing			85
A. Offer and Listing Details			85
B. Plan of Distribution			86
C. Markets			86
D. Selling Shareholders			86
E. Dilution			86
F. Expenses of the Issue			86
Item 10. Additional Information			86
A. Share Capital			86
B. Memorandum and Articles of Association			86
C. Material Contracts			94
D. Exchange Controls			94
E. Taxation			95
F. Dividends and Paying Agent			98
G. Statement by Experts			98
H. Documents on Display			98
I. Subsidiary Information			98
Item 11.  Quantitative and Qualitative Disclosures about Market Risk			98
Item 12.  Description of Securities Other Than Equity Securities			100
A. Debt Securities			100

 

4

B. Warrants and Rights			100
C. Other Securities			100
D. American Depositary Shares			100
Item 13. Defaults, Dividend Arrearages and Delinquencies			102
Item 14.  Material Modifications to the Rights of Security Holders and Use of Proceeds			102
Item 15. Controls and Procedures			102
Item 16. [Reserved]			103
Item 16A. Audit Committee Financial Expert			103
Item 16B. Code of Ethics			103
Item 16C. Principal Accountant Fees and Services			103
Audit and Non-Audit Fees			103
Audit Committee’s Pre-Approval Policies and Procedures			103
Item 16D.  Exemptions from the Listing Standards for Audit Committees			104
Item 16E.  Purchases of Equity Securities by the Issuer and Affiliated Purchasers			104
Item 16F.  Change in Registrant’s Certifying Accountant			105
Item 16G.  Disclosure About Differences in Corporate Governance			106
Item 16H. Mine Safety Disclosure			111
Item 17. Financial Statements			111
Item 18. Financial Statements			111
Item 19. Exhibits			112
Signatures			113

 

5

Item  1.

Identity of Directors, Senior Management and Advisers

Not Applicable

 

Item  2.

Offer Statistics and Expected Timetable

Not Applicable

 

Item  3.

Key Information

 

A.	Selected Financial Data

 

		Fiscal year ended March 31
		2015				2016				2017				2018				2019
		(Yen in millions, yen per share amounts)
Income statement data:
Sales and operating revenue			8,215,880				8,105,712				7,603,250				8,543,982				8,665,687
Equity in net income (loss) of affiliated companies			3,921				2,238				3,563				8,569				(2,999	)
Operating income			68,548				294,197				288,702				734,860				894,235
Income before income taxes			39,729				304,504				251,619				699,049				1,011,648
Income taxes			88,733				94,789				124,058				151,770				45,098
Net income (loss) attributable to Sony Corporation’s stockholders			(125,980	)			147,791				73,289				490,794				916,271
Comprehensive income (loss)			34,317				(44,915	)			143,652				553,220				995,542
Data per share of Common Stock:
Net income (loss) attributable to Sony Corporation’s stockholders*
— Basic			(113.04	)			119.40				58.07				388.32				723.41
— Diluted			(113.04	)			117.49				56.89				379.75				707.74
Cash dividends declared Interim			—				10.00				10.00				12.50				15.00
			—				(8.09 cents	)			(8.79 cents	)			(11.11 cents	)			(13.18 cents	)
Cash dividends declared Fiscal year-end			—				10.00				10.00				15.00				20.00
			—				(9.01 cents	)			(9.13 cents	)			(13.75 cents	)			(18.28 cents	)
Balance sheet data:
Sony Corporation’s stockholders’ equity			2,317,077				2,463,340				2,497,246				2,967,366				3,746,377
Common stock			707,038				858,867				860,645				865,678				874,291
Net assets			2,928,469				3,124,410				3,135,422				3,647,157				4,436,690
Total assets			15,834,331				16,673,390				17,660,556				19,065,538				20,981,586
Number of shares issued at fiscal year-end (thousands of shares of common stock)			1,169,773				1,262,494				1,263,764				1,266,552				1,271,230
Sony Corporation’s stockholders’ equity per share of common stock			1,982.54				1,952.79				1,977.72				2,344.96				2,995.31

* Refer to Note 23 of the consolidated financial statements.

 

B.	Capitalization and Indebtedness

Not Applicable

 

C.	Reasons for the Offer and Use of Proceeds

Not Applicable

 

D.	Risk Factors

This section contains forward-looking statements that are subject to the Cautionary Statement appearing on page 2 of this annual report. Risks to Sony are also discussed elsewhere in this annual report, including, without limitation in the other sections of this annual report referred to in the Cautionary Statement.

 

6

Sony must overcome increasingly intense competition, which could lead to lower revenue or operating margins.

Sony has several business segments in different industries with many product and service categories, which cause it to compete with many existing and new competitors ranging from large multinational companies to highly specialized entities that focus on only one or a few businesses and also, potentially, with outsourced manufacturing service partners that currently supply products to Sony. These competitors may have greater financial, technical, labor and marketing resources available to them than those available to Sony. Sony’s financial condition and operating results depend on its ability to efficiently anticipate and respond to these established and new competitors.

The competitive factors Sony faces vary depending on the nature of the business. For example, Sony’s electronics businesses compete on the basis of various factors including price and function, while Sony’s Music and Pictures businesses compete for talent, such as artists, songwriters, actors, directors and producers, and for entertainment content that is created, acquired, licensed and/or distributed. Competition on price in the electronics businesses can lead to lower margins when costs do not fall at a proportional rate, and competition for talent and appealing product in the entertainment businesses can also lead to lower profitability if the higher costs required for such talent and content creation cannot be recouped through greater sales. Moreover, even for those products where Sony believes it has a strong competitive advantage, such as image sensors, it is possible that its competitors’ technological capabilities will accelerate such that Sony would be unable to maintain its advantageous market position. In its consumer electronics businesses, to produce products that appeal to changing and increasingly diverse consumer preferences or to overcome the fact that a relatively high percentage of consumers already possess similar products, Sony must develop superior technology, anticipate consumer tastes and rapidly develop attractive and differentiated products with competitive prices and features. Sony faces increasingly intense pricing pressure from competitors, retailer consolidation, new sales/distribution channels and shorter product cycles in a variety of consumer product categories. In the Music and Pictures segments, operating results can be impacted by worldwide consumer acceptance of their products, which is difficult to predict, by competing products released at or near the same time and by alternative forms of entertainment and leisure activities available to consumers.

If Sony is unable to maintain its advantageous market position in the fields in which it has a technological or other competitive advantage, Sony is unable to effectively anticipate and counter the ongoing price erosion that frequently affects its consumer products or the cost pressures affecting its businesses, there is a change in existing business models or consumer preferences, or the average prices of Sony’s consumer products decrease faster than Sony is able to reduce manufacturing costs, Sony’s operating results and financial condition may be adversely impacted.

To remain competitive and stimulate customer demand, Sony must invest in research and development to achieve product and service innovations and successfully manage frequent introductions of such new products and services.

To strengthen the competitiveness of its products and services, Sony continues to invest in research and development (“R&D”), particularly in growth areas such as image sensors and the Game & Network Services (“G&NS”) segment. However, Sony may not be successful in investing in R&D if it fails to identify products, services and market trends with significant growth potential. In addition, Sony’s investments may not yield the innovation or the expected results quickly enough, or competitors may lead Sony in technological innovation. This may hinder Sony’s ability to commercialize new and competitive products and services.

In the consumer electronics, network services and mobile communication industries, Sony must continually introduce, enhance and stimulate customer demand for products and services. Sales of these products and services are particularly sensitive to the significant weighting of consumer demand to the year-end holiday season. In Sony’s G&NS segment, the successful introduction and penetration of gaming platforms is a significant factor driving sales and profitability, and this success is affected by the ability to provide customers with attractive software line-ups and online services. However, there is no assurance that third-party software developers and publishers, major contributors to this effort, will continue to develop and release software. In addition, Sony believes that integrating its hardware, software, entertainment content and network services, and investing in R&D to effect such integration, is essential in generating revenue growth and profitability. However, this strategy depends on its ability to further develop network services technologies, coordinate and prioritize strategic and operational issues among Sony’s various business units and sales channels, continually introduce enhanced and competitively priced hardware that is seamlessly connected to network platforms with user interfaces that are innovative and attractive to consumers and also standardize technological and interface

 

7

specifications industry-wide and across Sony’s networked products and business units. In addition, the G&NS, Music and Pictures segments must invest substantial amounts, which may include significant upfront investments, in internally developed software titles, artist advances, motion picture productions, television productions and broadcast programming before knowing whether their products will receive customer acceptance. Furthermore, underperformance of Pictures’ products in the initial distribution market is correlated with weak performance in subsequent distribution markets, which would have an adverse effect on Sony’s results in the year of initial release as well as future years.

The successful introductions of, and transitions to, new products and services depend on a number of factors, such as the timely and successful completion of development efforts, market acceptance, planning and executing an effective marketing strategy, managing new product introductions, managing production ramp-up issues, the availability of application software for new products, quality control and the concentration of consumer demand in the year-end holiday season. If Sony cannot achieve the expected results from its investment in R&D, adequately manage frequent introductions of new products and services and obtain consumer acceptance of its new products and services, or if Sony is not successful in implementing its integration strategy, Sony’s reputation, operating results and financial condition may be adversely impacted.

Sony’s strategic initiatives, including acquisitions, joint ventures, investments, capital expenditures and restructurings, may not be successful in achieving their strategic objectives.

Sony actively engages in acquisitions, joint ventures, capital expenditures and other strategic investments to acquire new technologies, efficiently develop new businesses and enhance its business competitiveness. For example, on November 14, 2018, Sony acquired the entirety of the remaining approximately 60% equity interest in DH Publishing, L.P. (“EMI”), which owned and managed EMI Music Publishing, not already held by Sony, making EMI a wholly-owned subsidiary of Sony.

When making acquisitions, Sony’s financial results may be adversely affected by the significant cost of the acquisition and/or integration expenses, failure to achieve synergies, failure to generate expected revenue and cost improvements, loss of key personnel and assumption of liabilities.

When establishing joint ventures and strategic partnerships, Sony’s financial and operating results may be adversely affected by strategic or cultural differences with partners, conflicts of interest, failure to achieve synergies, additional funding or debt guarantees required to maintain the joint venture or partnership, requirements to buy out a joint venture partner, sell its shares or dissolve a partnership, insufficient management control including control over cash flow, loss of proprietary technology and know-how, impairment losses and reputational harm from the actions or activities of a joint venture that uses the Sony brand.

Sony invests heavily in production facilities and equipment in its electronics businesses, including fabrication facilities used to make image sensors for smartphones and other products. Sony may not be able to recover these capital expenditures in part or full or in the planned timeframe due to the competitive environment, lower-than-expected consumer demand or changes in the financial condition or business decisions of Sony’s major customers. Sony invested 106.6 billion yen and 128.9 billion yen of capital in the fiscal years ended March 31, 2018 and 2019, respectively, mainly for the purpose of increasing image sensor production capacity.

Further, Sony is implementing restructuring and transformation initiatives to enhance profitability, business autonomy and shareholder value and to clearly position each business within the overall business portfolio. For example, Sony transferred its battery business to Murata Manufacturing Co., Ltd. Group in the fiscal year ended March 31, 2018. The expected benefits of these initiatives, including the expected level of profitability, may not be realized due to internal and external impediments or market conditions worsening beyond expectations. If Sony is not successful in achieving its restructuring and transformation initiatives, Sony’s operating results, financial condition, reputation, competitiveness or profitability may be adversely affected. Sony incurred restructuring charges in the amount of 60.2 billion yen, 22.4 billion yen and 33.1 billion yen in the fiscal years ended March 31, 2017, 2018 and 2019, respectively.

Sony’s sales and profitability may be affected by the operating performance of wholesalers, retailers, other resellers and third-party distributors.

Sony is dependent for the distribution of its products on wholesalers, retailers, other resellers and third-party distributors, many of whom also distribute competitors’ products. For example, in some cases, Sony’s smartphones sold through cellular network carriers are subsidized by the carriers. There is no assurance that such subsidies will be continued at all or in the same amounts upon renewal of Sony’s agreements with these carriers or in agreements Sony enters into with new carriers. In addition, the Pictures segment depends on third-party

 

8

exhibitors to distribute its motion pictures, and cable, satellite and other distribution systems to distribute its motion pictures and television programming; a decline in the licensing fees received from these third parties may adversely affect the Pictures segment’s sales. The Pictures segment’s worldwide television networks are also distributed on third-party cable, satellite and other distribution systems and the failure to renew, or renewal on less favorable terms of, television carriage contracts (broadcasting agreements) with these third-party distributors may adversely affect the Pictures segment’s ability to generate advertising and subscription sales through these networks.

Sony invests in programs to incentivize wholesalers, retailers, and other resellers and third-party distributors to position and promote Sony’s products, but there is no assurance that these programs will provide a significant return or incremental revenue by persuading consumers to buy Sony products instead of competitors’ products.

The operating results and financial condition of many wholesalers, retailers, other resellers and third-party distributors have been adversely impacted by competition, especially from online retailers, and weak economic conditions. If their financial condition continues to weaken, they stop distributing Sony’s products, or uncertainty regarding demand for Sony’s products or other factors cause them to reduce their ordering, marketing, subsidizing, or distributing Sony’s products, Sony’s operating results and financial condition may be adversely impacted.

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 businesses and 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.

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 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.

 

9

Sony must manage its large and increasing volume of procurement from third-party suppliers and business partners to control inventory levels, availability, costs and quality of parts, components, software and network services within volatile markets.

Sony’s products and services increasingly rely on third-party suppliers and business partners for parts, components, software and network services, including semiconductors, chipsets for PlayStation game consoles and mobile products, liquid crystal display (“LCD”) panels and the Android OS that is used in mobile products, televisions and services. External suppliers’ and partners’ shortages, fluctuations in pricing, quality issues, discontinued support, changes in business terms or prioritization of customers outside the electronics sector or of Sony’s competitors can adversely affect Sony’s operating results, brand and reputation. Reliance on third-party software and technologies may make it increasingly difficult for Sony to differentiate its products from competitors’ products. Also, shortages or delayed shipments of critical parts or components may result in a reduction or suspension of production at Sony’s or its business partners’ manufacturing sites, particularly where Sony is substantially reliant on one supplier, where there is limited production capacity for custom parts or components, or where there are initial manufacturing capacity constraints for products, parts or components that use new technologies.

