20-F 1 k02298e20vf.htm FORM 20-F e20vf
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 20-F
 
     
o
  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
     
 
or
     
     
þ
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
     
    For the fiscal year ended March 31, 2010
     
 
or
     
     
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
     
    For the transition period from/to
     
 
or
     
     
o
  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)
 
Samuel Levenson, Senior Vice President, Investor Relations
 
Sony Corporation of America
550 Madison Avenue
New York, NY 10022
Telephone: 212-833-6722, Facsimile: 212-833-6938
(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)
 
Securities registered or to be registered pursuant to Section 12(b) of the Act:
 
     
Title of Each Class   Name of Each Exchange on Which Registered
 
American Depositary Shares*
  New York Stock Exchange
Common Stock**
  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, 2010
  March 31, 2010
Title of Class   (Tokyo Time)   (New York Time)
 
Common Stock
  1,003,531,808    
American Depositary Shares
      96,204,576
 
Indicate by check mark if the registrant is a well-seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ     No o
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 o     No þ
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 þ     No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes þ     No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.
 
þ Large accelerated filer o Accelerated filer o Non-accelerated filer
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
US GAAP þ International Financial Reporting Standards as issued by the International Accounting Standards Board o Other o
Indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 o       Item 18 o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o      No þ
 


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Cautionary Statement
 
Statements made in this annual report with respect to Sony’s current plans, estimates, strategies and beliefs and other statements that are not historical facts are forward-looking statements about the future performance of Sony. Forward-looking statements include, but are not limited to, those statements using words such as “believe,” “expect,” “plans,” “strategy,” “prospects,” “forecast,” “estimate,” “project,” “anticipate,” “aim,” “intend,” “seek,” “may,” “might,” “could” or “should,” and words of similar meaning in connection with a discussion of future operations, financial performance, events or conditions. From time to time, oral or written forward-looking statements may also be included in other materials released to the public. These statements are based on management’s assumptions and beliefs in light of the information currently available to it. Sony cautions you 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 you should not place undue reliance on them. You 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) the global economic environment in which Sony operates and the economic conditions in Sony’s markets, particularly levels of consumer spending; (ii) 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 and liabilities are denominated; (iii) 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 LCD televisions and game platforms , which are offered in highly competitive markets characterized by continual new product and service introductions, rapid development in technology and subjective and changing consumer preferences; (iv) Sony’s ability and timing to recoup large-scale investments required for technology development and increasing production capacity; (v) Sony’s ability to implement successful business restructuring and transformation efforts under changing market conditions; (vi) Sony’s ability to implement successful hardware, software, and content integration strategies for all segments excluding the Financial Services segment, and to develop and implement successful sales and distribution strategies in light of the Internet and other technological developments; (vii) Sony’s continued ability to devote sufficient resources to research and development and, with respect to capital expenditures, to prioritize investments correctly (particularly in the Consumer Products & Devices segment); (viii) Sony’s ability to maintain product quality; (ix); the success of Sony’s acquisitions, joint ventures and other strategic investments; (x) Sony’s ability to forecast demands, manage timely procurement and control inventories; (xi) the outcome of pending legal and/or regulatory proceedings; (xii) 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; and (xiii) the impact of 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. Risks and uncertainties also include the impact of any future events with material adverse impacts.
 
Important information regarding risks and uncertainties is also set forth elsewhere in this annual report, including in “Risk Factors” included in “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.” In addition, sales and operating revenue are referred to as “sales” in the narrative description except in the consolidated financial statements.
 
As of March 31, 2010, Sony Corporation had 1,266 consolidated subsidiaries (including variable interest entities). It has applied the equity accounting method with respect to its 73 affiliated companies.


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Signatures     133  
 EX-1.1 Articles of Incorporation, as amended (English Translation)
 EX-1.2 Share Handling Regulation, as amended (English Translation)
 EX-1.3 Charter of the Board of Directors, as amended (English Translation)
 EX-12.1 302 Certification
 EX-12.2 302 Certification
 EX-13.1 906 Certification
 EX-15.1(a) Consent of PricewaterhouseCoopers Aarata
 EX-15.1(b) Consent of PricewaterhouseCoopers
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT


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Item 1.  Identity of Directors, Senior Management and Advisers
 
Not Applicable
 
Item 2.  Offer Statistics and Expected Timetable
 
Not Applicable
 
Item 3.  Key Information
 
Selected Financial Data
 
                                         
    Fiscal Year Ended March 31  
    2006     2007     2008     2009     2010  
          (Yen in millions, Yen per share amounts)        
 
Income Statement Data:
                                       
Sales and operating revenue
    7,510,597       8,295,695       8,871,414       7,729,993       7,213,998  
Equity in net income (loss) of affiliated companies
    13,176       78,654       100,817       (25,109 )     (30,235 )
Operating income (loss)
    239,592       150,404       475,299       (227,783 )     31,772  
Income (loss) before income taxes
    299,506       180,691       567,134       (174,955 )     26,912  
Income taxes
    176,515       53,888       203,478       (72,741 )     13,958  
Net income (loss) attributable to Sony Corporation’s stockholders
    123,616       126,328       369,435       (98,938 )     (40,802 )
Data per Share of Common Stock:
                                       
Net income (loss) attributable to Sony Corporation’s stockholders*
                                       
— Basic
    122.58       126.15       368.33       (98.59 )     (40.66 )
— Diluted
    116.88       120.29       351.10       (98.59 )     (40.66 )
Cash dividends declared
                                       
Interim
    12.50       12.50       12.50       30.00       12.50  
      (10.36 cents )     (10.78 cents )     (11.26 cents )     (31.89 cents )     (14.38 cents )
Fiscal year-end
    12.50       12.50       12.50       12.50       12.50  
      (11.04 cents )     (10.24 cents )     (11.92 cents )     (13.01 cents )     (13.55 cents )
Depreciation and amortization**
    381,843       400,009       428,010       405,443       371,004  
Capital expenditures (additions to fixed assets)
    384,347       414,138       335,726       332,068       192,724  
Research and development costs
    531,795       543,937       520,568       497,297       432,001  
Balance Sheet Data:
                                       
Net working capital (deficit)
    569,296       994,871       986,296       (190,265 )     72,947  
Long-term debt
    764,898       1,001,005       729,059       660,147       924,207  
Sony Corporation’s stockholders’ equity
    3,203,852       3,370,704       3,465,089       2,964,653       2,965,905  
Common stock
    624,124       626,907       630,576       630,765       630,822  
Total assets
    10,607,753       11,716,362       12,552,739       12,013,511       12,866,114  
Number of shares issued at fiscal year-end (thousands of shares of common stock)
    1,001,680       1,002,897       1,004,443       1,004,535       1,004,571  
Sony Corporation’s stockholders’ equity per share of common stock
    3,200.85       3,363.77       3,453.25       2,954.25       2,955.47  
 
* Refer to Note 22 to the notes to the consolidated financial statements.
 
** Depreciation and amortization includes amortization expenses for intangible assets and deferred insurance acquisition costs.
 


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    Average*   High   Low   Period-End
    (Yen)
 
Yen Exchange Rates per U.S. dollar:
                               
Fiscal year ended March 31
                               
2006
    113.15       120.93       104.41       117.78  
2007
    116.92       121.81       110.07       117.56  
2008
    114.31       124.09       96.88       99.85  
2009
    100.62       110.48       87.80       99.15  
2010
    92.93       100.71       86.12       93.40  
2010
                               
January
          93.31       89.41       90.38  
February
          91.94       88.84       88.84  
March
          93.40       88.43       93.40  
April
          94.51       92.03       94.24  
May
          94.68       89.89       90.81  
June (through June 18)
          92.33       90.79       90.79  
 
The noon buying rate for yen in New York City as certified for customs purposes by the Federal Reserve Bank of New York on June 18, 2010 was 90.79 yen = 1 U.S. dollar.
 
* The average yen exchange rates represent average noon buying rates of all the business days during the respective year.
 
