Sony Takes $962M Film Unit Write-Down

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The impairment charge came due to a downward revision of future profit projections "primarily due to a lowering of previous expectations regarding the home entertainment business."

Sony Corp. said Monday just after midnight L.A. time that it is taking a non-cash goodwill impairment charge in its film division.

Companies regularly test for possible impairments under accounting rules and take write-downs when the fair value of an asset falls below the book value recorded on a company's balance sheet. 

"Today Sony Corp. announced that a goodwill impairment charge for the pictures segment of 112.1 billion yen (approximately 962 million U.S. dollars) was recorded as an operating loss in the third quarter ending December 31, 2016," a note from CEO Kazuo Hirai and Sony Entertainment CEO Michael Lynton said.

It said the write-down came "as a result of revising the future profitability projection for the pictures segment."

"The majority of the goodwill that was impaired was originally recorded at the time of the acquisition of Columbia Pictures Entertainment Inc. in 1989," it said. "The impact on the consolidated results forecast for the fiscal year ending March 31, 2017 (April 1, 2016 to March 31, 2017) of this impairment and other factors is currently being evaluated and will be disclosed at the earnings announcement for the third quarter ended December 31, 2016 scheduled to be held on February 2, 2017."

And Sony said: "The impairment charge resulted from a downward revision in the future profitability projection for the motion pictures business within the pictures segment. The downward revision was primarily due to a lowering of previous expectations regarding the home entertainment business, mainly driven by an acceleration of market decline. Underlying profitability projections of film performance were also reduced, but the adverse impact of that reduction is expected to be largely mitigated by measures that have been identified to improve the profitability of the motion pictures business."

However, Hirai and Lynton reiterated Sony Corp.'s commitment to Sony Pictures Entertainment in an email to employees: "We, the management of Sony Corp and Sony Entertainment, take the fact of recording a substantial impairment charge very seriously. But make no mistake; Sony Corp’s commitment to SPE remains unchanged. The value of high-quality content continues to rise. As we have stated on many occasions, including at SPE’s all-hands meeting at the end of last year, Sony Corp. sees SPE as a very important part of Sony group and will continue to invest to achieve long-term growth and increased profits in this space."

The email continued, "We look forward to working together to achieve our consolidated financial targets of more than 10 percent in [return on equity] and 500 billion yen [$4.35 billion] in operating income."

Hirai is establishing an office at SPE and plans to spend more time there as the search for Lynton's successor goes on. Lynton announced earlier this month that he is leaving to become chairman of Snapchat owner Snap.

An analyst who covers Sony at a global financial institution in Tokyo, who asked not to be identified, told The Hollywood Reporter, "the film business has been struggling for years. This year, the only big release will be Spiderman and last year there were no big hits."

Sony also announced that it will sell part of its stake in M3 Inc, a network services provider that Sony established in 2000, to Goldman Sachs Japan for approximately $322 million (37 billion yen) in order "to strengthen its financial resources." The sale, the final price of which will be made public Tuesday, will reduce Sony's stake to 34 percent, though it will remain the largest shareholder.

Sony shares closed almost unchanged in Tokyo at 3,502 yen ($30.53) before the announcement was made.