Sony places orders for parts and components in line with production and inventory plans determined in advance based on its forecast of consumer demand, which is highly volatile and difficult to predict. Inaccurate forecasts of consumer demand or inadequate business planning can lead to a shortage or excess inventory, which can disrupt production plans and result in lost sales opportunities or inventory adjustments, respectively. Sony writes down the value of its inventory when the underlying parts, components or products have become obsolete, when inventory levels exceed the amount expected to be used, or when the value of the inventory is otherwise recorded at a value higher than net realizable value. For example, Sony recorded a 6.5 billion yen inventory write-down of certain image sensors for mobile products in the fiscal year ended March 31, 2017. Such lost sales opportunities, inventory adjustments, or shortages of parts and components have had and may have an adverse impact on Sony’s operating results and financial condition.

Sony’s sales, profitability and operations are sensitive to global and regional economic and political trends and conditions.

Sony’s sales and profitability are sensitive to economic trends in its major markets. In the fiscal year ended March 31, 2019, 29.9%, 22.9% and 21.5% of Sony’s sales and operating revenue were attributable to Japan, the U.S. and Europe, respectively. These markets may be subject to significant economic downturns, resulting in an adverse impact on Sony’s operating results and financial condition. An actual or expected deterioration of economic conditions in any of Sony’s major markets may result in a decline in consumers’ consumption and adverse impacts on the businesses of commercial customers, resulting in reduced demand for Sony’s products and services. For example, in the Pictures segment, a general decline in the economy may result in decreased overall spending within the advertising market and a decline in third-party television networks’ ability to generate revenues, which could result in lower license fees paid by these networks for Sony’s content, which may adversely affect the Picture segment’s revenues.

In addition, Sony’s operations are conducted in many countries and regions around the world, and these international operations, particularly in certain emerging markets, can create challenges. For example, in Sony’s electronics businesses, production and procurement of products, parts and components in China and other Asian countries and regions increase the time necessary to supply products to other markets worldwide, which can make it more difficult to meet changing customer demand in a timely manner. Further, in certain countries and regions, Sony may encounter difficulty in planning and managing operations due to unfavorable political or economic factors, such as armed conflicts, deterioration in foreign relations, changes in trade policies, non-compliance with expected business conduct and a lack of adequate infrastructure. If international or domestic political and military instability disrupts Sony’s business operations or those of its business partners Sony’s operating results and financial condition may be adversely affected.

Foreign exchange rate fluctuations can affect Sony’s operating results and financial condition.

Sony’s operating results and financial condition are sensitive to foreign exchange rate fluctuations because many of Sony’s products are sold in countries other than the ones in which they were developed and/or manufactured. For example, within Sony’s electronics businesses, research and development and headquarters’ overhead costs are incurred mainly in yen, and manufacturing costs, including material costs, costs of procurement of parts and components, and costs of outsourced manufacturing services, are incurred mainly in the U.S. dollar and yen. Sales are dispersed and recorded in Japanese yen, the U.S. dollar, euro, Chinese renminbi,

 

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and local currencies of other areas, including emerging markets. Consequently, foreign exchange rate fluctuations have had and may have an adverse impact on Sony’s operating results, especially when the yen or the euro weaken significantly against the U.S. dollar, when the yen strengthens significantly against the euro, or when the U.S. dollar strengthens against emerging market currencies. Sony’s operating results may also be adversely impacted by foreign exchange rate fluctuations since Sony’s consolidated statements of income are prepared by translating the local currency denominated operating results of its subsidiaries around the world into yen. Furthermore, as Sony’s businesses have expanded in China and other areas, including emerging markets, the impact of fluctuations of foreign currency exchange rates in these areas against the U.S. dollar and yen has increased. Mid- to long-term changes in exchange rate levels may interfere with Sony’s global allocation of resources and hinder Sony’s ability to engage in research and development, procurement, production, logistics, and sales activities in a manner that is profitable after the effect of such exchange rate changes.

Although Sony seeks to reduce its exposure to foreign exchange risk by hedging a portion of its net short-term foreign currency exposure shortly before the transactions are projected to occur, such hedging activity may not offset any, or only a portion, of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place.

Moreover, since Sony’s consolidated balance sheet is prepared by translating the local currency denominated assets and liabilities of its subsidiaries around the world into yen, Sony’s equity capital may be adversely impacted when the yen strengthens significantly against the U.S. dollar, the euro and/or other foreign currencies.

Ratings downgrades or significant volatility and disruption in the global financial markets may adversely affect the availability and cost of Sony’s funding.

Sony’s credit ratings may be adversely impacted by unfavorable operating results and a decline in its financial condition. Any credit rating downgrades may, in turn, result in an increase in Sony’s cost of funding and may have an adverse impact on Sony’s ability to access commercial paper or mid- to long-term debt markets on acceptable terms.

Additionally, global financial markets may experience significant levels of volatility and disruption, generally putting downward pressure on financial and other asset prices and impacting credit availability. Historically, Sony’s primary sources of funds have been cash flows from operations, the issuance of commercial paper and other debt securities, such as term debt, as well as borrowings from banks and other institutional lenders. There can be no assurance that such sources will continue to be available on acceptable terms or be sufficient to meet Sony’s needs.

As a result, Sony may seek other sources of financing to fund operations, such as the draw-down of funds from contractually committed lines of credit from financial institutions or the sale of assets, in order to repay commercial paper and mid- to long-term debt as they become due, and to meet other operational and liquidity needs. However, such funding sources may also not be available at acceptable terms or be sufficient to meet Sony’s requirements. As a result, Sony’s operating results, financial condition and liquidity may be adversely affected.

Sony’s success depends on the ability to recruit, retain and maintain productive relations with highly skilled personnel.

In order to continue to develop, design, manufacture, market, and sell products and services, in increasingly competitive markets, Sony must attract, retain and maintain productive relations with key personnel, both internally and externally, including its executive team, other management professionals, creative talent and other highly skilled employees such as hardware and software engineers. However, such key personnel are in high demand. In addition, business divestitures, restructuring or other transformation initiatives may lead to an unintended loss of experienced human resources or know-how. Actual or threatened work slowdowns or stoppages related to unionized workers, particularly in the entertainment businesses, could lead to delayed releases or cost increases. If these incidents occur or if Sony is unable to attract, retain and maintain productive relations with its highly skilled employees and key management professionals, Sony’s operating results and financial condition may be adversely affected.

Sony’s intellectual property might be subject to unauthorized use or theft and it might encounter restrictions in its use of intellectual property owned by third parties.

Sony’s intellectual property relating to Sony’s products and services, including those of the electronics businesses, such as image sensors, might be subject to unauthorized use or theft. For example, digital technology,

 

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the availability of digital media, and global internet penetration impact Sony’s ability to protect its copyrighted content from unauthorized duplication, digital theft and counterfeiting, putting pressure on legitimate product sales. Sony has incurred and will continue to incur expenses to help protect its intellectual property rights; however, Sony’s various initiatives to prevent such unauthorized use or theft of intellectual property might not achieve their intended result, which could adversely affect Sony’s competitive position and the value of its investment in R&D. Additionally, Sony’s intellectual property rights may be challenged or invalidated, or such intellectual property rights may not be sufficient to provide Sony with competitive advantages.

Many of Sony’s products and services are designed under the license of patents and other intellectual property rights owned by third parties. Based upon past experience and industry practice, Sony believes it will be able to obtain or renew licenses relating to various intellectual property rights that its business needs in the future; however, such licenses may not be available at all or on acceptable terms, and as a consequence Sony may need to redesign or discontinue its marketing, selling or distribution of such products or services.

Claims have been and may be asserted against Sony that its products or services, including third-party parts, components, software and network services used in Sony’s products or services, infringe the intellectual property rights of other parties. Such claims may be asserted by competitors or by other rights holders, particularly as products and services evolve to include new technologies and enhanced functionality. Such claims might require Sony to enter into settlement or license agreements, pay significant damage awards, face an injunction or refrain from marketing, selling or distributing certain of its products and services.

The failure to prevent unauthorized use or theft of Sony’s intellectual property rights, the failure to enter into licenses for necessary third-party intellectual property rights, the invalidation of Sony’s intellectual property rights or the settlement of an infringement claim against Sony by others may adversely impact Sony’s reputation, operating results and financial condition.

Changes in consumer behavior resulting from new technologies and distribution platforms, as well as increasing concentration of digital music distributors and creation of content by distributors themselves, may adversely affect operating results in Sony’s Music and Pictures segments.

Technology, particularly digital technology, used in the Music and Pictures segments continues to evolve, rapidly leading to alternative methods for the delivery, consumption and storage of digital content. These technological advancements have changed consumer behavior and empowered consumers to seek more control over when, where and how they consume digital content.

The prevalence of enhanced internet capabilities and other new media may continue to reduce the demand for packaged physical media and impact traditional broadcast television and in-theater motion picture viewership, which could negatively affect revenues from Sony’s Pictures segment.

Furthermore, as more music and video content is consumed over digital streaming networks, digital music distributors are becoming increasingly concentrated, which may decrease competition for Sony’s music content and adversely affect its pricing. In addition, digital music and video distributors may increase the amount of content they create for their own services, which may reduce the demand for content created or produced by Sony’s entertainment businesses. If Sony is unable to adequately respond to these changes or fails to effectively anticipate or adapt to new market changes, Sony’s operating results and financial condition may be adversely impacted.

Changes in the regulation and performance of financial markets may adversely affect the operating results and financial condition of Sony’s Financial Services segment.

Sony’s Financial Services segment operates in industries subject to comprehensive regulation and supervision, including the Japanese insurance and banking industries. Future developments or changes in laws, regulations or policies may lead to increased compliance costs or limitations on operations in the Financial Services segment. In addition, Sony Corporation’s ability to receive funds from its affiliate Sony Financial Holdings Inc. (“SFH”) in the form of financial support or loans is restricted by guidelines issued by regulatory agencies in Japan.

Changes in interest rates, foreign exchange rates and the value of Japanese government and corporate bonds, U.S. treasury bonds, equities, real estate and other asset classes may have an adverse effect on the operating results and financial condition of the Financial Services segment. For example, the life insurance business has invested most of its general account assets in ultra-long-term Japanese government and corporate bonds, as well as ultra-long-term U.S. treasury bonds, to match the liability characteristics of the long-term maturity insurance

 

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policies it has underwritten. The life insurance business has guaranteed yields on outstanding policies while its investment portfolio could be reduced by the market changes discussed above. The banking businesses have invested most of their total loan balance, or over half of their total assets, in their mortgage loans account. An increase in non-performing loans or a decline in prices of the real estate collateral from the market changes discussed above or deterioration of credit quality may have an adverse effect on operating results and financial condition through an increase in the allowance for doubtful accounts.

The market changes discussed above, Sony’s management of these changes or the occurrence of earthquakes, pandemic disease or other catastrophic events in Japan could expose the life and non-life insurance businesses to increasing costs or adverse impact on their ability to meet policy commitments.

The insurance businesses’ policy reserves and deferred insurance acquisition costs are calculated based on many actuarial assumptions that are uncertain. Significant differences between these actuarial assumptions and actual situations may result in additional policy reserves being recorded and the accelerated amortization of deferred acquisition costs, through the changes of calculation assumptions. In particular, the insurance businesses calculate policy reserves and deferred insurance acquisition costs based on the actuarial assumptions, assuming the future schedule of insurance premium revenue, yield of investments, claims to be paid for occurrence of insured events and other factors. The review of these actuarial assumptions is required at least once in each fiscal year.

Sony’s facilities and operations are subject to damage and disruption as a result of catastrophic disasters, outages or similar events that could lead to supply chain, manufacturing and other business disruptions and have an adverse impact on Sony’s operating results.

Sony’s headquarters and many of Sony’s most advanced device manufacturing facilities, including those for semiconductors, are located in Japan, where the risk of earthquakes is relatively high. A major earthquake in Japan, especially in Tokyo, the Tokai area or the Kyushu and Tohoku areas, where Sony headquarters, certain product manufacturing sites and semiconductor manufacturing sites, respectively, are located, could cause substantial damage to Sony’s business operations, including damage to buildings, machinery, equipment and inventories, and the interruption of production at manufacturing facilities. For example, the earthquake of April 14, 2016 and subsequent earthquakes in the Kumamoto region in Japan caused damage to a semiconductor manufacturing site in Kyushu, which interrupted production at the site.

In addition, offices and facilities used by Sony, its suppliers, service providers and business partners, including those used for raw materials, parts, components, network, telecommunications and information systems infrastructure, R&D, material procurement, manufacturing, motion picture and television production, logistics, sales, and online and other services are located throughout the world and are subject to possible destruction, temporary stoppage or disruption as a result of unexpected catastrophic events such as natural disasters, pandemic diseases, terrorist attacks, large-scale power outages and large-scale fires. If any of these facilities or offices were to experience a significant loss as a result of any of the above events, it may disrupt Sony’s operations, delay design, development or production, interrupt shipments and postpone the recording of sales, and/or result in large expenses to repair or replace these facilities or offices. Sony may also be exposed to price increases for raw materials, parts and components, and lower demand from commercial customers. These situations may have an adverse impact on Sony’s operating results and financial condition.

Sony’s brand image, reputation and business may be harmed and Sony may be subject to legal and regulatory claims if there is a breach or other compromise of Sony’s information security or that of its third-party service providers or business partners.