Capitalization and Indebtedness
 
Not Applicable
 
Reasons for the Offer and Use of Proceeds
 
Not Applicable
 
Risk Factors
 
Sony realigned its reportable segments from the first quarter of the fiscal year ended March 31, 2010 to reflect its reorganization as of April 1, 2009, primarily repositioning operations previously reported within the Electronics and Game segments and establishing the Consumer Products & Devices (“CPD”), Networked Products & Services (“NPS”) and B2B & Disc Manufacturing (“B2B & Disc”) segments. Additionally, Music is a new reportable segment effective from the fiscal year ended March 31, 2010. Pictures and Financial Services continue to be reportable segments. The equity earnings from Sony Ericsson are presented as a separate segment. For further details, please refer to “Item 5. Operating Results”.
 
Sony plans further modifications to its business segment classification to reflect the Company’s reorganization as of April 1, 2010. Sony expects to report its operating results in line with new business segments from the first quarter of the fiscal year ending March 31, 2011. Please note that the following Risk Factors section is based on the business segment classification that applies to the fiscal year ended March 31, 2010.
 
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.
 
Sony must overcome increasingly intense competition, especially in the CPD and NPS segments.
 
Sony produces consumer products that compete against products sold by competitors, including new entrants, on the basis of several factors such as price and function. In order to produce products that appeal to changing and increasingly diverse consumer preferences, and to overcome the fact that a relatively high percentage of consumers

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already possess products similar to those that Sony offers, Sony must develop superior technology, anticipate consumer tastes and rapidly develop attractive products with competitive selling prices. Sony faces increasingly intense pricing pressure from competitors and retailer consolidation, and shorter product cycles in a variety of consumer product categories. Sony’s operating results depend on Sony’s ability to continue to efficiently develop and offer products at competitive prices that meet changing and increasingly diverse consumer preferences. If Sony is unable to effectively anticipate and counter the ongoing price erosion that frequently affects its products, or if the average selling prices of its products decrease faster than Sony is able to reduce its manufacturing costs, Sony’s operating results and financial condition may be adversely impacted.
 
To remain competitive and stimulate customer demand, Sony must successfully manage frequent new product and service introductions and transitions.
 
Due to the highly volatile and competitive nature of the consumer electronics, network services and mobile communication industries, Sony must continually introduce new products, services and technologies, enhance existing products and services, and effectively stimulate customer demand for new and upgraded products and services in both mature and developing markets. The success of new product and service introductions depends on a number of factors, such as the timely and successful completion of development efforts, market acceptance, Sony’s ability to manage the risks associated with new products and production ramp-up issues, the availability of application software for new products, the effective management of purchase commitments and inventory levels in line with anticipated product demand, the availability of products in appropriate quantities and costs to meet anticipated demand, and the risk that new products and services may have quality or other defects in the early stages of introduction. Recent examples of such new products and services include 3D televisions and other 3D-related businesses. In addition, new and upgraded products and services can affect the sales and profitability of existing products and services. Accordingly, if Sony cannot properly manage frequent new product and service introductions and transitions, Sony’s operating results and financial condition may be adversely impacted.
 
Sony is subject to competition from firms that may be more specialized or have greater resources.
 
Sony has several business segments in different industries and has many product and service categories within the CPD, NPS and B2B & Disc segments, which cause it to face a broad range of existing and new competitors ranging from large multinational companies to highly specialized entities that focus on only a few businesses. As a result, Sony may not be able to fund or invest in certain areas of its businesses to the same degree as its competitors. Furthermore, these competitors may have greater financial, technical, and marketing resources available to them than those available to the businesses of Sony. In addition, the businesses within Sony’s Financial Services segment may not be able to compete effectively, especially against established competitors with superior financial, marketing and other relevant resources. A failure to efficiently anticipate and respond to these established and new competitors may adversely impact Sony’s operating results.
 
Sony’s investments in research and development may not yield the results expected.
 
Sony’s businesses operate in intensely competitive markets characterized by changing consumer preferences and rapid technological innovation. Due to advanced technological innovation and the relative ease of technology imitation, new products and services tend to become standardized more rapidly, leading to more intense competition and ongoing price erosion. In order to strengthen the competitiveness of its products in this environment, Sony continues to invest heavily in research and development. However, these investments may not yield the innovation or the results expected quickly enough, or competitors may lead Sony in technological innovation, hindering Sony’s ability to commercialize, in a timely manner, new and competitive products and services that meet the needs of the market, which consequently may adversely impact Sony’s operating results as well as its reputation.
 
Sony’s business restructuring and transformation efforts are costly and may not attain their objectives.
 
Sony continued to implement restructuring initiatives in the fiscal year ended March 31, 2010 that focused on a review of the Sony Group’s investment plan, the realignment of its manufacturing sites, the reallocation of its workforce, and headcount reductions. As a result of these restructuring initiatives, a total of 124.3 billion yen in restructuring charges, including 7.9 billion yen of non-cash charges related to depreciation associated with


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restructured assets, has been recorded in the fiscal year ended March 31, 2010. Sony anticipates recording approximately 80 billion yen of restructuring charges for the fiscal year ending March 31, 2011. Restructuring charges are recorded in cost of sales, selling, general and administrative expenses and loss (gain) on sale, disposal or impairment of assets, net and thus initially deteriorate Sony’s operating income (loss) and net income (loss) attributable to Sony’s stockholders. Sony will continue rationalizing its manufacturing operations, shifting and aggregating manufacturing to lower-cost countries and increasing the utilization of third-party original equipment and design manufacturers (OEMs and ODMs). In addition, as a part of its transformation efforts, since April 1, 2009 Sony established three horizontal platforms for (1) manufacturing, logistics, procurement and customer services, (2) R&D and common software development, and (3) global sales and marketing functions, and has been undertaking business process optimization to enhance profitability. Furthermore Sony has started developing a common procurement platform as well as consolidating its suppliers during the fiscal year ended March 31, 2010. In January 2010, Sony announced that it will outsource a part of the human resources and accounting operation services of Sony and certain of its subsidiaries in Japan from April 2010. Sony has and will become more reliant upon outsourcing services provided by external business partners.
 
Due to internal or external factors, projected growth, efficiencies and cost savings from the above-noted restructuring and transformation initiatives may not be realized as scheduled and, even if those benefits are realized, Sony may not be able to achieve the level of profitability expected due to the worsening of market conditions beyond expectations. Such possible internal factors may include, for example, changes in restructuring and transformation plans, an inability to implement the initiatives effectively with available resources, or delays in implementing the new business processes or strategies. Possible external factors may include, for example, increased burdens from regional labor regulations, labor union agreements and Japanese customary labor practices that may prevent Sony from executing its restructuring initiatives as planned. The inability to fully and successfully implement restructuring and transformation programs may adversely affect Sony’s operating results and financial condition. Additionally, operating cash flows may be reduced as a result of the payment for restructuring charges.
 
Sony’s acquisitions and joint ventures within strategic business areas may not be successful.
 
Sony actively engages in acquisitions, joint ventures and other strategic investments in order to acquire new technologies, efficiently develop new businesses, and enhance its competitiveness in businesses that were previously performed by divisions of Sony Corporation or its wholly-owned subsidiaries.
 
Sony may incur significant integration expenses to incorporate acquired businesses. Additionally, Sony may not achieve strategic objectives, planned revenue improvements and cost savings, and may not retain key personnel of the acquired business. Sony’s operating results may also be adversely affected by the assumption of liabilities related to any acquired business.
 
Sony currently has investments in several joint ventures, including Sony Ericsson and S-LCD. If Sony and its partners are unable to reach their common financial objectives successfully, Sony’s operating results may be adversely affected. Sony’s operating results may also be adversely affected in the short- and medium-term during the partnership, even though Sony and its partners remain on course to achieve their common financial objectives. In addition, by participating in joint ventures or other strategic investments, Sony may encounter conflicts of interest, may not maintain sufficient control over these relationships, including over cash flow, and may be faced with an increased risk of the loss of proprietary technology or know-how. Sony’s reputation may be harmed by the actions or activities of a joint venture that uses the Sony brand. Sony may also be required to provide additional funding or debt guarantees to a joint venture, whether as a result of significant or persistent underperformance, or otherwise.
 
Sony may not be able to recoup the capital expenditures or investments it makes to increase production capacity.
 