Sony, its third-party service providers, suppliers and other business partners make extensive use of information technology to support business operations, and to provide network and online services to customers. These operations and services, as well as Sony’s business information, may be intentionally or inadvertently compromised by malicious third parties, including state-sponsored organizations, criminal organizations, Sony employees, third-party service providers or other business partners. Such organizations or individuals may use a variety and combination of techniques, such as installing malicious software, exploiting vulnerabilities in information technology, using social engineering to mislead employees and business partners into disclosing passwords and sensitive information, and coordinating distributed denial-of-service attacks to render services unavailable. As cyber-attacks become increasingly sophisticated and automated, and as tools and resources become more readily available, there can be no guarantee that Sony’s actions, security measures and controls designed to prevent, detect or respond to intrusion, to limit access to data, to prevent loss, destruction, alteration, or exfiltration of business information, or to limit the negative impact from such attacks can provide absolute

 

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security against compromise. As a result, Sony’s business information, including personal information, may be lost, destroyed, disclosed, misappropriated, altered, or accessed without consent, and Sony’s information technology systems or operations, or those of its service providers or other business partners, may be disrupted. Malicious adversaries may also use unauthorized access to Sony’s networks as a platform to compromise Sony’s third-party business partners without Sony’s knowledge. Sony has previously been the subject of sophisticated and targeted attacks. For example, in the fiscal year ended March 31, 2015, Sony’s Pictures segment was subject to a cyber-attack that resulted in unauthorized access to, and theft and disclosure of, Sony business information, including employee information and other information, and the destruction of data. Additionally, Sony’s network services, online game businesses and websites have been subject to cyber-attacks by groups and individuals with a range of motives and expertise, resulting in unauthorized access, denial of service, and the theft and/or disclosure of customer information.

Any of the above incidents can result in significant remediation costs. In addition, a disruption to Sony’s network and online services, information technology, or other compromise of its information security may have serious consequences to its business and operations, including lost revenues, damage to relationships with business partners and other third parties, disclosure, alteration, destruction or use of proprietary information and the failure to retain or attract customers. Moreover, such disruptions and breaches may result in a diversion of management’s attention and resources. Further, it may result in adverse media coverage, which may harm Sony’s brand image and reputation. Sony may also be subject to legal claims or legal proceedings, including regulatory investigations and actions. Sony’s cyber insurance may not cover all expenses and losses and, accordingly, such breaches or other compromises of Sony’s information security or that of its third-party service providers or business partners may have an adverse impact on Sony’s operating results and financial condition.

Sony’s business may suffer as a result of adverse outcomes of litigation and regulatory actions.

Sony faces the risk of litigation and regulatory actions in different countries in connection with its operations. Legal proceedings, including regulatory actions, may seek to recover very large indeterminate amounts or to limit Sony’s operations, and the possibility that they may arise and their magnitude may remain unknown for substantial periods of time. For example, legal proceedings, including regulatory actions, may result from antitrust scrutiny of market practices for anti-competitive conduct. A substantial legal liability or adverse regulatory outcome and the substantial cost to defend the litigation or regulatory actions may have an adverse effect on Sony’s reputation, operating results and financial condition.

Sony is subject to financial and reputational risks due to product quality and liability issues.

Sony’s products and services, such as consumer products, non-consumer products, parts and components, semiconductors, software and network services are becoming increasingly sophisticated and complicated as rapid advancements in technologies occur and as demand increases for mobile products and online services. Also, many Sony products are connected to the internet, and regularly communicate with services provided by Sony or third parties.

Sony’s efforts to adapt to rapid advancements in technologies and increased demand for mobile products and online services, while also maintaining product quality, may not be successful and may increase exposure to product liability. As a result, Sony may incur both reputational damages and expenses in connection with, for example, product recalls and after-sales services. In addition, Sony may not be successful in introducing after-sales upgrades, enhancements or new features to existing products and services, or in enabling existing products and services to continue to conveniently and effectively integrate with other technologies and online services. Moreover, cyber-attacks targeting internet-connected products have increased significantly. For example, customer information and Sony or third-party technical information may be misappropriated, the functionality of Sony’s products and services may be impaired, or Sony products may be used in denial-of-service attacks. There can be no guarantee that Sony’s security measures will prevent products from being compromised.

As a result, the quality of Sony’s existing products and services may not remain satisfactory to consumers and become less marketable, less competitive or obsolete, and Sony’s reputation, operating results and financial condition may be adversely affected. Moreover, allegations of security vulnerability, health and safety issues related to Sony products, or lawsuits related to product quality, health issues arising from products or product safety, regardless of merit, may adversely impact Sony’s operating results and financial condition, either directly or as a result of the impact on Sony’s brand image and reputation as a producer of high-quality products and services. These issues are relevant to Sony products sold directly to customers, whether manufactured by Sony or a third party, and also to products of other companies that are equipped with Sony’s components, such as semiconductors.

 

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Sony’s financial results and condition may be adversely affected by its employee benefit obligations.

Sony recognizes an unfunded pension obligation for its defined benefit pension plans based on (i) the Projected Benefit Obligation (“PBO”) under each pension plan less (ii) the fair value of the pension plan’s assets, in accordance with the accounting guidance for defined benefit plans. Any decrease of the pension plan asset value or increases in the PBO due to a lower discount rate, increases in rates of compensation and changes in certain other actuarial assumptions may increase the unfunded pension obligations and may have an adverse effect on Sony’s financial results and condition.

Also, Sony’s financial results and condition could be adversely affected by future pension funding requirements pursuant to the Japanese Defined Benefit Corporate Pension Plan Act (“Act”). Under the Act, Sony is required to conduct a periodic actuarial revaluation and to ascertain whether certain financial criteria have been met after the annual accounting closing. In the event that the fair value of pension plan assets falls below the actuarial reserve required by law and the shortfall may not be recovered within a certain moratorium period permitted by laws and/or special legislative decree, Sony may be required to make an additional contribution to its plans, which may reduce cash flows. Similarly, if Sony is required to make an additional contribution to a foreign plan to meet any funding requirements in accordance with local laws and regulations in each country, Sony’s cash flows might be adversely affected. If Sony is required to increase cash contributions to its pension plans when actuarial assumptions, such as an expected long-term rate of return of the pension plan assets, are updated for purposes of determining statutory contributions, it may have an adverse impact on Sony’s cash flows.

Further losses in jurisdictions where Sony has established valuation allowances against deferred tax assets, the inability of Sony to fully utilize its deferred tax assets, limitations on the use of its deferred tax assets under local law, exposure to additional tax liabilities or changes in Sony’s tax rates could adversely affect Sony’s net income and financial condition.

Sony is subject to income taxes in Japan and numerous other jurisdictions, and in the ordinary course of its business there are many situations where the ultimate tax determination can be uncertain, because of the transfer pricing for its intercompany transactions, and Sony is subject to continuous review by tax authorities of numerous jurisdictions. The calculation of Sony’s tax provision and the carrying value of tax assets, including net operating loss carryforwards and tax credit carryforwards, require significant judgment and the use of estimates, including estimates of future taxable income. As additional evidence becomes available, Sony reassesses these assets to determine if they remain appropriate or whether a reduction by a valuation allowance is appropriate. As of March 31, 2019, total established valuation allowances were 723.1 billion yen. An increase in a valuation allowance may have an adverse impact on Sony’s net income and financial condition.

Deferred tax assets are evaluated on a jurisdiction by jurisdiction basis. As of March 31, 2019, Sony and/or its subsidiaries had valuation allowances principally in Japan and the U.S. Additionally, deferred tax assets could expire unused or otherwise not be realizable for a variety of reasons including the lack of sufficient taxable income in the appropriate jurisdiction. Sony’s net income and financial condition could be adversely affected when the deferred tax assets expire unused.

In some jurisdictions, the use of net operating loss carryforwards or tax credits to reduce taxable income in a subsequent period is limited to a fixed percentage of taxable income or may only be used to offset taxes on income from certain sources. Thus, it is possible that even with significant net operating loss carryforwards or tax credits, Sony could record and pay taxes in a jurisdiction where it has taxable income.

In addition to the above, Sony’s future effective tax rates may be unfavorably affected by changes in both the statutory rates and the mix of earnings in countries with differing statutory rates or by other factors such as changes in tax laws and regulations or their interpretation, including limitations or restrictions on various tax deductions and credits, including deductions for royalties and interest. For example, compliance with the U.S. Tax Cuts and Jobs Act of 2017 (the “U.S. Tax Reform Act”) may require the use of estimates in Sony’s financial statements, and the exercise of significant judgment in accounting for its provisions. As regulations and guidance evolve with respect to the U.S. Tax Reform Act, Sony may make adjustments to amounts that have been previously recorded that may materially affect Sony’s operating results and financial condition.

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, including production facilities and equipment in its electronics businesses. A decline in financial performance, market capitalization, reduced estimates of future cash flows, changes in global economic conditions or changes in estimates and assumptions used in the impairment analysis, which in many cases requires significant judgment,

 

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could result in impairment charges against these assets. Goodwill and indefinite lived intangible assets are tested annually for impairment 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 below the carrying amount. Such an event or change in circumstances would include unfavorable variances from or adjustments to established business plans, significant changes in forecasted results or volatility inherent to external markets and industries. The increased levels of global competition and the faster pace of technological change to which Sony is exposed can result in greater volatility of these estimates, assumptions and judgments, and increase the likelihood of impairment charges. 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, including the types of events or changes described above with respect to goodwill and intangible assets, indicate that the carrying value of the assets or asset groups may not be recoverable. 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. For example, in the fiscal year ended March 31, 2017, Sony recorded a 23.9 billion yen impairment charge against long-lived assets in the Semiconductors segment resulting from the termination of the development and manufacturing of certain high-functionality camera modules for external sale, as well as a 112.1 billion yen impairment charge related to goodwill in the Pictures segment. In the fiscal year ended March 31, 2018, Sony recorded a 31.3 billion yen impairment charge against long-lived assets in the Mobile Communications segment. In the fiscal year ended March 31, 2019, Sony recorded a 19.2 billion yen impairment charge against long-lived assets in the Mobile Communications segment, as well as a 12.9 billion yen impairment charge related to long-lived assets and goodwill in All Other. Any such charge may adversely affect Sony’s operating results and financial condition.

Holders of American Depositary Shares have fewer rights than shareholders and may not be able to enforce judgments based on U.S. securities laws.

The rights of shareholders under Japanese law to take actions, including voting their shares, receiving dividends and distributions, bringing derivative actions, examining Sony’s accounting books and records, and exercising appraisal rights, are available only to shareholders of record. Because the depositary, through its custodian agents, is the record holder of the shares underlying the American Depositary Shares (“ADSs”), only the depositary can exercise those rights in connection with the deposited shares. The depositary will make efforts to vote the shares underlying ADSs in accordance with the instructions of ADS holders and will pay the dividends and distributions collected from Sony. However, ADS holders will not be able to bring a derivative action, examine Sony’s accounting books and records, or exercise appraisal rights through the depositary.

Sony Corporation is incorporated in Japan with limited liability. A majority of Sony’s directors and corporate executive officers are non-U.S. residents, and a substantial portion of the assets of Sony Corporation and the assets of Sony’s directors and corporate executive officers are located outside the U.S. As a result, it may be more difficult for investors to enforce against Sony Corporation or such persons, judgments obtained in U.S. courts predicated upon civil liability provisions of the federal and state securities laws of the U.S. or similar judgments obtained in other courts outside Japan. There is doubt as to the enforceability in Japanese courts, in original actions or in actions for enforcement of judgments of U.S. courts, of civil liabilities predicated solely upon the federal and state securities laws of the U.S.

 

Item 4.

Information on the Company

 

A.	History and Development of the Company

Sony Corporation was established in Japan in May 1946 as Tokyo Tsushin Kogyo Kabushiki Kaisha, a joint stock company (Kabushiki Kaisha) under Japanese law. In January 1958, it changed its name to Sony Kabushiki Kaisha (“Sony Corporation” in English).

In December 1958, Sony Corporation was listed on the Tokyo Stock Exchange (the “TSE”). In June 1961, Sony Corporation issued American Depositary Receipts (“ADRs”) in the U.S.

In March 1968, Sony Corporation established CBS/Sony Records Inc. in Japan, as a 50-50 joint venture company between Sony Corporation and CBS Inc. in the U.S. In January 1988, the joint venture became a wholly-owned subsidiary of Sony Corporation, and in April 1991, changed its name to Sony Music Entertainment (Japan) Inc. (“SMEJ”). In November 1991, SMEJ was listed on the Second Section of the TSE.

In September 1970, Sony Corporation was listed on the New York Stock Exchange (the “NYSE”).

In August 1979, Sony Corporation established Sony Prudential Life Insurance Co., Ltd. in Japan, as a 50-50 joint venture company between Sony Corporation and The Prudential Insurance Company of America. In

 

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April 1991, the joint venture changed its name to Sony Life Insurance Co., Ltd. (“Sony Life”). In March 1996, Sony Life became a wholly-owned subsidiary of Sony Corporation, and in April 2004, with the establishment of Sony Financial Holdings, Inc. (“SFH”), a financial holding company, Sony Life became a wholly-owned subsidiary of SFH.

In July 1984, Sony Magnescale Inc., a subsidiary of Sony Corporation, was listed on the Second Section of the TSE. The subsidiary changed its name to Sony Precision Technology Inc. in October 1996 and then to Sony Manufacturing Systems Corporation in April 2004. In April 2012, Sony Manufacturing Systems was merged into Sony EMCS Corporation. Sony EMCS Corporation changed its name to Sony Global Manufacturing & Operations Corporation in April 2016.

In July 1987, Sony Chemicals Corporation, a subsidiary of Sony Corporation, was listed on the Second Section of the TSE. The subsidiary changed its name to Sony Chemical & Information Device Corporation in July 2006, and changed its name again to Dexerials Corporation in October 2012.

In January 1988, Sony Corporation acquired CBS Records Inc., the music business division of CBS Inc. in the U.S. The acquired company changed its name to Sony Music Entertainment Inc. in January 1991 and then to Sony Music Holdings Inc. in December 2008.

In November 1989, Sony Corporation acquired Columbia Pictures Entertainment, Inc. in the U.S. In August 1991, Columbia Pictures Entertainment, Inc. changed its name to Sony Pictures Entertainment Inc. (“SPE”).

In November 1993, Sony established Sony Computer Entertainment Inc. (“SCEI”) in Japan. SCEI changed its name to Sony Interactive Entertainment Inc. (“SIEI”) in April 2016.

In October 1995, Sony/ATV Music Publishing LLC (“Sony/ATV”) was formed as a 50-50 joint venture company between Sony Corporation and Michael Jackson. In September 2016, the joint venture became a wholly-owned subsidiary of Sony Corporation.

In January 2000, acquisition transactions by way of a share exchange were completed such that three subsidiaries which had been listed on the TSE — SMEJ, Sony Chemicals Corporation (currently Dexerials Corporation), and Sony Precision Technology Inc. (which was merged into Sony EMCS Corporation) — became wholly-owned subsidiaries of Sony Corporation. In September 2012, Sony Corporation completed the sale of certain of its chemical products businesses, including Sony Chemical & Information Device Corporation (currently Dexerials Corporation) to Development Bank of Japan Inc.

In October 2001, Sony Ericsson Mobile Communications AB (“Sony Ericsson”), a 50-50 joint venture company between Sony Corporation and Telefonaktiebolaget LM Ericsson (“Ericsson”) of Sweden, was established. In February 2012, Sony acquired Ericsson’s 50% equity interest in Sony Ericsson. As a result of the acquisition, Sony Ericsson became a wholly-owned subsidiary of Sony and changed its name to Sony Mobile Communications AB.

In October 2002, Aiwa Co., Ltd. (“Aiwa”), then a TSE-listed subsidiary, became a wholly-owned subsidiary of Sony Corporation. In December 2002, Aiwa was merged into Sony Corporation.

In June 2003, Sony Corporation adopted the “Company with Three Committees” corporate governance system in line with the revised Japanese Commercial Code then effective. (Refer to “Board Practices” in “Item 6. Directors, Senior Management and Employees.”)

In April 2004, Sony Corporation established SFH, a financial holding company, in Japan. Sony Life, Sony Assurance Inc. (“Sony Assurance”), and Sony Bank Inc. (“Sony Bank”) became subsidiaries of SFH. In October 2007, SFH was listed on the First Section of the TSE in conjunction with the global initial public offering of shares of SFH by Sony Corporation and SFH.

In April 2004, S-LCD Corporation (“S-LCD”), a joint venture between Sony Corporation and Samsung Electronics Co., Ltd. of Korea for the manufacture of amorphous thin film transistor LCD panels, was established in Korea. Sony’s stake in S-LCD was 50% minus 1 share. In January 2012, Sony sold all of its shares of S-LCD to Samsung Electronics Co., Ltd.

In August 2004, Sony combined its worldwide recorded music business, excluding its recorded music business in Japan, with the worldwide recorded music business of Bertelsmann AG (“Bertelsmann”), forming a 50-50 joint venture, SONY BMG MUSIC ENTERTAINMENT (“SONY BMG”). In October 2008, Sony acquired Bertelsmann’s 50% equity interest in SONY BMG. As a result of the acquisition, SONY BMG became a wholly-owned subsidiary of Sony. In January 2009, SONY BMG changed its name to Sony Music Entertainment (“SME”).

 

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In December 2005, Sony Communication Network Corporation, a subsidiary of Sony Corporation, was listed on the Mother’s market of the TSE, and was later listed on the First Section of the TSE in January 2008. Sony Communication Network Corporation was renamed So-net Corporation (“So-net”) in July 2013. In January 2013, Sony Corporation acquired all of the common shares of So-net through a tender offer and subsequent share exchange and, as a result of the acquisition, So-net became a wholly-owned subsidiary of Sony Corporation. So-net was renamed Sony Network Communications Inc. (“SNC”) in July 2016.

In June 2012, an investor group including Sony Corporation of America (“SCA”) established DH Publishing, L.P. (“EMI”) to own and manage EMI Music Publishing, which it then acquired. This acquisition resulted in Nile Acquisition LLC (“Nile”), of which SCA owned 74.9% and the Estate of Michael Jackson (the “Estate”) owned 25.1%, acquiring approximately 40% of the equity interest in EMI. In July 2018, Sony completed the acquisition of the Estate’s equity interest in Nile, resulting in Sony owning approximately 40% of the equity interest in EMI. In November 2018, Sony completed the acquisition of the remaining approximately 60% equity interest in EMI, resulting in EMI becoming a wholly-owned subsidiary of Sony.

In April 2013, Sony Olympus Medical Solutions Inc. (“SOMED”), a medical business venture between Sony Corporation and Olympus Corporation (“Olympus”) was established in Japan. Sony’s stake in SOMED is 51%.

In July 2014, Sony Corporation sold its personal computer (“PC”) business operated under the VAIO brand to Japan Industrial Partners, Inc.

In July 2014, pursuant to a separation of Sony’s businesses into distinct subsidiaries, the television business was split out and began operations as Sony Visual Products Inc. (“SVP”).

In October 2015, the video and sound business was split out and began operations as Sony Video & Sound Products Inc. (“SVS”).

In April 2016, the semiconductors business was split out and began operations as Sony Semiconductor Solutions Corporation (“SSS”).

In April 2017, the imaging products and solution business was split out and began operations as Sony Imaging Products & Solutions Inc. (“SIPS”), which completed the sequential separation of Sony’s business units into distinct subsidiaries.

In September 2017, Sony transferred its battery businesses to the Murata Manufacturing Co., Ltd. Group.

In April 2019, SVP and SVS merged to become Sony Home Entertainment & Sound Products Inc. (“SHES”).

Sony Corporation’s registered office is located at 7-1, Konan 1-chome, Minato-ku, Tokyo 108-0075, Japan, telephone +81-3-6748-2111. Its website is https://www.sony.net/.

The agent in the U.S. for purposes of this Item 4 is Sony Corporation of America, 25 Madison Avenue, 26^th Floor, New York, NY 10010-8601 (Attn: Office of the General Counsel).

Sony files reports and other information with the SEC pursuant to the SEC’s rules and regulations that apply to foreign private issuers. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Sony’s electronic filings are available for viewing on this website, at https://www.sec.gov.

Principal Capital Investments

In the fiscal years ended March 31, 2017, 2018 and 2019, Sony’s capital expenditures were 272.2 billion yen, 332.1 billion yen and 344.1 billion yen, respectively. Sony’s capital expenditures are expected to be approximately 510.0 billion yen during the fiscal year ending March 31, 2020. For a breakdown of principal capital expenditures and divestitures (including interests in other companies), refer to “Item 5. Operating and Financial Review and Prospects.” The funding requirements of such various capital expenditures are expected to be financed by cash provided principally by operating and financing activities or the existing balance of cash and cash equivalents.

In the fiscal year ended March 31, 2019, Sony invested approximately 146.3 billion yen in the Semiconductors segment. This investment included approximately 128.9 billion yen to increase image sensor production capacity.

 

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B.	Business Overview

Sony is engaged in the development, design, production, manufacture, offer and sale of various kinds of electronic equipment, instruments and devices for consumer, professional and industrial markets such as network services, game hardware and software, televisions, audio and video recorders and players, still and video cameras, mobile phones, and semiconductors. Sony is engaged in the development, production, manufacture, and distribution of recorded music and the management and licensing of the words and music of songs as well as the production and distribution of animation titles, including game applications based on animation titles. Sony is also engaged in the production, acquisition and distribution of motion pictures and television programming and the operation of television and digital networks. Further, Sony is also engaged in various financial services businesses, including life and non-life insurance operations through its Japanese insurance subsidiaries and banking operations through a Japanese internet-based banking subsidiary.

Sony has strived to ensure the implementation of 1) clearly attributable accountability and responsibility, 2) management policies with an emphasis on sustainable profit generation and 3) the acceleration of decision-making processes and reinforcement of business competitiveness. To achieve this, Sony has separated its business units within Sony Corporation to form distinct subsidiaries and operate them alongside existing Sony Group companies. These separations include SVP in July 2014, SVS in October 2015, SSS in April 2016, and SIPS in April 2017. As a result of this separation of businesses, all segments are now being operated as subsidiaries of Sony Corporation.

Products and Services

Game & Network Services (“G&NS”)

Sony Interactive Entertainment LLC (“SIE”) undertakes product research, development, design, marketing, sales, production, distribution and customer service for PlayStation^® hardware, software, content and network services.

The G&NS segment includes the Digital Software and Add-on Content, Network Services and Hardware and Others categories. Digital Software and Add-on Content includes distribution of software titles and add-on content through digital networks by Sony Interactive Entertainment; Network Services includes network services relating to game, video and music content; and Hardware and Others includes home and portable game consoles, packaged software and peripheral devices.

Music

Recorded Music:

“Recorded Music” includes the distribution of physical and digital recorded music and revenue derived from artists’ live performances. SME, a global entertainment company, excluding Japan, is engaged primarily in the development, production, marketing and distribution of recorded music in all commercial formats and genres. SMEJ is an entertainment company focused on the Japanese market, which includes a Japanese domestic recorded music business that produces recorded music and music videos through contracts with many artists in all music genres.

Music Publishing:

“Music Publishing” includes the management and licensing of the words and music of songs. Sony/ATV and EMI Music Publishing are U.S.-based music publishing businesses that own and acquire rights to musical compositions, exploiting and marketing these compositions and receiving royalties or fees for their use.

Visual Media and Platform:

“Visual Media and Platform” includes the production and distribution of animation titles, game applications based on animation titles and various service offerings for music and visual products. These businesses are operated primarily by SMEJ.

 

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Pictures

Motion Pictures:

“Motion Pictures” includes the worldwide production, acquisition and distribution of live-action and animated motion pictures. SPE’s motion picture production organizations include Columbia Pictures, Screen Gems, TriStar Pictures, Sony Pictures Animation, Stage 6 Films, AFFIRM Films and Sony Pictures Classics. SPE also operates Sony Pictures Imageworks, a visual effects and animation unit, and manages a studio facility, Sony Pictures Studios, which includes post-production facilities.

Television Productions:

“Television Productions” includes the production, acquisition and distribution of television programming including scripted series, unscripted “reality” or “light entertainment,” daytime serials, game shows, animated series, made for television movies and miniseries and other programming. Outside the U.S., SPE produces local language programming and licenses SPE-owned programming and formats around the world.

Media Networks:

“Media Networks” includes the operation of television and digital networks worldwide. SPE’s television networks around the world include Sony Pictures Networks India Private Limited, which operates television networks in India, and a controlling interest in Game Show Network, which operates a U.S.-based cable network and an online game business. Digital networks include SonyLIV in India and FunimationNow primarily in North America.

Home Entertainment & Sound (“HE&S”)

SVP undertakes product research, development, design, marketing, sales, production, distribution and customer services for televisions. SVS undertakes product research, development, design, marketing, sales, production, distribution and customer services for video and sound products. In April 2019, SVP and SVS merged to become SHES.

Imaging Products & Solutions (“IP&S”)

SIPS undertakes product research, development, design, manufacturing, sales, distribution and customer service for interchangeable lens cameras, compact digital cameras, consumer and professional video cameras as well as display products such as projectors and medical equipment. Additionally, SIPS is responsible for the broadcast/professional solutions business and the FeliCa contactless IC (integrated circuit) card technology business. SOMED undertakes development support to provide comprehensive medical and imaging device solutions for operating rooms and other medical areas.

The IP&S segment includes the Still and Video Cameras as well as Other categories. Still and Video Cameras includes interchangeable lens cameras, compact digital cameras, consumer video cameras and video cameras for broadcast. Other includes display products such as projectors and medical equipment.

Mobile Communications (“MC”)

Sony Mobile Communications Inc. (“Sony Mobile”) undertakes product research, development, design, marketing, sales, production, distribution and customer services for mobile phones, tablets, accessories and applications. SNC provides internet broadband network services to subscribers as well as creates and distributes content through its portal services to various electronics product platforms such as PCs and mobile phones.

Semiconductors

SSS and its subsidiary Sony Semiconductor Manufacturing Corporation undertake product research, development, design, manufacturing, marketing, sales, production, distribution and customer services for complementary metal oxide semiconductor (“CMOS”) image sensors, charge-coupled devices (“CCDs”), large-scale integration systems (“LSIs”) and other semiconductors.

 

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Financial Services

In the Financial Services segment, on April 1, 2004, Sony established a wholly-owned subsidiary, SFH, a holding company for Sony Life, Sony Assurance and Sony Bank, with the aim of integrating various financial services including insurance and savings and loans, and offering individual customers high value-added products and high-quality services. On October 11, 2007, in conjunction with the global initial public offering of shares of SFH, the shares of SFH were listed for trading on the First Section of the TSE. Following this global offering, SFH remains a consolidated subsidiary of Sony Corporation, which is the majority shareholder of SFH.

SFH conducts insurance, banking and other operations primarily through Sony Life, a Japanese life insurance company, Sony Assurance, a Japanese non-life insurance company, and Sony Bank, a Japanese internet-based bank, which are all wholly-owned by SFH.

All Other

All Other consists of various operating activities, including the batteries, recording media and storage media businesses, the disc manufacturing business outside of Japan and the PC business, which was sold in July 2014. Certain costs related to the PC business remain in All Other.

Sales and Distribution

Electronics*

* The term “Electronics” refers to the sum of the G&NS, HE&S, IP&S, MC and Semiconductors segments.

Sony’s electronics products and services, excluding those in the game business, are marketed throughout the world under the trademark “Sony,” which has been registered in approximately 200 countries and territories.

In most cases, sales of Sony’s electronics products are made to sales subsidiaries of Sony Corporation located in or responsible for sales in the countries and territories where Sony’s products and services are marketed. These subsidiaries then sell those products to unaffiliated local distributors and dealers or through direct sales, such as through the internet. In some regions, sales of certain products and services are made directly to local distributors by Sony Corporation.

Sales of electronics products and services are particularly seasonal and also vary significantly with the timing of new product introductions and the economic conditions of each country. Sales for the third quarter ending December 31 of each fiscal year are generally higher than other quarters of the same fiscal year due to demand in the year-end holiday season.

Japan:

Sony Marketing (Japan) Inc. markets consumer electronics products mainly through retailers. Sony Business Solutions Corporation markets professional electronics products and services. For electronic components, Sony sells products directly to wholesalers and manufacturers.

United States:

Sony markets its electronics products and services through Sony Electronics Inc. and other wholly-owned subsidiaries in the U.S.

Europe:

In Europe, Sony’s electronics products and services are marketed through sales subsidiaries including Sony Europe B.V., which is headquartered in the United Kingdom and has branches in European countries, and Sony Electronics JSC in Russia.