Sony continues to invest in production equipment in the CPD, NPS and B2B & Disc segments. Sony also invests in production-related joint ventures. One example is the investment Sony and Samsung Electronics Co., Ltd. (“Samsung”) made in connection with 8th generation production capacity for amorphous thin film transistor (“TFT”) LCD panel production, following investments in 7th generation production capacity at S-LCD, a joint


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venture of the two companies in Korea. As of March 31, 2010, the accumulated total amount of the investment in S-LCD by Sony and Samsung for 7th and 8th generation production capacity was approximately 400 billion yen (approximately 50 percent of which was contributed by Sony). If unforeseen market changes and corresponding decline in demand result in a mismatch between sales volume and anticipated production volumes, or if unit sales prices decline due to market oversupply, Sony may not be able to recover its capital expenditures or investments, in part or in full, or the recovery of these capital expenditures or investments may take longer than expected. As a result, the carrying value of the related assets may be subject to an impairment charge, which may adversely affect Sony’s profitability.
 
Increased reliance on external business partners may increase financial, reputational and other risks to Sony.
 
With the increasing necessity of pursuing quick business development and high operating efficiency with limited managerial resources, Sony increasingly procures components (including LCD panels for televisions) and technologies (such as operating systems for PCs) from third-party suppliers. Reliance on third-party suppliers increases the possibility that Sony will be unable to prevent products from incorporating defective or inferior third-party technology or components. Products with such defects can adversely affect Sony’s operating results and its reputation. Sony has also become more reliant upon the services of OEMs and ODMs in the CPD and NPS segments, particularly in the television business. If Sony cannot adequately manage these outsourcing relationships, Sony’s production operations may be adversely affected. Sony may not be able to achieve target volume or quality levels, and may face a risk of the loss of proprietary technology or know-how. Sony also consigns activities including certain procurement, logistics, sales, data processing and other services, to the external business partners. Sony may be exposed if the external business partners do not comply with applicable laws or regulations, infringe third-party intellectual property rights, or if the external business partners become exposed to risks, such as accidents, natural disasters or bankruptcies.
 
Sony must efficiently manage its procurement of parts and components, the market conditions for which are volatile, and control its inventory of products, parts, and components, the demand for which is volatile.
 
In the CPD, NPS and B2B & Disc segments, Sony uses a large volume of parts and components, such as semiconductors and LCD panels, for its products. Market fluctuations in the availability and pricing of parts and components as well as energy prices, can adversely affect Sony’s operating results. For instance, shortages of parts or components may result in sharply higher prices and an increase in the cost of goods sold. Additionally, the prices of parts or components fluctuate with the prices of underlying basic or raw materials, such as petrochemical products, cobalt and copper, which can also affect the cost of goods sold.
 
Sony places orders for parts and components and determines production and inventory plans in advance based on its forecast of consumer demand, which is highly volatile and difficult to predict. Inaccurate forecasts of consumer demand or inadequate management can lead to a shortage or excess of inventory, which can disrupt production plans and result in lost sales opportunities or inventory adjustments. 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. In the past, for example, Sony has experienced a shortage of certain semiconductors and LCD panels, which resulted in Sony’s inability to meet consumer demand for its PCs and audio visual products, as well as a surplus in certain semiconductors and LCD panels that resulted in inventory write-downs when the prices of these parts and components fell. Such lost sales opportunities or inventory adjustments have had and, if Sony is not successful in managing its inventory in the future, may have an adverse impact on Sony’s operating results.
 
Sony’s sales and profitability are sensitive to economic, employment and other trends in Sony’s major markets.
 
Sony’s sales and profitability are sensitive to economic, employment and other trends in each of the major markets in which Sony operates. As experienced beginning in the autumn of 2008, these markets may be subject to significant economic downturns, having an adverse impact on Sony’s operating results and financial condition, and there is no guarantee that subsequent market recoveries will be broad based and sustained. In the fiscal year ended


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March 31, 2010, 29.1 percent, 22.1 percent and 22.8 percent of Sony’s sales and operating revenue were attributable to Japan, the U.S. and Europe, respectively. Additionally, Sony’s operating results will be increasingly impacted in the coming years by Sony’s ability to realize its growth goals in emerging markets such as Brazil, Russia, India and China.
 
Sony’s operating results depend on the demand from consumers and commercial customers and the performance of retailers, wholesalers and distributors. An actual or expected deterioration of economic conditions in any of Sony’s major markets may depress consumer confidence and result in an actual decline in consumption. Commercial customers and other business partners may experience deterioration in their own businesses mainly due to cash flow shortages, difficulty in obtaining financing and reduced end-user demand, resulting in reduced demand for Sony’s products and services. Commercial customers’ difficulty in meeting their obligations to Sony may also have an adverse impact on Sony’s operating results and cash flows.
 
Sony’s suppliers are also susceptible to similar conditions that may impact their ability to fulfill their contractual obligations and may adversely impact Sony’s operating results if products and services cannot be obtained at competitive prices.
 
Global economic conditions may also impact Sony in other ways. For example, further restructuring charges, higher pension and other post-retirement benefit costs or funding requirements, additional asset impairment charges, among other factors, may adversely affect Sony’s operating results, financial condition and cash flows.
 
Foreign exchange rate fluctuations can affect financial results because a large portion of Sony’s sales and assets are denominated in currencies other than the yen.
 
Sony’s consolidated statements of income are prepared from the local currency-denominated financial results of Sony Corporation’s subsidiaries around the world, which are then translated into yen at the monthly average currency exchange rate. Sony’s consolidated balance sheets are prepared using the local currency-denominated assets and liabilities of Sony Corporation’s subsidiaries around the world, which are translated into yen at the market exchange rate at the end of each financial period. A large proportion of Sony’s consolidated financial results, assets and liabilities is accounted for in currencies other than the Japanese yen. For example, only 29.1 percent of Sony’s sales in the fiscal year ended March 31, 2010 were recorded in Japan. Accordingly, Sony’s consolidated financial results and the assets and liabilities in Sony’s businesses (excluding the Financial Services segment) that operate internationally may be materially affected by changes in the exchange rates of foreign currencies when translating into Japanese yen. Foreign exchange rate fluctuations may have a negative impact on Sony’s operating results and financial condition in the future, especially if the yen strengthens significantly against the U.S. dollar, the euro or other foreign currencies.
 
Foreign exchange rate fluctuations can affect Sony’s operating results due to sales and expenses in different currencies.
 
Exchange rate fluctuations affect Sony’s operating profitability 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 the CPD segment, research and development and headquarters overhead costs are incurred mainly in yen, and manufacturing costs, including material costs, are mainly incurred in the U.S. dollar and yen. Sales are dispersed and recorded in Japanese yen, the U.S. dollar, euro, and local currencies of other regions. Since the currency in which sales are recorded may not be aligned with the currency in which the expenses are incurred, foreign exchange rate fluctuations, particularly fluctuations of the euro exchange rate against the yen and the U.S. dollar, may affect Sony’s operating results. 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 hedges most of the net short-term foreign currency exposure resulting from import and export transactions shortly before they are projected to occur, such hedging activity cannot entirely eliminate the risk of adverse short-term exchange rate fluctuations.


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The significant volatility and disruption in the global financial markets or a ratings downgrade may adversely affect the availability and cost of Sony’s funding.
 
The 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. For example, such conditions were observed beginning in the autumn of 2008. Since then the central governments and the central banks of major global economies, including Japan, have created a number of programs to help stabilize financial markets and financial institutions and to maintain liquidity. These programs have improved conditions in these credit and financial markets, but there can be no assurance that these programs, individually or collectively, will continue to sustain beneficial effects on the markets overall, or that they will resolve the credit and liquidity issues. More recently, the volatility in the global financial markets has increased due in part to the Greek sovereign debt crisis in the spring of 2010.
 
Historically, Sony’s primary sources of funds are cash flows from operations, offerings of commercial paper and other debt securities such as term debt as well as borrowings from banks and other institutional lenders. Although the commercial paper and term debt markets have continued to be available to Sony during the period of significant volatility and disruption that began in the autumn of 2008, there can be no assurance that such sources will continue to be available at acceptable terms. If such market disruption and volatility occur, Sony may seek to repay commercial paper and term debt as it becomes due, or to meet other liquidity needs by drawing upon contractually committed lending facilities primarily provided by global banks and/or seeking other sources of funding including, potentially, the sale of assets. There can be no assurance that under such extreme market conditions such alternate funding sources will be available or sufficient. Further, a failure of one or more of Sony’s major lenders, or a decision by one or more of them to stop lending to Sony due to instability in the Japanese or global financial markets may have an adverse impact on Sony’s access to funding from such sources. In turn, this could have a material adverse impact on Sony’s operating results, financial condition and liquidity.
 
Similarly, fluctuations in foreign exchange markets and the global financial markets may affect foreign currency translation adjustments and pension liability adjustments, both of which are included in the accumulated other comprehensive income, a component of equity, and the impact of deterioration in equity may have an adverse effect on the assessment of Sony’s credit ratings. A downgrade in Sony’s credit ratings may 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, with a corresponding adverse effect on Sony’s operating results, financial condition and liquidity.
 
Sony is subject to the risks of operations in different countries.
 
Most of Sony’s activities are conducted outside of Japan, and these international operations bring challenges. For example, in the CPD, NPS and B2B & Disc segments, production and procurement of products and parts in Asian countries such as China are increasing, and this creates a risk that production and shipping of products and parts may be interrupted by a natural disaster or a pandemic in the region. In addition, production of electronics products in China and other Asian countries increases the time necessary to supply products to Europe and the U.S., which can make it more difficult to meet changing customer demand. Further, Sony may encounter difficulty in planning and managing operations due to unfavorable political or economic factors, such as cultural and religious conflicts, non-compliance with expected business conduct, changes in various regulations, trade policies and taxation laws, and a lack of adequate infrastructure. In particular, changes in regulations, trade policies and related taxation, including local content regulations, business or investment permit approvals, foreign exchange controls, import or export controls, and nationalization of assets or restrictions on the repatriation of returns from foreign investments in major markets and regions may affect Sony’s operating results. A broad scale labor dispute or a change of labor regulations and policies may significantly change local labor environment. Such a condition in China and other Asian countries could cause interruption in production and shipping of Sony’s products and parts, a sharp rise in local labor costs, or a shortage of well-trained workforce, which may adversely affect Sony’s operating results. If the effects of international or domestic political and military instability or natural disasters disrupt Sony’s business operations or depress consumer confidence in those regions, Sony’s operating results and financial condition may be adversely affected.


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In addition, as emerging markets are becoming increasingly important to its operations, Sony becomes more susceptible to the above-mentioned risks which may have an adverse impact on its operating results and financial condition.
 
Sony’s success depends on the ability to recruit and retain skilled technical employees and management professionals.
 
In order to continuously develop, design, manufacture, market, and sell successful electronics products, including networked products as well as software, including game, video and music content, in increasingly competitive markets, Sony must attract and retain key personnel, including its executive team, other management professionals, and skilled employees such as hardware and software engineers. However, there is high demand for such skilled employees, and Sony may be unable to attract or retain qualified employees to keep up with future business needs. If this should happen, it may adversely affect Sony’s operating results and financial condition.
 
The large-scale investment required during the development and introductory period of a new gaming platform may not be fully recovered.
 
Within Sony’s game business, developing and providing products that maintain competitiveness over an extended life-cycle require large-scale investment relating to research and development, particularly during the development and introductory period of a new platform. In the past, large-scale investment relating to capital expenditures and research and development for the development and manufacture of key components, including semiconductors supplied for PlayStation®3 (“PS3”), was recorded within the CPD segment. Moreover, it is particularly important in the game business that these products are provided to consumers at competitive prices with compelling game software and network services to ensure favorable market penetration of the platform. Should the platform fail to achieve such favorable market penetration, there is a risk that this investment, or a part thereof, will not be recouped, resulting in a negative impact on Sony’s profitability. In addition, even if the platform is ultimately successful and Sony is able to sufficiently recoup its investment, this may take longer than expected, resulting in a negative impact on Sony’s profitability.
 
An example of a negative impact on profitability within the game business is PS3-related charges that in the past resulted in significant operating losses in the NPS segment. These losses arose mainly from the strategic pricing of PS3 hardware at points lower than its production cost.
 
Sony’s consumer-use products are particularly sensitive to year-end holiday season demand.
 
Since Sony’s game business offers a relatively small range of hardware products ,including PlayStation®2, PSP® (PlayStation®Portable), and PS3, and a significant portion of overall demand is weighted towards the year-end holiday season, factors such as changes in the competitive environment, changes in market conditions, delays in the release of highly anticipated software titles and insufficient supply of hardware during the year-end holiday season can adversely impact Sony’s operating results. Sony’s other consumer-use products are also dependent upon year-end holiday season demand and, to a lesser extent than the game business, are susceptible to weak sales as well as supply shortages that may prevent Sony from meeting demand for its products during this season.
 
The sales and profitability of Sony’s game business depend on the penetration of its gaming platforms, including network services, which is sensitive to software line-ups, including software produced by third party developers and publishers.
 
In Sony’s game business, the penetration of gaming platforms is a significant factor driving sales and profitability, which may be affected by the ability to provide customers with sufficient software line-ups, including software produced by third party developers and publishers and network services. Software line-ups and network services affect not only software sales and profitability, as in many other content businesses, but also affect the penetration of gaming platforms, which can affect hardware sales and profitability. There is no assurance that game software developers and publishers will continue to develop and release software regularly or at all, and discontinuance or delay of software development may adversely affect Sony’s operating results.


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Sony’s content businesses, including the Pictures and Music segments and the game business, are subject to digital piracy and illegal downloading, which have become increasingly prevalent with the development of new technologies and the availability of broadband Internet connections.
 
The development and declining prices of digital technology along with the increased penetration and speed of broadband Internet connections and the availability of content in digital formats have created risks with respect to Sony’s ability to protect the copyrighted content of the Pictures and Music segments and the game business from digital piracy and counterfeiting. In particular, advances in software and technology that enable the duplication, transfer or downloading of digital audio and video files from the Internet and other sources without authorization from the owners of the rights to such content threaten the conventional copyright-based business model by making it easier to create, transmit, and redistribute high quality, unauthorized audio and video files. These advances include, for example, digital devices such as hard disk drive video and audio recorders, CD, DVD, and Blu-ray Disctm recorders, file compression algorithms, and peer-to-peer digital distribution services. The availability of unauthorized content contributes to a decrease in legitimate product sales and puts pressure on the price of legitimate product sales, which may adversely affect Sony’s operating results. Sony has incurred and will continue to incur expenses to ensure adequate copyright protection, to develop new services for the authorized digital distribution of music, motion pictures, television programs and video games, and to combat unauthorized digital distribution of its copyrighted content. These initiatives will increase Sony’s near-term expenses and may not achieve their intended result.
 
Operating results for Sony’s Pictures segment vary according to worldwide consumer acceptance, production and marketing costs, timing of releases or syndication sales, and the availability of competing products and entertainment alternatives.
 
Operating results for motion picture releases and television productions within the Pictures segment can materially fluctuate depending primarily upon worldwide consumer acceptance of such productions, which is difficult to predict, as well as the timing of new motion picture releases and the syndication of television productions. Moreover, the Pictures segment must invest substantial amounts in motion picture and television productions before learning the extent to which these products will earn consumer acceptance. In addition, the commercial success of Sony’s Pictures segment’s motion picture and television productions depends upon consumer acceptance of other competing products released at or near the same time, and the availability of alternative forms of entertainment and leisure activities, including many new options such as social networking sites, that have been enabled by technological advancements. Given the limited number of motion pictures released during any period, the underperformance of an “event” or “tent-pole” motion picture that generally has higher production and marketing costs than other films may have an adverse impact on operating results of Sony’s Pictures segment.
 
Operating results of Sony’s Pictures segment may be adversely affected by changes in advertising markets, or by the failure to renew, or renewal on less favorable terms of, carriage contracts.
 