China:

Sony markets its electronics products and services through Sony (China) Limited, Sony Corporation of Hong Kong Limited and other wholly-owned subsidiaries in China.

Asia-Pacific:

In Asia-Pacific, Sony’s electronics products and services are marketed through sales subsidiaries including Sony India Private Limited, Sony Electronics of Korea Corporation, Sony Taiwan Limited and Sony Electronics Vietnam.

 

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Other Areas:

In overseas areas other than the U.S., Europe, China and Asia-Pacific, Sony’s electronics products and services are marketed through sales subsidiaries including Sony Brasil Ltda., Sony Middle East & Africa FZE in the United Arab Emirates and Sony de Mexico S.A.de C.V.

PlayStation^® hardware, software and content and network services are marketed and distributed by SIE, SIEI, and Sony Interactive Entertainment Europe, Ltd. (“SIEE”).

Along with certain of its global corporate functions in Japan, Sony Mobile has sales and marketing operations in many major regions of the world, as well as manufacturing sites in China and product development sites in Japan, Sweden and China. Sony Mobile brings its products to market through direct and indirect distribution channels, such as third-party cellular network carriers and retailers, as well as through its website.

Music

SME and SMEJ develop, produce, market, and distribute recorded music in various commercial formats. SME and its affiliates conduct business globally under “Columbia Records,” “Epic Records,” “RCA Records” and other labels. SMEJ conducts business in Japan under “Sony Music Records,” “Epic Records Japan,” “SME Records,” “Ki/oon Music,” “Sony Music Associated Records” and other labels.

Sony owns and acquires rights to musical compositions, exploits and markets these compositions, receives royalties or fees for their use and conducts its music publishing business in countries other than Japan under the Sony/ATV and EMI Music Publishing names. Sony/ATV, previously a 50%-owned and consolidated joint venture, became a wholly-owned subsidiary of Sony on September 30, 2016 as a result of Sony’s acquisition of the 50% equity interest in Sony/ATV owned by the Estate. Additionally, on July 31, 2018, Sony completed the acquisition of the Estate’s equity interest in Nile, resulting in Sony owning approximately 40% of the equity interest in EMI. On November 14, 2018, Sony completed the acquisition of the remaining approximately 60% equity interest in EMI, resulting in EMI becoming a wholly-owned subsidiary of Sony.

SMEJ creates artwork and produces packaged home entertainment products including music/games, and organizes various events in Japan through Sony Music Communications Inc. and its affiliates. SMEJ also produces, markets, and distributes animation products and game applications based on animation titles under the Aniplex name.

Pictures

SPE generally retains all rights relating to the worldwide distribution of its internally produced motion pictures and television programming, including rights for theatrical exhibition, home entertainment distribution, pay and free television exhibition and other markets. SPE also acquires distribution rights to motion pictures and television programming produced by other companies, and jointly produces and distributes motion pictures and television programming with other studios, television networks or production companies. These rights may be limited to particular geographic regions, specific forms of media or periods of time.

Within the U.S., SPE uses its own distribution service businesses, Sony Pictures Releasing and Sony Pictures Classics, for the U.S. theatrical release of its motion pictures and for the theatrical release of motion pictures acquired from and produced by others.

Outside the U.S., SPE generally distributes and markets motion pictures through one of its Sony Pictures Releasing International subsidiaries. In certain countries, however, SPE has joint distribution or sub-distribution arrangements with other studios, or arrangements with independent local distributors or other entities.

The worldwide home entertainment distribution of SPE’s motion pictures and television programming (and product acquired or licensed from others) is handled through Sony Pictures Home Entertainment, except in certain countries where SPE has joint distribution or sub-distribution arrangements with other studios, or arrangements with independent local distributors. Product is distributed in various home media formats including DVD, Blu-ray Disc^™ and Digital Distribution. Digital Distribution includes electronic sell-through and video-on-demand distributed on cable, direct broadcast satellite (“DBS”) providers and digital platforms.

The worldwide television distribution of SPE’s motion pictures and television programming (and product acquired or licensed from others) is handled through Sony Pictures Television. SPE’s library of motion pictures and television programming is licensed to linear distributors such as broadcast television networks, pay and basic cable networks and DBS providers, as well as to digital platforms such as subscription and advertising supported digital platforms (including Sony’s PlayStation^TM Network, Netflix and Amazon).

 

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SPE’s television networks are distributed through cable, DBS providers, telecommunications companies and digital platforms to viewers around the world. These networks generate advertising, subscription and other ancillary revenues.

Financial Services

Sony Life conducts its life insurance business primarily in Japan. Sony Life’s core business is providing death protection and other insurance products to individuals, primarily through a consulting-based sales approach utilizing its experienced team of Lifeplanner^® sales employees as well as partner independent sales agents. Sony Life provides tailor-made life insurance products that are optimized for each customer. As of March 31, 2019, Sony Life employed 5,164 Lifeplanner^® sales employees. Sony Life maintains an extensive service network which mainly consists of the Lifeplanner^® channel and the independent agent channel in Japan. The Lifeplanner^® channel is characterized by recruitment of high-caliber sales professionals from industries outside the life insurance industry, quality improvement through education and training, performance-linked compensation and high productivity. Lifeplanner^® sales employees offer custom-made packages. Most of the agents in the independent agent channel are corporate and non-exclusive agents, primarily shop-style agents. Shop-style agents are a sub-channel of the independent agent channel, who offer insurance in local stores and provide customers with opportunities to compare various insurers’ products. To enhance Sony Life’s relationship with independent agents, Sony Life’s agent support staff provides independent agents with various support services, including recruiting, training and sales promotion activities. As part of its plan to expand its sales of individual annuity products, Sony Life established AEGON Sony Life Insurance Co., Ltd. (“AEGON Sony Life”) in August 2007 and SA Reinsurance (“SA Re”) in October 2009, both 50-50 joint venture companies with AEGON N.V. AEGON Sony Life and SA Re began operations in Japan in December 2009 and in Bermuda in January 2010, respectively. In May 2019, Sony Life entered into an agreement pursuant to which Sony Life will acquire from AEGON International B.V. the remaining 50% stakes of AEGON Sony Life and SA Re, both of which are currently equity-method affiliate companies of SFH. AEGON Sony Life and SA Re will become wholly-owned subsidiaries of SFH after the completion of the acquisition of the remaining shares, which is subject to certain closing conditions, including regulatory approvals.

Sony Assurance has conducted a non-life insurance business in Japan since October 1999. Sony Assurance’s core business is providing automobile insurance products and medical insurance products to individual customers, primarily through direct marketing via the internet and the telephone. The direct marketing business model employed by Sony Assurance enables it to improve operating efficiency and lower the costs of marketing and maintaining its insurance policies, creating savings which it passes on to policyholders in the form of competitively priced premiums.

Sony Bank has conducted banking operations in Japan since June 2001. As an internet bank focusing on the asset management and borrowing needs of individual customers, Sony Bank offers an array of products and services including yen and foreign currency deposits, investment trusts and mortgages. By using Sony Bank’s transaction channel, the “MONEYKit” service website, account holders can invest and manage assets over the internet according to their life plans. On July 1, 2011, Sony Bank acquired Sony’s 57% equity interest in Sony Payment Services Inc. (“Sony Payment Services”), resulting in Sony Payment Services becoming a consolidated subsidiary of Sony Bank. Sony Payment Services is an industry-leading provider of credit card settlement services to members of its internet network.

All Other

Sony Energy Devices Corporation and Sony Storage Media Solutions Corporation sell their battery and storage media products, respectively, through Sony’s Electronics sales companies, mentioned in the Electronics’ Sales and Distribution section above, as well as through their own sales forces. Sony DADC group (“Sony DADC”) offers Blu-ray Disc^™, DVD and CD media replication services as well as digital and physical supply chain solutions to business customers.

 

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Sales to External Customers by Geographic Area

The following table shows Sony’s consolidated sales to external customers in each of its major markets for the periods indicated.

 

		Fiscal year ended March 31
		2017				2018				2019
		(Yen in millions)
Japan			2,392,790				2,625,619				2,591,784
United States			1,673,768				1,835,705				1,982,135
Europe			1,634,683				1,841,457				1,862,166
China			557,995				674,718				770,416
Asia-Pacific			866,712				1,024,179				912,193
Other Areas			477,302				542,304				546,993
Total			7,603,250				8,543,982				8,665,687

Sources of Supply

Sony procures raw materials, parts and components used in the production of its products on a global basis on the most favorable terms that it can achieve. These items are purchased from various suppliers around the world. Sony has a general policy of maintaining multiple suppliers for important parts and components and, in the fiscal year ended March 31, 2019, Sony continued to optimize the number of its suppliers to achieve efficiencies and to minimize procurement risk when possible.

When raw materials, parts and components become scarce, the cost of production rises. For example, LCD panels and memory devices, which are used in multiple applications, can influence Sony’s performance when the cost of such parts and components fluctuates substantially. With regard to raw materials, the market price of copper may fluctuate and impact the cost of the parts and components that utilize copper, such as printed circuit boards and power cables. The price of resin and sheet steel, which is widely used in mechanical parts and components, may also fluctuate and impact the cost of those parts and components.

After-Sales Service

Sony provides repair and servicing functions in the areas where its electronics products are sold. Sony provides these services through its own online support network, call centers, service centers, factories, authorized independent service centers, authorized servicing dealers and subsidiaries.

In line with industry practices of the electronics businesses, almost all of Sony’s consumer-use products that are sold in Japan carry a warranty, generally for a period of one year from the date of purchase, covering repairs, free of charge, in the case of a malfunction in the course of ordinary use of the product. Warranties outside of Japan generally provide coverage for various periods of time depending on the product and the area in which it is marketed. In the case of broadcast- and professional-use products, Sony maintains support contracts with customers in addition to warranties.

To further help ensure customer satisfaction, Sony maintains customer information centers in its principal markets and web support information for all markets.

Patents and Licenses

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”) 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 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.

 

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Competition

In each of its principal product lines and services, Sony encounters intense competition throughout the world. Sony believes, however, that in the aggregate it competes successfully and has a major position in all of the principal product lines and services in which it is engaged, although the strength of its position varies with products and markets. Refer to “Risk Factors” in “Item 3. Key Information.”

Electronics and All Other

Sony believes that its product planning and product design expertise, the high quality of its products, its record of innovative product introductions and product improvements, the user experience it provides and the ecosystem that supports such an experience, its price competitiveness derived from reductions in manufacturing and indirect costs, and its extensive marketing and servicing efforts are important factors in maintaining its competitive position. Continuing to provide high-value added products, services and experiences is a key factor by which Sony aims to differentiate itself in the highly competitive market of consumer electronics. Sony believes that the success of the G&NS businesses is determined by the availability of attractive software titles and related content, downloadable content, network services and peripherals. In the Semiconductors segment, Sony puts significant effort into keeping Sony’s strong competitive position by investing in R&D and production capacity, while also trying to avoid overinvesting and increasing fixed costs by carefully monitoring customer demand, market trends and demand for end-user products.

Music

Success in the music industry is dependent to a large extent upon the artistic and creative abilities of artists, producers and employees and is subject to the vagaries of public taste. The Music segment’s future competitive position depends on its continuing ability to attract and develop artists and products that can achieve a high degree of public acceptance as well as offer efficient services. In addition, Sony believes that the success of the Music segment’s animation products and game applications business, Aniplex, is largely dependent on the creative talent of game producers and developers, and is also subject to the vagaries of public taste.

Pictures

SPE faces intense competition from all forms of entertainment and other leisure activities to attract the attention of audiences worldwide. SPE competes with other motion picture studios and production companies to obtain story rights and talent, including writers, actors, directors and producers, which are essential to the success of SPE’s products. SPE competes with other companies, in particular technology companies, who are expanding into the production or distribution of film and television programing. In motion picture production and distribution, SPE faces competition to obtain exhibition and distribution outlets and optimal release dates for its products. In addition, SPE faces competition to acquire motion pictures and television programming from third parties. In television production and distribution, competition arises from the increasing fragmentation of audiences among broadcast and cable networks, DBS providers, digital platforms and other outlets both within and outside of the U.S. Furthermore, broadcast networks in the U.S., or their affiliated production companies, continue to produce their own shows internally. This competitive environment may result in fewer opportunities to produce shows for U.S. networks and a shorter lifespan for ordered shows that do not immediately achieve favorable ratings. SPE’s worldwide television networks compete for viewers with broadcast and cable networks, DBS providers, digital platforms and other forms of entertainment. The growth in the number of networks around the world has increased the competition for advertising and subscription revenues, acquisition of programming, and distribution of SPE’s television networks by cable, DBS providers, digital platforms and other distribution systems.

Financial Services

In the Financial Services segment, Sony faces strong competition in the financial services markets in Japan. In recent years, the regulatory barriers between the life insurance and non-life insurance industries as well as among the insurance, banking and securities industries have been relaxed, resulting in new competitive pressures.

Sony Life competes not only with traditional insurance companies in Japan but also with other companies including online insurance companies, foreign-owned life insurance companies and a number of Japanese cooperative associations.

Sony Assurance competes against insurers that sell their policies through sales agents as well as insurers that, like Sony Assurance, primarily sell their policies through direct marketing via the telephone and the internet. Competition in Japan’s non-life insurance industry has intensified in recent years, in part due to a number of new market entrants, including foreign-owned insurers.

 

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Some of the competitors in the life insurance and non-life insurance businesses have advantages over Sony including:

 

•

greater financial resources and financial strength ratings;

 

•

greater brand awareness;

 

•

more extensive marketing and sales networks, including through tie-ups with other types of financial institutions;

 

•

more competitive pricing;

 

•

larger customer bases; and

 

•

a wider range of products and services.

Sony Bank has focused on providing retail asset management and mortgage services for individuals, and faces significant competition in Japan’s retail financial services market. Sony Bank competes with traditional banking institutions, regional banks, trust banks, non-bank companies, and newer financial groups providing online full-services of bank and brokerage in Japan.

In the Financial Services segment, it is important to maintain a strong and healthy financial foundation for the business as well as to meet diversifying customer needs. Sony Life and Sony Assurance have maintained a high solvency margin ratio, relative to the Japanese domestic minimum solvency margin ratio requirements. Sony Bank has maintained a sufficient capital adequacy ratio relative to the Japanese domestic criteria.