The Pictures segment’s television operations, including its global channel network, derive a significant portion of sales from the sale of advertising. As the advertising market is particularly sensitive to changes in the global economy, the operating results of Sony’s Pictures segment may be adversely affected by future economic downturns The Pictures segment also recognizes sales from the licensing of its image-based software, including its motion picture and television content, to the U.S. and international television networks, where a decline in the networks’ ability to generate advertising and subscription revenues may adversely impact the license fees paid by these networks to the Pictures segment. The Pictures segment also depends on third party cable, satellite and other distribution systems to distribute its global channel network. The failure to renew, or renewal on less favorable terms of, carriage contracts (broadcasting agreements) with these third-party distributors may adversely affect the Pictures segment’s ability to generate advertising and subscription sales through its global channel network.
 
Sony’s Pictures segment is subject to labor interruption.
 
The Pictures segment is dependent upon highly specialized union members, including writers, directors, actors and other talent, and trade and technical employees, who are covered by union contracts and are essential to the development and production of motion pictures and television programs. A strike by one or more of these unions or


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the possibility of a strike, work slowdown or work stoppage caused by uncertainties about, or the inability to reach agreement on, a new contract could delay or halt production activities. Such a delay or halt, depending on the length of time involved, could cause a delay or interruption in the release of new motion pictures and television programs and thereby may adversely affect operating results and cash flows in the Pictures segment. An inability to reach agreement on one or more of these union contracts may also increase costs within Sony’s Pictures segment and have an adverse effect on operating results.
 
Continued increases in the costs of producing or acquiring entertainment content, the continuing decline in physical CD and DVD sales, rapid changes in technology, and other changes in the business environment may adversely affect operating results in Sony’s Music and Pictures segments.
 
The success of Sony’s Music segment is highly dependent on finding and establishing artists that appeal to customers over the long term. If the Music segment is unable to find and establish new talented artists, its operating results may be adversely affected. Competition with other entertainment companies to identify, sign and retain such talent is intense as is the competition to sell their music, resulting in increased talent-related spending and higher marketing and promotional costs. In the Pictures segment, high demand for top talent has contributed to increases in the cost of producing motion pictures and television programs which, along with the continued increase in marketing costs, may adversely impact the segment’s operating results. The Pictures segment also acquires motion picture and television product for distribution in all markets, including theatrical, home entertainment, television, and other markets, and as programming for the Pictures segment’s global channel network. Competition with other entertainment companies to acquire premier motion picture and television product is intense, and results in increased acquisition-related spending which may adversely affect the Pictures segment’s operating results.
 
In addition to escalating costs to produce or acquire content, a rapid change in technology, the adoption of new technology by consumers and other changes in the business environment of the Music and Pictures segments have had and may continue to have an adverse impact on operating results of both segments. Industry-wide trends such as the deteriorating financial condition of major retailers and increased competition for retailer shelf space, increasing competition for consumer discretionary spending and leisure time, digital piracy, and the general maturation of CD and DVD formats have contributed to and may continue to contribute to an industry-wide decline in physical CD and DVD sales worldwide. While new models for selling entertainment content have begun to emerge, such as Blu-ray Disc, kiosk and mail order rentals, legal digital download and streaming and distribution of entertainment content on mobile phones, these revenue streams have not been sufficient to offset the decline in physical CD and DVD sales that have affected and may continue to affect the operating results of Sony’s Music and Pictures segments.
 
Sony may not be successful in implementing its hardware, software and content integration strategy.
 
Sony believes that utilizing broadband networks to facilitate the integration of hardware, software and content is essential for differentiating itself in the marketplace. Sony also believes that this strategy will eventually lead to more consistent revenue streams. However, this strategy depends on the development (both inside and outside of Sony) of certain network technologies, coordination among Sony’s various business units, and the standardization of technological and interface specifications across business units and within industries. Furthermore, in such a competitive business environment, which continuously changes with new entrants, it is critical for Sony to continuously introduce hardware terminals, network connectivity and user interface technologies that are innovative and attractive to consumers, as well as rich line-ups of content and network services that match with consumer needs, at competitive prices and fee models. One recent example of this integration strategy is the introduction of 3D-related products and services as well as network-related business development. If Sony is not successful in implementing this strategy, it may adversely affect Sony’s reputation, competitiveness and profitability.


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Sony’s online activities are subject to laws and regulations that can increase the costs of operations or limit its activities.
 
Sony engages in a wide array of online activities, including entertainment network services, financial services, and sales and marketing of electronics products, and is thus subject to a broad range of related laws and regulations including, for example, those relating to such issues as privacy, consumer protection, data retention and data protection, content regulation, defamation, age verification and other online child protections, the installation of “cookies” (software that allows website providers to target online audiences and track their performance metrics) or other software on the end-user’s computers or other devices, pricing, advertising to both children and adults, taxation, copyright and trademark, promotions, and billing. The application of such laws and regulations created to address online activities, and those passed prior to the popular use of the Internet that may be applied to online activities, varies among jurisdictions, may be unclear or unsettled in many instances, and is subject to change. Sony may incur substantial costs necessary to comply with these laws and regulations and may incur substantial penalties, other liabilities, or damage to its reputation if it fails to comply with them. Compliance with these laws and regulations also may cause Sony to change or limit its online activities in a manner that may adversely affect operating results. In addition, Sony’s failure to anticipate changes to relevant laws and regulations, changes in laws that provide protections that Sony relies on in conducting its online activities, or judicial interpretations narrowing such protections, may subject Sony to greater risk of liability, increase the costs of compliance, or limit Sony’s ability to engage in certain online activities.
 
Sony’s Financial Services segment operates in highly regulated industries, and new rules, regulations and regulatory initiatives by government authorities may adversely affect the flexibility and the operating results of the 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 and their effects are unpredictable and may lead to increased compliance costs or limitations on operations in the Financial Services segment. For example, Japan’s Financial Services Agency (“FSA”) has been increasing the level of its scrutiny of non-payment of insurance claims for the last few years, as life and non-life insurance companies broaden insurance benefits coverage. Due to Sony’s common branding strategy, compliance failures in any of its businesses within Sony’s Financial Services segment may have a negative impact on the overall business reputation of the Financial Services segment. Furthermore, additional compliance costs may adversely affect the operating results of Sony’s Financial Services segment.
 
Declines in the value of equity securities may have an adverse impact on the operating results and financial condition of Sony’s Financial Services segment.
 
In the Financial Services segment, Sony Life Insurance Co., Ltd. (“Sony Life”) holds both convertible bonds and equity securities. The convertible bonds are required to be marked to market at the end of each accounting period on the income statement under accounting principles generally accepted in the United States of America (“US GAAP”). Declines in equity prices, such as the large fluctuation in global equity prices beginning in the autumn of 2008, may result in valuation losses on the convertible bonds as well as impairment losses on the equity securities held by Sony Life. In addition, reductions in gains on the sales of securities or unrealized gains on securities may adversely affect the operating results and financial condition of Sony’s Financial Services segment. Declines in the yield of Sony Life’s separate account assets may result in additional policy reserves being recorded and the accelerated amortization of deferred acquisition costs, since US GAAP requires the review of actuarial assumptions used for the valuation of policy reserves concerning minimum death guarantees for variable life insurance and the amortization of deferred acquisition costs. Additional policy reserves and accelerated amortization of deferred acquisition costs may have an adverse impact on Sony’s operating results.
 
Changes in interest rates may significantly affect the operating results and financial condition of Sony’s Financial Services segment.
 
Sony engages in asset liability management (“ALM”) in an effort to manage the investment assets within the Financial Services segment in a manner appropriate to Sony’s liabilities, which arise from the insurance policies


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Sony underwrites in both its life insurance and non-life insurance businesses and the deposits, borrowings and other liabilities in its banking business. ALM considers the long-term balance between assets and liabilities in an effort to ensure stable returns. Any failure to appropriately conduct Sony’s ALM activities, or any significant changes in market conditions beyond what Sony’s ALM may reasonably address, may have a material adverse effect on the financial condition and operating results of its Financial Services segment. In particular, because Sony Life’s liabilities to policyholders generally have longer durations than its investment assets, lower interest rates tend to reduce yields on Sony Life’s investment portfolio while guaranteed yields (assumptions used for calculation of policy reserve provisions) remain generally unchanged on outstanding policies. As a result, Sony Life’s profitability and long-term ability to meet policy commitments may be adversely affected.
 
The investment portfolio within Sony’s Financial Services segment exposes Sony to a number of additional risks other than the risks related to declines in the value of equity securities and changes in interest rates.
 
In Sony’s Financial Services segment, generating stable investment income is important to its operations, and Sony invests in a variety of asset classes, including Japanese government and corporate bonds, foreign government and corporate bonds, Japanese stocks, loans and real estate. In addition to risks related to changes in interest rates and the value of equity securities, the Financial Services segment’s investment portfolio exposes Sony to a variety of other risks, including foreign exchange risk, credit risk and real estate investment risk, any or all of which may have an adverse effect on the operating results and financial condition of the Financial Services segment. For example, mortgage loans account for 94.6 percent of the total loan balance or 34.4 percent of the total assets of Sony Bank Inc. (“Sony Bank”) as of March 31, 2010. An increase in non-performing loans or a decline in the prices of real estate, the collateral for these mortgage loans provided by Sony Bank, may have an adverse effect on the creditworthiness of Sony Bank’s loan portfolio and increase credit-related costs for Sony Bank.
 
Differences between actual and assumed policy benefits and claims may require Sony’s Financial Services segment to increase policy reserves in the future.
 
Sony’s life insurance and non-life insurance businesses establish policy reserves for future benefits and claims based on the Insurance Business Act of Japan and related regulations. These reserves are calculated based on many assumptions and estimates, including the frequency and timing of the event covered by the policy, the amount of benefits or claims to be paid and the investment returns on the assets these businesses purchase with the premiums received. These assumptions and estimates are inherently uncertain, and Sony cannot determine with precision the ultimate amounts that Sony will be required to pay for, or the timing of payment of, actual benefits and claims or whether the assets supporting the policy liabilities will grow at the level Sony assumes prior to the payment of benefits or claims. The frequency and timing of an event covered by a policy and the amount of benefits or claims to be paid are subject to a number of risks and uncertainties, many of which are outside of Sony’s control, including:
 
•   changes in trends underlying Sony’s assumptions and estimates, such as mortality and morbidity rates;
 
•   the availability of sufficient reliable data and Sony’s ability to correctly analyze the data;
 
•   Sony’s selection and application of appropriate pricing and rating techniques; and
 
•   changes in legal standards, claim settlement practices and medical care expenses.
 
If the actual experience of Sony’s insurance businesses becomes significantly less favorable than its assumptions or estimates, its policy reserves may be inadequate. Any changes in regulatory guidelines or standards with respect to the required level of policy reserves may also require that Sony establishes policy reserves based on more stringent assumptions, estimates or actuarial calculations. Such events may result in a need to increase provisions for policy reserves, which may have a significant adverse effect on the operating results and financial condition of the Financial Services segment. Furthermore, actual insurance claims that are higher than the estimated provision for policy reserves due to the occurrence of catastrophic events such as earthquakes or pandemic diseases in Japan may have an adverse effect on the operating results and financial condition of the Financial Services segment.


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Sony’s physical facilities and information systems are subject to damage as a result of catastrophic disasters, outages, malfeasance or similar events.
 
Sony’s headquarters, some of Sony’s major data centers 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 compared to other parts of the world. In addition, Sony’s offices and facilities, including those used for research and development, material procurement, manufacturing, motion picture and television program production, logistics, sales and services are located throughout the world and are subject to possible destruction, temporary stoppage or disruption as a result of any number 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 production, interrupt shipments and postpone the recording of sales, and result in large expenses to repair or replace these facilities or offices. Moreover, as network and information systems have become increasingly important to Sony’s operating activities, network and information system shutdowns caused by the above and other unforeseen events such as software or hardware defects, computer viruses and computer hacking pose increasing risks. Although Sony is developing counter-measures, such events may result in the disruption of Sony’s major business operations, delays in production, shipments and recognition of sales, and large expenditures necessary to repair or replace such facilities as well as network information systems. Furthermore, insurance coverage may be insufficient to cover the resulting expenditures. These situations may have an adverse impact on Sony’s operating results and financial condition.
 
Sony’s reputation and business may be harmed and Sony may be subject to legal claims if there is loss, disclosure or misappropriation of its customers’ personal information or other breaches of its information security.
 
Sony makes extensive use of online services and centralized data processing, including through third-party service providers. The secure maintenance and transmission of confidential information is a critical element of Sony’s operations. However, Sony’s customers’ personal information may be lost, disclosed or taken without the customers’ consent. In addition, Sony’s information technology and other systems, or those of service providers or business partners, may be compromised. If Sony were to lose customers’ personal information, or if a malicious third party were to penetrate the network security of Sony, its business partners or service providers and to misappropriate or acquire customers’ personal information, or if there were an advertent or inadvertent loss, disclosure or misappropriation of customers’ personal information by Sony employees, Sony’s reputation may be damaged and Sony may be subject to lawsuits or claims.
 
Any loss, disclosure or misappropriation of customers’ personal information or other breach of its information security may have a serious impact on Sony’s reputation and may have an adverse effect on its businesses and operating results.
 
Sony’s business may suffer as a result of adverse outcomes of current or future litigation and regulatory actions.
 
Sony faces the risk of litigation and regulatory proceedings in connection with its operations. Legal proceedings, including regulatory actions, may seek recovery of 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 proceedings may have an adverse effect on Sony’s business, operating results, financial condition, cash flows and reputation.
 
Sony is subject to financial and reputational risks due to product quality and liability issues.
 
Sony products, such as software and electronic devices including semiconductors are becoming increasingly sophisticated and complicated as rapid advancements in technologies occur and as demand increases for digital equipment. This trend may increase product quality and liability exposure. Sony’s efforts to manage the rapid advancements in technologies and increased demand as well as to control product quality may not be successful. As


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a result, Sony may incur expenses in connection with, for example, product recalls, after-sales services and lawsuits, and Sony’s brand image and reputation as a producer of high-quality products may suffer. These issues are not only relevant to the final Sony products that are sold directly to customers but also to the final products of other companies that are equipped with Sony’s components, such as the semiconductors mentioned above.
 
Sony’s operating results and financial condition may be adversely affected by its employee benefit obligations.
 
Sony recognizes the unfunded pension obligation as consisting of (i) the Projected Benefit Obligation (“PBO”) less (ii) the fair value of pension plan assets in accordance with the accounting guidance for defined benefit plans. Actuarial gains and losses are amortized and included in pension expenses in a systematic manner over employees’ average remaining service periods. Any decrease of the pension plan asset value due to low returns from investments 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 result in an increase in pension expenses recorded as cost of sales or as a selling, general and administrative expense.
 
Sony’s operating results and financial condition may be adversely affected by the status of its Japanese and foreign pension plans. Specifically, adverse equity market conditions and volatility in the credit markets may have an unfavorable impact on the value of Sony’s pension plan assets and its future estimated pension liabilities, the majority of which relate to the Japanese plans, which have approximately 30 percent of pension plan assets invested in equity securities. As a result, Sony’s operating results or financial condition could be adversely affected. Further, Sony’s operating results and financial 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 meet certain financial criteria including periodic actuarial revaluation and annual settlement of gains or losses of the plan. In the event that the actuarial reserve required by law exceeds the fair value of pension plan assets and that the fair value of pension assets 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 the plan, 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 might become a negative factor on Sony’s cash flow for a considerable number of years.
 
Sony may not be able to fully utilize its deferred tax assets and changes in Sony’s tax rates or exposure to additional tax liabilities could adversely affect its operating results and financial condition.
 
Sony is subject to income taxes in Japan and numerous other jurisdictions, and in the ordinary course of Sony’s business, there are many situations where the ultimate tax determination can be uncertain, sometimes for an extended period. The calculation of Sony’s tax provision and the carrying value of tax assets and liabilities requires significant judgment and the use of estimates.
 