Government Regulations

Sony’s business activities are subject to various governmental regulations in different countries in which it operates, including regulations relating to: various business/investment approvals; trade affairs, including customs, import and export control; competition and antitrust; anti-bribery; advertising and promotion; intellectual property; broadcasting, consumer and business taxation; foreign exchange controls; personal information protection; product safety; labor; human rights; conflict; occupational health and safety; environmental; and recycling requirements.

In Japan, Sony’s insurance businesses are subject to the Insurance Business Act and approvals and oversight from the Financial Services Agency (“FSA”). The primary purpose of the Insurance Business Act and related regulations is to protect policyholders, not shareholders. The Insurance Business Act specifies the types of businesses insurance companies may engage in, imposes limits on the types and amounts of investments that can be made and requires insurance companies to maintain specified reserves and a minimum solvency margin ratio. In particular, life insurance companies must maintain a premium reserve (for the portion of their portfolio other than unearned premiums), an unearned premium reserve, a reserve for refunds with respect to certain insurance contracts of life insurance companies specified in the Insurance Business Act’s regulations, and a contingency reserve in amounts no lower than the amount of the “standard policy reserve” as set forth by the regulatory guidelines. The FSA maintains a solvency standard which is used by Japanese regulators to monitor the financial strength of insurance companies. Non-life insurance companies are also required to provide a policy reserve. Sony Bank is also subject to regulation by the FSA under the Banking Act of Japan, including the requirement that it maintain a minimum capital adequacy ratio in accordance with capital adequacy guidelines adopted by the FSA based on the Basel III agreement. The FSA has broad regulatory powers over insurance and banking businesses in Japan, including the authority to grant or revoke operating licenses and to request information and conduct onsite inspections of books and records. Sony’s subsidiaries in the Financial Services segment are subject to the Japanese Insurance Business Act and Banking Act that require insurance and business companies to maintain their financial credibility and to secure protection for policyholders and depositors in view of the public importance of insurance and banking services. As such, lending and borrowing between subsidiaries in the Financial Service segment and the other companies within Sony Group is strictly limited.

In addition, Sony’s telecommunication businesses in Japan are subject to approvals and oversight from the Ministry of Internal Affairs and Communications, under the Telecommunications Business Act and other regulations related to the internet businesses and communication methods in Japan.

 

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Social Responsibility Regulations Such as Environmental and Human Rights Regulations

Sony monitors, evaluates, and complies with new environmental requirements that may affect its operations. For example, in Europe, Sony is required to comply with a number of environmental regulations enacted by the EU such as the Restriction of Hazardous Substances (“RoHS”) Directive, the Waste Electrical and Electronic Equipment (“WEEE”) Directive and the Registration, Evaluation, Authorization and Restriction of Chemicals (“REACH”) regulation. Similar regulations are being formulated in other areas of the world, including South American, Southeast Asian and Middle Eastern countries.

Sony has taken steps to address new regulations or governmental policies related to climate change including carbon disclosure, greenhouse gas emission reduction, carbon taxes and energy efficiency for electronics products. For example, Sony has established an internal management system in response to the EU directive on energy-related products and their energy efficiency (“ErP”).

Sony also monitors and evaluates newly adopted laws and regulations that may affect its operations applicable to purchasing activities including the procurement of raw materials, with respect to environmental, occupational health and safety, human rights, labor and armed conflict issues, and complies as appropriate.

Also refer to “Risk Factors” in “Item 3. Key Information.”

Disclosure pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012

Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 added Section 13(r) to the Securities Exchange Act of 1934 (the “Exchange Act”), as amended. Section 13(r) requires an issuer to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with designated natural persons or entities sanctioned under programs relating to terrorism or the proliferation of weapons of mass destruction. Disclosure is required even where the activities, transactions or dealings are conducted outside the U.S. by non-U.S. affiliates in compliance with applicable law, and whether or not the activities are sanctionable under U.S. law.

Sony is aware that certain transactions during the fiscal year ended March 31, 2019, as described below, may be disclosable pursuant to Section 13(r) of the Exchange Act.

Sony does not customarily allocate net profit on a country-by-country or activity-by-activity basis, other than as set forth in Sony’s consolidated financial statements prepared in accordance with U.S. GAAP; thus, the net profit and loss described below are non-U.S. GAAP figures and are estimated solely for the purpose of preparing this disclosure pursuant to Section 13(r) of the Exchange Act. The information below is to the best of Sony’s knowledge, and in particular Sony may not be aware of all potentially reportable sales by third-party-owned dealers and distributors.

 

•

During the fiscal year ended March 31, 2019, a non-U.S. subsidiary of Sony sold medical instruments, including medical printers, print media and monitors, to a third-party-owned dealer in Dubai, which, to the best of Sony’s knowledge, planned to resell those products to hospitals and health organizations in Iran, some of which are under the control of the Iranian Ministry of Health. Sony’s gross revenue from these sales was approximately 1.4 million U.S. dollars, and Sony has estimated that its net profit from such sales was 0.2 million U.S. dollars.

 

•

Sony’s representative office in Tehran, Iran, which was established in 1992, has been closed and has been under liquidation processes since before the beginning of the fiscal year ended March 31, 2014. In the course of liquidation, Sony engages in certain incidental transactions (for example, permits, taxes, and similar matters incidental to the wind-down of the office in Iran) with Iranian government-owned entities. No material revenues or profits are associated with these transactions with the Iranian government-owned entities.

Sony is not aware of any other activity, transaction or dealing by Sony Corporation or any of its affiliates during the fiscal year ended March 31, 2019 that is disclosable in this report under Section 13(r) of the Exchange Act. As of the date of this report, Sony does not anticipate that any activity, transaction or dealing that may be disclosable will be conducted during the fiscal year ending March 31, 2020, except as described above in connection with the wind-down of its representative office in Iran. Nevertheless, Sony has continued to monitor developments in this area, especially in the light of the United States’ decision that was implemented in its entirety on November 5, 2018 to cease its participation in the Joint Comprehensive Plan of Action of July 14, 2015, among the United States, the United Kingdom, China, France, Russia, Germany, the European Union and Iran and re-impose certain secondary sanctions (i.e., laws and regulations that threaten to impose U.S. economic

 

27

sanctions on non-U.S. companies engaging in specified transactions with Iran outside U.S. jurisdiction). Sony will determine whether and to what extent they affect Sony’s business with Iranian customers as currently conducted and may additionally be conducted. Such business activities may require disclosure pursuant to Section 13(r) of the Exchange Act. Sony intends to conduct any such business activities in accordance with applicable laws and regulations.

Sony believes, and maintains policies and procedures designed to ensure that, its transactions with Iran and elsewhere have been conducted in accordance with applicable economic sanctions laws and regulations and do not involve transactions likely to result in the imposition of sanctions or other penalties on Sony. However, there can be no assurance that Sony’s policies and procedures will be effective, and if the relevant authorities were to impose penalties or sanctions against Sony, the impact of such sanctions could be material.

 

C.	Organizational Structure

The following table sets forth the significant subsidiaries owned, directly or indirectly, by Sony Corporation.

 

Name of company		Country of incorporation/residence		(As of March 31, 2019) Percentage owned
Sony Global Manufacturing & Operations Corporation		Japan			100.0
Sony Semiconductor Solutions Corporation		Japan			100.0
Sony Semiconductor Manufacturing Corporation		Japan			100.0
Sony Marketing Inc.		Japan			100.0
Sony Mobile Communications Inc.		Japan			100.0
Sony Network Communications Inc.		Japan			100.0
Sony Interactive Entertainment Inc.		Japan			100.0
Sony Visual Products Inc.*1		Japan			100.0
Sony Video & Sound Products Inc.*1		Japan			100.0
Sony Storage Media Solutions Corporation		Japan			100.0
Sony Imaging Products & Solutions Inc.		Japan			100.0
Sony Music Entertainment (Japan) Inc.		Japan			100.0
Sony Financial Holdings Inc.*2		Japan			65.1
Sony Life Insurance Co., Ltd.*2		Japan			100.0
Sony Bank Inc.*2		Japan			100.0
Sony Assurance Inc.*2		Japan			100.0
Sony Americas Holding Inc.		U.S.A.			100.0
Sony Corporation of America		U.S.A.			100.0
Sony Entertainment Inc.		U.S.A.			100.0
Sony Electronics Inc.		U.S.A.			100.0
Sony Interactive Entertainment LLC		U.S.A.			100.0
Sony Pictures Entertainment Inc.		U.S.A.			100.0
CPT Holdings, Inc.		U.S.A.			100.0
Sony Music Entertainment		U.S.A.			100.0
Sony/ATV Music Publishing LLC		U.S.A.			100.0
Nile Acquisition LLC		U.S.A.			100.0
Sony Europe B.V.		U.K.			100.0
Sony Interactive Entertainment Europe Ltd.		U.K.			100.0
Sony Global Treasury Services Plc		U.K.			100.0
Sony Overseas Holding B.V.		Netherlands			100.0
Sony (China) Limited		China			100.0
Sony EMCS (Malaysia) Sdn. Bhd.		Malaysia			100.0
Sony Electronics (Singapore) Pte. Ltd.		Singapore			100.0

*1 SVP and SVS merged to become SHES in April 2019.

*2 Sony Corporation owns 65.1% of Sony Financial Holdings Inc., and Sony Financial Holdings Inc. owns 100% of Sony Life Insurance Co., Ltd., Sony Bank Inc. and Sony Assurance Inc.

 

D.	Property, Plant and Equipment

Sony has a number of offices, plants and warehouses throughout the world. Most of the buildings and land in/on which such offices, plants and warehouses are located are owned by Sony.

 

28

The following table sets forth information as of March 31, 2019 with respect to plants used for the production of products mainly for electronics products and services with floor space of more than 500,000 square feet:

 

Location		Approximate floor space				Principal products produced
		(square feet)
In Japan:
Nagasaki (Sony Semiconductor Manufacturing Corporation — Nagasaki TEC)			2,305,000			CMOS Image Sensors
Kumamoto (Sony Semiconductor Manufacturing Corporation — Kumamoto TEC)			2,229,000			CMOS & CCD Image Sensors, Microdisplay
Kagoshima (Sony Semiconductor Manufacturing Corporation — Kagoshima TEC)			1,789,000			Analog LSI, Crystal LED (Panel Process), MMIC
Oita (Sony Semiconductor Manufacturing Corporation — Oita TEC)			975,000			CMOS Image Sensors (Wafer Process)
Kohda, Aichi (Sony Global Manufacturing & Operations Corporation — Tokai TEC — Kohda Site)			903,000			Digital Still Cameras, Video Camera Peripherals, Interchangeable-lens Cameras, Lenses for Interchangeable-lens Cameras, Lenses, Lens Blocks, Audio Devices, aibo
Inazawa, Aichi (Sony Global Manufacturing & Operations Corporation — Tokai TEC — Inazawa Site)			842,000			Surface Mounted Boards, TVs, Crystal LED (Assembly)
Tsuruoka, Yamagata (Sony Semiconductor Manufacturing Corporation — Yamagata TEC)			703,000			CMOS Image Sensors (Wafer Process)
Kosai, Shizuoka (Sony Global Manufacturing & Operations Corporation — Tokai TEC — Kosai Site)			576,000			Broadcasting/Professional Equipment (Cameras/Editing Systems), Projectors, Professional-use Microphones, Professional-use Monitors, Medical Peripheral Equipment, Flow Cytometers
Kisarazu, Chiba (Sony Global Manufacturing & Operations Corporation — Kisarazu TEC)			541,000			PlayStation®4, FeliCa IC Cards and Related Devices
Outside of Japan:
Terre Haute, Indiana, U.S.A. (Sony DADC US Inc.)			1,352,000			Blu-ray Disc™-ROMs
Bangi, Malaysia (Sony EMCS (Malaysia) Sdn. Bhd. — KL TEC)			1,183,000			TVs, TV Components
Penang, Malaysia (Sony EMCS (Malaysia) Sdn. Bhd. — PG TEC)			1,021,000			System Stereos, Home Audios, BD Players, BD Recorders, Digital Music Players, Headphones, Personal Audios
Huizhou, China (Sony Precision Devices (Huizhou) Co., Ltd.)			1,010,000			Optical Pickups
Wuxi, China (Sony Digital Products (Wuxi) Co., Ltd.)			798,000			Digital Still Cameras, Lens Assembly, Interchangeable-lens Cameras, Lenses for Interchangeable-lens Cameras
Beijing, China (Sony Mobile Communications (China) Co., Ltd.)			552,000			Mobile Phones
Bangkadi, Thailand (Sony Device Technology (Thailand) Co.,Ltd.)			513,000			Image Sensor Assembly

 

29

In addition to the above facilities, Sony has a number of other plants for electronic products throughout the world. Sony owns R&D facilities, and Sony Corporation’s headquarters building, with a total floor space of approximately 1,753,000 square feet, in Tokyo, Japan, where administrative functions and product development activities are carried out. SIEI has its corporate headquarters in Sony Corporation’s headquarters building and leases additional office space in Tokyo from a third party, where administrative functions, product development, and software development are carried out. SIE and SIEE lease their offices in the U.S. and Europe, respectively.

SPE’s corporate offices and motion picture and television production facilities are headquartered in Culver City, California, where it owns and operates a studio facility, Sony Pictures Studios, with aggregate floor space of approximately 1,939,200 square feet. SPE also leases office space and motion picture and television support facilities from third parties and affiliates of Sony Corporation in various worldwide locations. SPE’s film and videotape storage operations are located in various leased locations in the U.S. and Europe.

SME’s corporate offices are headquartered in New York, NY where it leases office space from SCA. SME also leases office space from third parties in various locations worldwide.

Most of SMEJ’s offices, including leased premises, are located in Tokyo, Japan.

SCA’s corporate offices are headquartered in New York, NY where it leases office space from a third party.

 

Item 4A.

Unresolved Staff Comments

None

 

Item 5.