Sony currently believes that its deferred tax assets, a significant component of which is net operating loss carryforwards, are more likely than not to be realized (except where a valuation allowance has been recorded) through sufficient future taxable income coupled with prudent and feasible tax planning strategies. However, some of these deferred tax assets could expire unused or not be realizable if Sony is unable to implement tax planning strategies or generate sufficient taxable income in the future (from operations and/or tax planning strategies) to utilize them, or if Sony enters into transactions that limit its legal ability to use them. If it becomes more likely than not that Sony’s deferred tax assets will expire unused and are not available to offset future taxable income, or otherwise will not be realizable, Sony will have to recognize an additional valuation allowance. This may increase Sony’s income tax expense or result in Sony’s forgoing any associated cash tax reduction available in future periods. Therefore, Sony’s earnings and financial condition would be adversely affected in the period or periods in which an additional valuation allowance is recorded or deferred tax assets expire unused.


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A key factor in the evaluation of the deferred tax assets and the valuation allowance is the determination of the uncertain tax positions related to the adjustments for Sony’s intercompany transfer pricing. Sony is subject to income taxes in Japan and numerous other jurisdictions, and in the ordinary course of Sony’s business there are many transactions including intercompany charges where the ultimate tax determination is uncertain. Sony is subject to continuous examination of its income tax returns by tax authorities and, as a result, Sony regularly assesses the likelihood of the adverse outcomes resulting from these examinations to determine the adequacy of its provision for income taxes. Significant judgment is required in making these assessments and, as additional evidence becomes available in subsequent periods, the ultimate outcomes for Sony’s uncertain tax positions and, accordingly, its valuation allowance assessments may potentially have an adverse impact on Sony’s future earnings and financial condition.
 
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.
 
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, and lower than anticipated future financial performance or changes in estimates and assumptions, which in many cases require significant judgments, could result in impairment charges. Sony tests goodwill and intangible assets that are determined to have an indefinite life for impairment during the fourth quarter of each fiscal year, and assesses whether factors or indicators, such as unfavorable variances from established business plans, significant changes in forecasted results or volatility inherent to external markets and industries, become apparent that would require an interim test. The recoverability of the carrying value of long-lived assets held and used and long-lived assets to be disposed of is reviewed whenever events or changes in circumstances indicate that the carrying value of the assets or asset groups may not be recoverable. Long-lived assets to be held and used are reviewed for impairment by comparing the carrying value of the asset or asset group with their estimated undiscounted future cash flows. If the carrying value of the asset or asset group is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the asset or asset group exceeds its fair value.
 
When determining whether an impairment has occurred or calculating such impairment for goodwill, an intangible asset or other long-lived asset, fair value is determined using the present value of estimated cash flows or comparable market values. This approach uses significant estimates and assumptions including projected future cash flows, the timing of such cash flows, discount rates reflecting the risk inherent in future cash flows, perpetual growth rates, determination of appropriate comparable entities and the determination of whether a premium or discount should be applied to comparables. Changes in estimates and/or revised assumptions impacting the present value of estimated future cash flows may result in a decrease in fair value of a reporting unit, where goodwill is tested for impairment, or a decrease in fair value of intangible assets, long-lived assets or asset groups. The decrease in fair value could result in a non-cash impairment charge. For example, in the fiscal year ended March 31, 2010, Sony recorded impairment charges of 53.3 billion yen related to long-lived assets, including a 27.1 billion yen impairment charge related to the LCD TV asset group which primarily reflected a decrease in the estimated fair value of long-lived assets as a result of decreases in estimated service periods and corresponding estimated future cash flows. Any such charge may adversely affect Sony’s operating results and financial condition.
 
Sony may be accused of infringing others’ intellectual property rights and be liable for significant damages.
 
Sony’s products incorporate a wide variety of technologies. Claims have been and may be asserted against Sony that such technology infringes the intellectual property owned by others. Such claims might require Sony to enter into settlement or license agreements, to pay significant damage awards, and/or to face a temporary or permanent injunction prohibiting Sony from marketing or selling certain of its products, which may have an adverse effect on Sony’s business, operating results, financial condition and reputation.


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Sony may not be able to continue to obtain necessary licenses for certain intellectual property rights of others or protect and enforce the intellectual property rights on which its business depends.
 
Many of Sony’s products 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 that it will be able to obtain or renew licenses relating to various intellectual properties useful in its business that it needs in the future; however, such licenses may not be available at all or on acceptable terms, and Sony may need to redesign or discontinue marketing or selling such products as a result. 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. Such events may adversely impact Sony’s operating results and financial condition.
 
Sony is subject to environmental and occupational health and safety regulations that can increase the costs of operations or limit its activities.
 
Sony is subject to a broad range of environmental and occupational health and safety laws and regulations, including laws and regulations relating to air pollution, water pollution, the management, elimination or reduction of the use of hazardous substances, decreases in the level of standby power of certain products, waste management, recycling of products, batteries and packaging materials, site remediation and worker and consumer health and safety. These regulations or the application of these regulations may become more stringent or additional regulations may be adopted in the future, which may cause Sony to incur additional compliance costs or limit Sony’s activities. Further, a failure to comply with applicable environmental or health and safety laws may result in fines, penalties, legal judgments or other costs or remediation obligations. Such a finding of non-compliance may adversely affect Sony’s reputation and financial performance.
 
Sony monitors and evaluates new environmental and health and safety requirements that may affect its operations. For example, 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 parts of the world, including China and South American countries. Sony may incur substantial costs in complying with the above-mentioned regulations and other similar programs that might be enacted in the future.
 
Sony sees issues related to climate change as a potential risk if Sony does not respond or undertake environmental activities appropriately. Sony recognizes that climate change issues may possibly lead to an increase in or additional costs due to new regulations or governmental policies including carbon disclosure, green house gas emission reduction, carbon taxes and energy efficiency for electronics products. Moreover, a regulation for cargo owners to exert efforts to rationally control energy consumption and CO2 emission from their logistics has already been introduced in Japan, and other countries may introduce similar regulations in the near future. In addition, the “cap and trade” system on emissions (such as the City of Tokyo’s “Obligation to Reduce Absolute Green House Gas Emissions and Emissions Trading System”) may be applied to its sites and lead to an increase in the cost of compliance. In the near future, similar cap and trade systems may be established in other regions or countries in the world, which may result in an increase in Sony’s cost of compliance. Additionally, in the event that Sony is unable to respond appropriately to consumers’ growing concern for climate change issues, there is a risk that Sony’s reputation may be harmed and that consumers may choose to purchase products from other companies.
 
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


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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 mentioned above, 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
 
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, currently Sony Music Entertainment (Japan) Inc. (“SMEJ”), as a 50-50 joint venture company between Sony Corporation and CBS Inc. in the U.S. In January 1988, SMEJ became a wholly-owned subsidiary of Sony Corporation. 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.
 
In August 1979, Sony Corporation established Sony Prudential Life Insurance Co., Ltd. in Japan, currently Sony Life Insurance Co., Ltd. (“Sony Life”), as a 50-50 joint venture company between Sony Corporation and The Prudential Insurance Company of America. 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”), Sony Life became a wholly-owned subsidiary of SFH.
 
In July 1984, Sony Magnescale Inc., a subsidiary of Sony Corporation and currently Sony Precision Technology Inc., was listed on the Second Section of the TSE. In July 1987, Sony Chemicals Corporation, a subsidiary of Sony Corporation, was listed on the Second Section of the TSE.
 
In January 1988, Sony Corporation acquired CBS Records Inc., currently Sony Music Holdings Inc., a music business division of CBS Inc. in the U.S. 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.
 
In January 2000, acquisition transactions by way of exchanges of stock were completed such that SMEJ, Sony Chemicals Corporation (currently Sony Chemical & Information Device Corporation), and Sony Precision Technology Inc. (currently Sony Manufacturing Systems Corporation) became wholly-owned subsidiaries of Sony Corporation.
 
In June 2001, Sony Corporation issued shares of subsidiary tracking stock in Japan, the economic value of which was intended to be linked to the economic value of Sony Communication Network Corporation, which was renamed So-net Entertainment Corporation (“So-net”) in October 2006. All shares of the subsidiary tracking stock were terminated and converted to shares of Sony’s common stock in December 2005. So-net was listed on the Mother’s market of the TSE in December 2005 (and has been traded on the First Section of the TSE since January 2008). Sony Corporation continues to hold a majority of the shares of So-net.