Operating and Financial Review and Prospects

 

A.	Operating Results

Operating Performance

The following discussion covers the fiscal years ended March 31, 2018 and 2019. For the discussion covering the fiscal year ended March 31, 2017, please refer to “Item 5.A.” of Sony’s Form 20-F for the fiscal year ended March 31, 2018 filed with the SEC on June 19, 2018.

 

		Fiscal year ended March 31
		2018				2019
		(Yen in billions)
Sales and operating revenue			8,544.0				8,665.7
Equity in net income (loss) of affiliated companies			8.6				(3.0	)
Operating income			734.9				894.2
Income before income taxes			699.0				1,011.6
Net income attributable to Sony Corporation’s stockholders			490.8				916.3

Sales

For the fiscal year ended March 31, 2019, sales and operating revenue (“Sales”) were 8,665.7 billion yen, an increase of 121.7 billion yen compared to the fiscal year ended March 31, 2018. This increase was mainly due to a significant increase in sales in the Game & Network Services (“G&NS”) segment, partially offset primarily by a significant decrease in sales in the Mobile Communications (“MC”) segment. In addition, sales for the fiscal year ended March 31, 2018 included 6.7 billion yen and 2.6 billion yen of insurance recoveries, mainly for opportunity losses related to the 2016 Kumamoto Earthquakes (the “Kumamoto Earthquakes”) in the Semiconductors segment and the Imaging Products & Solutions (“IP&S”) segment, respectively. A further breakdown of sales figures is presented under “Operating Performance by Business Segment” below.

Cost of Sales, Selling, General and Administrative Expenses and Other Operating (Income) Expense, net

“Sales” in the analysis of the ratio of “cost of sales” to sales, the ratio of “R&D costs” to sales, and the ratio of “selling, general and administrative expenses” (“SGA expenses”) to sales refers only to the net sales and other operating revenue portions of consolidated sales (which excludes financial services revenue). This is because financial services expenses are recorded separately from cost of sales and SGA expenses in the consolidated financial statements. The calculations of all ratios below that pertain to reportable segments include intersegment transactions.

 

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For the fiscal year ended March 31, 2019, cost of sales decreased 37.5 billion yen year-on-year to 5,150.8 billion yen. The ratio of cost of sales to sales improved year-on-year from 70.9% to 69.7%.

R&D costs (all R&D costs are included within cost of sales) increased 22.7 billion yen year-on-year to 481.2 billion yen. The ratio of R&D costs to sales was 6.5% compared to 6.3% in the fiscal year ended March 31, 2018. For further details, refer to Research and Development in Item 5.C.

SGA expenses decreased 6.4 billion yen year-on-year to 1,576.8 billion yen. The ratio of SGA expenses to sales improved year-on-year from 21.6% to 21.3%.

Other operating (income) expense, net, resulted in income of 71.6 billion yen, compared with a loss of 4.1 billion yen in the fiscal year ended March 31, 2018. This significant improvement was mainly due to the following factors that occurred in the fiscal year ended March 31, 2019 and the absence of the following factors that occurred in the fiscal year ended March 31, 2018. Refer to Note 21 of the consolidated financial statements.

Factors that occurred in the fiscal year ended March 31, 2019

 

•

Remeasurement gain (116.9 billion yen) in connection with Sony’s acquisition of the remaining approximately 60% equity interest in DH Publishing, L.P. (“EMI”), which owned and managed EMI Music Publishing (Music segment)

 

•

An impairment charge against long-lived assets: 19.2 billion yen (MC segment)

 

•

An impairment charge against long-lived assets and goodwill: 12.9 billion yen (All Other)

Factors that occurred in the fiscal year ended March 31, 2018

 

•

An impairment charge against long-lived assets: 31.3 billion yen (MC segment)

 

•

A gain resulting from the sale of the entire equity interest in a manufacturing subsidiary in the camera module business: 28.3 billion yen (Semiconductors segment)

 

•

A gain resulting from the sale of real estate held by a subsidiary: 10.5 billion yen (Music segment)

 

•

A gain resulting from the sale of manufacturing equipment: 8.6 billion yen (Semiconductors segment)

Equity in Net Income (Loss) of Affiliated Companies

For the fiscal year ended March 31, 2019, equity in net income (loss) of affiliated companies was a loss of 3.0 billion yen, compared to income of 8.6 billion yen in the fiscal year ended March 31, 2018. This deterioration primarily resulted from an 11.6 billion yen deterioration in equity in net income (loss) for EMI, mainly due to expenses relating to warrants and management equity plans in connection with Sony’s acquisition of the remaining approximately 60% equity interest in EMI in the Music segment.

Operating Income

For the fiscal year ended March 31, 2019, operating income increased 159.4 billion yen year-on-year to 894.2 billion yen. This significant increase was primarily due to significant increases in operating income in the G&NS and Music segments, partially offset by a significant increase in the operating loss in the MC segment. Operating income for the current fiscal year as well as the previous fiscal year included the above-mentioned factors being recorded as other operating (income) expense, net.

Other Income and Expenses

For the fiscal year ended March 31, 2019, other income increased by 121.0 billion yen year-on-year, to 144.7 billion yen, while other expenses decreased by 32.2 billion yen year-on-year, to 27.3 billion yen. The net amount of other income and other expenses was income of 117.4 billion yen, an improvement of 153.2 billion yen year-on-year primarily due to a 101.7 billion yen gain on equity securities, net, recorded in the fiscal year ended March 31, 2019 as a result of Spotify Technology S.A.’s (“Spotify”) public listing. Refer to Note 7 of the consolidated financial statements.

The foreign exchange loss, net, decreased by 19.4 billion yen year-on-year, to 11.3 billion yen.

Interest and dividends in other income of 21.6 billion yen were recorded in the fiscal year ended March 31, 2019, an increase of 1.8 billion yen year-on-year. Interest recorded in other expenses totaled 12.5 billion yen, a decrease of 1.1 billion yen year-on-year.

 

31

Income before Income Taxes

For the fiscal year ended March 31, 2019, income before income taxes was 1,011.6 billion yen, an increase of 312.6 billion yen year-on-year.

Income Taxes

During the fiscal year ended March 31, 2019, Sony recorded 45.1 billion yen of income tax expense, resulting in an effective tax rate of 4.5%, which was lower than the effective tax rate of 21.7% in the fiscal year ended March 31, 2018. This lower effective tax rate in the fiscal year ended March 31, 2019 was mainly due to income tax expense not being recorded on the remeasurement gain for the equity interest in EMI that was recorded in the fiscal year ended March 31, 2019, as well as the reversal of valuation allowances against a significant portion of the deferred tax assets in the U.S. consolidated tax group, resulting in a tax benefit of 154.2 billion yen being recorded in the three months ended December 31, 2018. Refer to Note 22 of the consolidated financial statements.

Net Income Attributable to Noncontrolling Interests

For the fiscal year ended March 31, 2019, net income attributable to noncontrolling interests of 50.3 billion yen was recorded, a decrease of 6.2 billion yen year-on-year.

Net Income Attributable to Sony Corporation’s Stockholders

For the fiscal year ended March 31, 2019, net income attributable to Sony Corporation’s stockholders, which excludes net income attributable to noncontrolling interests, was 916.3 billion yen, an increase of 425.5 billion yen year-on-year.

Basic net income per share and diluted net income per share, attributable to Sony Corporation’s stockholders for the fiscal year ended March 31, 2019 were 723.41 yen and 707.74 yen, respectively, compared with 388.32 yen and 379.75 yen, respectively, in the fiscal year ended March 31, 2018. Refer to Note 23 of the consolidated financial statements.

Operating Performance by Business Segment

The following discussion is based on segment information. Sales and operating revenue in each business segment include intersegment transactions. Refer to Note 29 of the consolidated financial statements.

In addition to those significant trends, uncertainties and events listed herein, refer to Trend Information in Item 5.D for more information on significant trends, uncertainties and events that had, or may have, an effect on business segment operating performance.

Game & Network Services (“G&NS”)

Key Financial Figures

 

		Fiscal year ended March 31
		2018				2019
		(Yen in millions)
Sales to external customers by product category
Digital Software and Add-on Content			762,220				1,102,231
Network Services			270,972				326,524
Hardware & Others			815,106				795,867
Sales to external customers			1,848,298				2,224,622
Intersegment sales			95,514				86,250
G&NS segment total sales			1,943,812				2,310,872
G&NS segment operating income			177,478				311,092
		(Units in millions)
Major product unit sales
PS4 hardware			19.0				17.8

 

32

For the fiscal year ended March 31, 2019, sales increased 367.1 billion yen year-on-year to 2,310.9 billion yen. This increase was primarily due to an increase in game software sales as well as an increase in the number of subscribers for PlayStation^®Plus, a paid membership service, partially offset by a decrease in PlayStation^®4 (“PS4”) hardware sales.

Operating income increased 133.6 billion yen year-on-year to 311.1 billion yen, primarily due to the impact of the above-mentioned increase in sales.

The operating performance of the G&NS segment for the fiscal year ended March 31, 2019 reflected the continued demand for hardware, software and network services, as well as the expansion of free-to-play games which are monetized via microtransactions rather than an up-front purchase, and increased market interest surrounding cloud-based game streaming services. The expansion of the PS4 eco-system is expected to continue throughout the fiscal year ending March 31, 2020, during which Sony intends to expand the network services business and increase the PS4 install base, while also focusing on development of the next-generation console in order to continue delivering immersive experiences to PlayStation users in a variety of ways, including via its proprietary game streaming services, Remote Play and PlayStation Now.

Music

Key Financial Figures

 

		Fiscal year ended March 31
		2018				2019
		(Yen in millions)
Sales to external customers by product category
Recorded Music			446,960				426,926
Music Publishing			74,360				106,666
Visual Media & Platform			263,472				261,433
Sales to external customers			784,792				795,025
Intersegment sales			15,203				12,464
Music segment total sales			799,995				807,489
Music segment operating income			127,786				232,487

On November 14, 2018, Sony acquired the entirety of the approximately 60% equity interest held by the investor consortium led by Mubadala Investment Company in EMI, resulting in EMI becoming a wholly-owned subsidiary of Sony. Financial results of EMI included in the Music segment include Sony’s equity earnings (loss) in EMI from April 1 through November 13, 2018 and sales and operating income (loss) of EMI from November 14, 2018 through March 31, 2019, as well as a non-cash gain recorded as a result of the remeasurement to fair value of the approximately 40% equity interest in EMI that Sony owned prior to the acquisition.

The Music segment results include the yen-translated results of Sony Music Entertainment (“SME”), Sony/ATV Music Publishing LLC (“Sony/ATV”) and the above-mentioned EMI, all U.S.-based operations which aggregate the results of their worldwide subsidiaries on a U.S. dollar basis, and the results of Sony Music Entertainment (Japan) Inc., a Japan-based music company which aggregates its results in yen.

For the fiscal year ended March 31, 2019, sales were 807.5 billion yen, essentially flat year-on-year. This result was primarily due to higher streaming revenues, as well as higher sales for Music Publishing resulting from the consolidation of the results of EMI from November 14, 2018 onward, substantially offset by lower physical sales in Recorded Music primarily due to the impact of the new accounting standard regarding revenue from contracts with customers.

Operating income increased 104.7 billion yen year-on-year to 232.5 billion yen. This significant increase was primarily due to the above-mentioned recording of a 116.9 billion yen remeasurement gain resulting from the consolidation of EMI, partially offset by the above-mentioned recording of an 11.6 billion yen deterioration of equity in net income (loss) in connection with Sony’s acquisition of the remaining approximately 60% interest in EMI.

The operating performance of the Music segment for the fiscal year ended March 31, 2019 reflected continued growth in the market for recorded music despite decreases in physical and digital download revenues, mainly due to the expansion of digital streaming. In this environment, Sony has pursued initiatives to increase

 

33

streaming, performance, and other licensing revenues through continued investment in new recorded music and music publishing rights. Pursuant to these initiatives, in the fiscal year ended March 31, 2019, Sony completed the acquisition of EMI as described above, allowing Sony to build upon its music publishing library by gaining full ownership of the EMI music publishing catalog. In the fiscal year ending March 31, 2020, Sony intends to continue these initiatives, while also striving to extend the lifetime value of the Fate/Grand Order game application as it continues development of other game applications based on animation titles.

Pictures

Key Financial Figures

 

		Fiscal year ended March 31
		2018				2019
		(Yen in millions)
Sales to external customers by product category
Motion Pictures			448,945				436,017
Television Productions			289,024				288,816
Media Networks			272,204				260,437
Sales to external customers			1,010,173				985,270
Intersegment sales			894				1,603
Pictures segment total sales			1,011,067				986,873
Pictures segment operating income			41,110				54,599

The results presented in Pictures are a yen-translation of the results of Sony Pictures Entertainment (“SPE”), a U.S.-based operation that 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.”

For the fiscal year ended March 31, 2019, sales decreased 24.2 billion yen (2%) year-on-year (a 3% decrease on a U.S. dollar basis) to 986.9 billion yen. The decrease in sales on a U.S. dollar basis was due to lower sales in Motion Pictures, Media Networks and Television Productions. The decrease in sales for Motion Pictures was primarily due to lower worldwide theatrical revenues due to the stronger performance of the prior year film slate which included Jumanji: Welcome to the Jungle and Spider-Man: Homecoming, as compared to the current year film slate which included Venom and Hotel Transylvania 3: Summer Vacation. The decrease in sales for Media Networks was due to lower advertising and subscription revenues at various international channels as compared to the previous fiscal year, which included revenues for the Indian Premier League cricket competition. The decrease in sales for Television Productions was due to lower licensing revenues for various U.S. television series and catalog product, partially offset by higher sales due to the impact of the new accounting standard regarding revenue recognition from contracts with customers.

Operating income increased by 13.5 billion yen to 54.6 billion yen. This significant increase was primarily due to an improvement in the profitability of Motion Pictures which benefited from television licensing and home entertainment sales of higher margin titles including Jumanji: Welcome to the Jungle and Peter Rabbit, and lower theatrical marketing expenses. The current fiscal year also benefited from the 3.8 billion yen impact of the new accounting standard regarding revenue from contracts with customers. This increase was partially offset by the impact of 12.8 billion yen in programming write-offs and severance expenses related to a review of the channel portfolio within Media Networks undertaken to streamline the business, as well as the impact of lower sales for Media Networks and Television Productions.

The operating performance of the Pictures segment for the fiscal year ended March 31, 2019 reflected a continued shift in the market to a non-linear, on-demand digital business model in which media distributors increasingly seek to own more of the content they broadcast. In this environment, Sony has worked to enhance the global appeal of its content and enhance its developed and acquired intellectual property, while also striving to build and maintain strong relationships with top content creators and major networks around the world. Additionally, in the fiscal year ended March 31, 2019, Sony carried out a review of the channel portfolio within Media Networks to streamline the business, which is expected to contribute to an improvement in profitability in the fiscal year ending March 31, 2020 and beyond. Sony intends to continue these initiatives in the fiscal year ending March 31, 2020.

 

34

Home Entertainment & Sound (“HE&S”)

Key Financial Figures

 

		Fiscal year ended March 31
		2018				2019
		(Yen in millions)
Sales to external customers by product category
Televisions			861,763				788,423
Audio and Video			357,194				362,580
Other			2,777				3,530
Sales to external customers			1,221,734				1,154,533
Intersegment sales			999				878
HE&S segment total sales			1,222,733				1,155,411
HE&S segment operating income			85,841				89,669
		(Units in millions)
Major product unit sales
Televisions			12.4				11.3

For the fiscal year ended March 31, 2019, sales decreased 67.3 billion yen year-on-year to 1,155.4 billion yen, due to a decrease in television unit sales resulting from a strategic decision not to pursue scale in order to focus on profitability, as well as the impact of foreign exchange rates. This decrease was partially offset by an improvement in the product mix reflecting a shift to high value-added models.

Operating income increased 3.8 billion yen year-on-year to 89.7 billion yen. This increase was primarily due to an improvement in the product mix reflecting a shift to high value-added models, partially offset by the negative impact of foreign exchange rates and the above-mentioned decrease in sales.

The operating performance of the HE&S segment for the fiscal year ended March 31, 2019 reflected the relatively stabilized television market and a continued market shift to high value-added models such as 4K televisions. In this environment, Sony expects to continue to pursue an improvement in product mix reflecting the shift to high value-added models including 4K OLED televisions, and an enhancement of its marketing initiatives.

Imaging Products & Solutions (“IP&S”)

Key Financial Figures

 

		Fiscal year ended March 31
		2018				2019
		(Yen in millions)
Sales to external customers by product category
Still and Video Cameras			415,318				421,506
Other			231,845				239,798
Sales to external customers			647,163				661,304
Intersegment sales			8,729				9,146
IP&S segment total sales			655,892				670,450
IP&S segment operating income			74,924				83,975
		(Units in millions)
Major product unit sales
Digital cameras within Still and Video Cameras*			4.4				3.6

* Digital cameras include compact digital cameras and interchangeable lens cameras.

For the fiscal year ended March 31, 2019, sales increased 14.6 billion yen year-on-year to 670.5 billion yen. This increase was mainly due to an improvement in the product mix reflecting a shift to high value-added models such as mirrorless single-lens cameras and the interchangeable lens lineup, partially offset by a decrease in compact digital camera unit sales reflecting a contraction of the market.

 

35

Operating income increased 9.1 billion yen year-on-year to 84.0 billion yen. This increase was mainly due to the above-mentioned improvement in product mix as well as reductions in operating costs.

The operating performance of the IP&S segment for the fiscal year ended March 31, 2019 reflected shrinking markets for compact digital cameras, consumer video cameras and interchangeable lens cameras. In this environment, Sony continued to strengthen its high value-added products, such as interchangeable lens cameras and lenses, and focus on high-end models within its product portfolio of compact digital cameras and consumer video cameras. Sony intends to continue these initiatives in the fiscal year ending March 31, 2020.

Mobile Communications (“MC”)

Key Financial Figures

 

		Fiscal year ended March 31
		2018				2019
		(Yen in millions)
Sales to external customers			713,916				487,330
Intersegment sales			9,826				10,670
MC segment total sales			723,742				498,000
MC segment operating loss			(27,636	)			(97,136	)
		(Units in millions)
Major product unit sales
Smartphones			13.5				6.5

For the fiscal year ended March 31, 2019, sales decreased 225.7 billion yen year-on-year to 498.0 billion yen, due to a significant decrease in smartphone unit sales.

Operating loss increased 69.5 billion yen year-on-year to 97.1 billion yen. This significant increase in the operating loss was mainly due to the above-mentioned decrease in unit sales, the recording of expenses primarily for the write-down of excess components in inventory, and an increase in restructuring charges, partially offset by reductions in operating costs as well as a year-on-year decrease in the above-mentioned impairment charges recorded against long-lived assets.

The operating performance of the MC segment for the fiscal year ended March 31, 2019 reflected the continued slowing and maturation of the smartphone market on a global scale. In this environment, Sony revised its profitability improvement plan and adopted a new goal of reducing operating costs in the fiscal year ending March 31, 2021 compared with the fiscal year ended March 31, 2018 by 50%. In connection with this revision, Sony carried out various initiatives such as accelerating its plan to cease production at its Beijing factory and exiting several regions such as the Middle East and Central and South America, while working to improve its product lineup with high value-added models such as the Xperia 1. Sony intends to stabilize the segment’s operating results through these initiatives, with the goal of eliminating the operating loss in the MC segment in the fiscal year ending March 31, 2021.

Semiconductors

Key Financial Figures

 

		Fiscal year ended March 31
		2018				2019
		(Yen in millions)
Sales to external customers			726,892				770,622
Intersegment sales			123,118				108,708
Semiconductors segment total sales			850,010				879,330
Semiconductors segment operating income			164,023				143,874

For the fiscal year ended March 31, 2019, sales increased 29.3 billion yen year-on-year to 879.3 billion yen. This increase was primarily due to a significant increase in sales of image sensors for mobile products, partially offset by a significant decrease in sales of camera modules.

Operating income decreased 20.1 billion yen year-on-year to 143.9 billion yen. This decrease was primarily due to an increase in research and development (“R&D”) expenses and in depreciation and amortization

 

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expenses, as well as the absence of the above-mentioned 28.3 billion yen gain resulting from the sale of the entire equity interest in a manufacturing subsidiary in the camera module business, an 8.6 billion yen gain resulting from the sale of manufacturing equipment and 6.7 billion yen in insurance recoveries related to the Kumamoto Earthquakes, each recorded in the previous fiscal year. These negative factors were partially offset by the impact of the above-mentioned increase in sales.

The operating performance of the Semiconductors segment for the fiscal year ended March 31, 2019 reflected continued growth in demand for image sensors for mobile products, which is currently the most important market for Sony’s image sensors. This growth was largely due to increased demand for high value-added products that use these image sensors to improve their front-facing cameras, multiple-lens cameras and video functionality. In this environment, Sony positioned image sensors as the primary area of focus for capital expenditure in its mid-range plan for capital allocation, pursuant to which Sony continued to invest in production capacity for image sensors and increased its customer base while carefully monitoring demand in the fiscal year ended March 31, 2019. Sony intends to continue these initiatives in the fiscal year ending March 31, 2020.

Electronics*

* The term “Electronics” refers to the sum of the G&NS, HE&S, IP&S, MC, and Semiconductors segments.

Inventory

 

		Fiscal year ended March 31
		2018				2019
		(Yen in billions)
Game & Network Service			74.0				75.1
Home Entertainment & Sound			121.3				112.5
Imaging Products & Solutions			75.6				82.5
Mobile Communications			78.7				26.3
Semiconductors			240.9				253.4
Electronics Total			590.5				549.8

Sales to External Customers by Geographic Area

 

		Fiscal year ended March 31
		2018				2019
Japan			18.1	%			16.6	%
United States			22.4	%			23.8	%
Europe			26.5	%			26.6	%
China			11.4	%			13.0	%
Asia-Pacific (other than Japan and China)			15.3	%			13.3	%
Other			6.3	%			6.7	%
Electronics Total			100	%			100	%

Manufacturing by Geographic Area

The following tables set forth the Electronics segments’ total production breakdown of in-house and outsourced production, and the breakdown of in-house production by geographic regions. Figures in parentheses indicate the percentage of products that were exported from each geographic region to other regions.

Total production breakdown of in-house and outsourced production*

 

		Fiscal year ended March 31
		2018				2019
In-house production			63	%			64	%
Outsourced production			37	%			36	%
Electronics total			100	%			100	%

 

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Breakdown of in-house production by geographic regions*

 

		Fiscal year ended March 31
		2018				2019
Japan			43% (89%	)			48% (89%	)
China			20% (62%	)			18% (57%	)
Asia-Pacific (other than Japan and China)			34% (66%	)			32% (72%	)
Americas and Europe			3% (less than 5%	)			2% (less than 5%	)
Electronics total			100%				100%

* Because decimals have been rounded upwards, there may be cases in which the sum of individual figures does not equal 100%.

Financial Services

In Sony’s Financial Services segment, the results include SFH and SFH’s consolidated subsidiaries such as Sony Life, Sony Assurance and Sony Bank. The results of Sony Life discussed below on the basis of U.S. GAAP differ from the results that SFH and Sony Life disclose separately on a Japanese statutory basis.

Key Financial Figures

 

		Fiscal year ended March 31
		2018				2019
		(Yen in millions)
Financial services revenue			1,228,377				1,282,539
Financial Services segment operating income			178,947				161,477

For the fiscal year ended March 31, 2019, financial services revenue increased 54.2 billion yen year-on-year to 1,282.5 billion yen. This was primarily due to an increase in revenue at Sony Life. Revenue at Sony Life increased 49.5 billion yen year-on-year to 1,143.1 billion yen, primarily due to higher insurance premium revenue reflecting an increase in the policy amount in force.

Operating income decreased 17.5 billion yen year-on-year to 161.5 billion yen primarily due to a decrease in operating income at Sony Life and Sony Bank. Operating income at Sony Life decreased 13.5 billion yen year-on-year to 145.6 billion yen, mainly due to the absence of the gain on the sale of real estate held for investment purposes in the general account recorded in the previous fiscal year, as well as a loss on the valuation of investment securities recorded in the current fiscal year. These decreases were partially offset by the impact of the above-mentioned increase in sales.

Operating income at Sony Bank decreased primarily due to the recording of a loss on the valuation of securities.

The operating performance of the Financial Services segment for the fiscal year ended March 31, 2019 reflected circumstances in the Japanese economy, bond market and foreign exchange market. Weakening global demand for IT products that began in early spring, coupled with trade tensions between the United States and China, caused global trade to contract. However, as domestic demand contrasted starkly with foreign demand, the Japanese economy saw slow but unstable growth, with Japan’s GDP growth rate fluctuating between positive and negative territories. In Japan, as exports and industrial production fell, business sentiment, especially in the manufacturing sector, deteriorated significantly. In the nation’s labor market, on the other hand, employment and wages continued to improve driven by labor shortages. Domestic demand and nonmanufacturing business conditions also remained solid. In bond markets, yields on 10-year Japanese government bonds (JGBs) ranged between negative 0.10% and positive 0.15%. In July 2018, the Bank of Japan announced a change to its monetary policy, deciding to reduce its purchases of JGBs and allow 10-year JGB yields, which had been fixed at 0%, to move upward and downward. Upon this announcement, 10-year JGB yields rose to nearly 0.15% at one point. From October 2018, however, U.S. interest rates started declining amid uncertainty over the outlook for the global economy, leading JGB yields to fall in tandem. Furthermore, in March 2019, when the U.S. Federal Open Market Committee indicated that it would pause policy rate increases until the end of the year, 10-year JGB yields declined to almost negative 0.1%. Sony is continuing to pursue growth in the Financial Services segment by focusing on differentiating itself through high-quality financial products and services.

 

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Information on Operations Separating Out the Financial Services Segment

The following schedules show unaudited condensed statements of income for the Financial Services segment and all other segments excluding Financial Services. These presentations are not in accordance with U.S. GAAP, which is used by Sony 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, then eliminated in the consolidated figures shown below.

 

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		Fiscal year ended March 31
Financial Services segment		2018				2019
		(Yen in millions)
Financial services revenue			1,228,377				1,282,539
Financial services expenses			1,049,305				1,120,276
Other operating expenses, net			64				104
			1,049,369				1,120,380
Equity in net loss of affiliated companies			(61	)			(682	)
Operating income			178,947				161,477
Other income (expenses), net			—				(73	)
Income before income taxes			178,947				161,404
Income taxes			51,825				44,763
Net income			127,122				116,641
Less — Net income attributable to noncontrolling interests			201				235
Net income of Financial Services			126,921				116,406
		Fiscal year ended March 31
Sony without Financial Services segment		2018				2019
		(Yen in millions)
Net sales and operating revenue			7,329,755				7,396,401
Costs of sales			5,199,748				5,160,284
Selling, general and administrative			1,578,716				1,572,714
Other operating (income) expense, net			4,008				(71,672	)
			6,782,472				6,661,326
Equity in net income (loss) of affiliated companies			8,630				(2,317	)
Operating income			555,913				732,758
Other income (expenses), net			(20,738	)			133,929
Income before income taxes			535,175				866,687
Income taxes			99,945				335
Net income			435,230				866,352
Less — Net income attributable to noncontrolling interests			9,311				8,778
Net income of Sony without Financial Services			425,919				857,574
		Fiscal year ended March 31
Consolidated		2018				2019
		(Yen in millions)
Financial services revenue			1,221,235				1,274,708
Net sales and operating revenue			7,322,747				7,390,979
			8,543,982				8,665,687
Costs of sales			5,188,259				5,150,750
Selling, general and administrative			1,583,197				1,576,825
Financial services expenses			1,042,163				1,112,446
Other operating (income) expenses, net			4,072				(71,568	)
			7,817,691				7,768,453
Equity in net income (loss) of affiliated companies			8,569				(2,999	)
Operating income			734,860				894,235
Other income (expenses), net			(35,811	)			117,413
Income before income taxes			699,049				1,011,648
Income taxes			151,770				45,098
Net income			547,279				966,550
Less — Net income attributable to noncontrolling interests			56,485				50,279
Net income attributable to Sony Corporation’s Stockholders			490,794				916,271

 

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