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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 October 2002, Aiwa Co., Ltd. (“Aiwa”) 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 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 in Japan. Sony Life, Sony Assurance Inc. (“Sony Assurance”), and Sony Bank Inc. (“Sony Bank”) became subsidiaries of 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 (“TFT”) LCD panels, was established in Korea. Sony’s stake in S-LCD was 50 percent minus 1 share.
 
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 the 50-50 joint venture, SONY BMG MUSIC ENTERTAINMENT (“SONY BMG”).
 
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 October 2008, Sony acquired Bertelsmann’s 50 percent 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”).
 
In December 2009, Sharp Display Products Corporation, a joint venture between Sony Corporation and Sharp Corporation for the production and sale of large-sized liquid crystal display (“LCD”) panels and modules was established.
 
Sony Corporation’s registered office is located at 7-1, Konan 1-chome, Minato-ku, Tokyo 108-0075, Japan, telephone +81-3-6748-2111.
 
The agent in the U.S. for purposes of this Item 4 is Sony Corporation of America (“SCA”), 550 Madison Avenue, New York, NY 10022 (Attn: Office of the General Counsel).
 
Principal Capital Investments
 
In the fiscal years ended March 31, 2008, 2009 and 2010, Sony’s capital expenditures (additions to fixed assets on the balance sheets) were 335.7 billion yen, 332.1 billion yen and 192.7 billion yen, respectively. Sony’s capital expenditures are expected to be 220 billion yen during the fiscal year ending March 31, 2011. For a breakdown of principal capital expenditures and divestitures (including interests in other companies), refer to “Item 5. Operating and Financial Review and Prospects.” Sony invested approximately 27 billion yen in the semiconductor business during the fiscal year ended March 31, 2010. Sony plans to invest approximately 35 billion yen in the semiconductor business in the fiscal year ending March 31, 2011. The funding requirements of such various capital expenditures are expected to be financed by cash provided by operating and financing activities or cash and cash equivalents.
 
Business Overview
 
Sony realigned its reportable segments from the first quarter of the fiscal year ended March 31, 2010 to reflect its reorganization as of April 1, 2009, primarily repositioning operations previously reported within the Electronics and Game segments and establishing the Consumer Products & Devices (“CPD”), Networked Products & Services (“NPS”) and B2B & Disc Manufacturing (“B2B & Disc”) segments. Additionally, Music is a new reportable segment effective from the fiscal year ended March 31, 2010. Pictures and Financial Services continue to be


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reportable segments. The equity earnings from Sony Ericsson are presented as a separate segment. For further details, please refer to “Item 5. Operating and Financial Review and Prospects.”
 
Products and Services
 
Consumer Products & Devices
 
The following table sets forth Sony’s CPD segment sales to outside customers by product categories. Figures in parentheses indicate the percentage contribution of each product category to the segment total.
 
                                                 
    Fiscal Year Ended March 31  
    2008     2009     2010  
    (Yen in millions)  
 
Televisions
    1,357,116       (32.0 )     1,275,692       (35.5 )     1,005,773       (34.4 )
Digital Imaging
    1,113,407       (26.3 )     863,837       (24.0 )     679,225       (23.3 )
Audio and Video
    644,475       (15.2 )     555,706       (15.5 )     469,606       (16.1 )
Semiconductors
    321,032       (7.6 )     267,167       (7.4 )     277,885       (9.5 )
Components
    788,004       (18.6 )     623,931       (17.3 )     479,145       (16.4 )
Other
    14,513       (0.3 )     10,900       (0.3 )     9,769       (0.3 )
                                                 
CPD Total
    4,238,547       (100.0 )     3,597,233       (100.0 )     2,921,403       (100.0 )
                                                 
 
Televisions:
 
“Televisions” includes LCD televisions.
 
Digital Imaging:
 
“Digital Imaging” includes home-use video cameras, compact digital cameras and digital single-lens reflex (“SLR”) cameras.
 
Audio and Video:
 
“Audio and Video” includes Blu-ray Disctm players/recorders, DVD-Video players/recorders, home theater, home audio systems, portable audio and car audio.
 
Semiconductors:
 
“Semiconductors” includes charged coupled devices (“CCDs”), complementary metal-oxide semiconductor (“CMOS”) image sensors, system LSIs, small- and medium-sized TFT LCD panels and other semiconductors.
 
Components:
 
“Components” includes batteries, optical disk drives, chemical products*, audio/video/data recording media, storage media and optical pickups.
 
* Chemical products include materials and components for electronic devices such as circuit boards and adhesives.


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Networked Products & Services
 
The following table sets forth Sony’s NPS segment sales to outside customers by product categories. Figures in parentheses indicate the percentage contribution of each product category to the segment total.
 
                                                 
    Fiscal Year Ended March 31  
    2008     2009     2010  
    (Yen in millions)  
 
Game
    1,219,004       (59.7 )     984,855       (58.5 )     840,711       (55.6 )
PC and Other Networked Businesses
    823,556       (40.3 )     699,903       (41.5 )     670,904       (44.4 )
                                                 
NPS Total
    2,042,560       (100.0 )     1,684,758       (100.0 )     1,511,615       (100.0 )
                                                 
 
Game:
 
SCEI develops, produces, markets and distributes PlayStation®3 (“PS3”), PSP® (PlayStation®Portable) (“PSP”) and PlayStation®2 (“PS2”) hardware and related software. Sony Computer Entertainment America LLC (“SCEA”) and Sony Computer Entertainment Europe Ltd. (“SCEE”) market and distribute PS3, PSP and PS2 hardware, and develop, produce, market and distribute related software in the U.S. and Europe. SCEI, SCEA and SCEE enter into licenses with third-party software developers.
 
PC and Other Networked Businesses:
 
“PC and Other Networked Businesses” includes PCs and flash memory digital audio players.
 
B2B & Disc Manufacturing
 
The B2B & Disc segment is comprised of the B2B business, including broadcast- and professional-use products, as well as Blu-ray Disc, DVD and CD disc manufacturing.
 
Pictures
 
Global operations in the Pictures segment encompass motion picture production and distribution; television production and distribution; home entertainment acquisition and distribution; a global channel network; digital content creation and distribution; operation of studio facilities; and development of new entertainment products, services and technologies. SPE distributes entertainment in more than 140 countries.
 
SPE’s motion picture arm, the Columbia TriStar Motion Picture Group, includes SPE’s principal motion picture production organizations, Columbia Pictures, TriStar Pictures, Screen Gems, Sony Pictures Classics, and the International Motion Picture Production Group.
 
Sony Pictures Television (“SPT”) develops and produces television programming for broadcast, cable and first-run syndication, including scripted series, unscripted “reality” or “light entertainment,” daytime serials, games shows, animated series, made for television movies and miniseries and other programming. SPT also produces content for the Internet and mobile devices and operates Crackle, a multi-platform video entertainment network focusing on premium video content. Internationally, SPT produces local language programming in key markets around the world, some of which are co-produced with local partners, and sells SPE-owned formats in approximately 75 countries. SPT also owns or has investments in global networks with 122 channel feeds, which are available in more than 140 countries worldwide.
 
Sony Pictures Home Entertainment produces and distributes SPE’s home entertainment products (DVD and Blu-ray Disc) and, together with Sony Pictures Worldwide Acquisitions Group, acquires or licenses third party product for distribution in the home entertainment market as well as other distribution windows. Sony Pictures Digital Production operates Sony Pictures Imageworks, a digital effects studio, and Sony Pictures Animation, a developer and producer of computer graphic animated films. SPE also manages a studio facility, Sony Pictures Studios, which includes post production facilities, at SPE’s world headquarters in Culver City, California.


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Music
 
As of April 1, 2009, Music is a new reportable segment which includes SME, SMEJ, and a 50 percent owned U.S. based joint venture in the music publishing business, Sony/ATV Music Publishing LLC (“Sony/ATV”). SME, a global entertainment company, excluding Japan, engaged primarily in the development, production and distribution of recorded music in all commercial formats and genres; SMEJ, a Japanese domestic recorded music business that produces recorded music and music videos through contacts with many artists in all music genres; Sony/ATV, a U.S.-based music publishing business that owns and acquires rights to musical compositions, exploiting and marketing these compositions and receiving royalties or fees for their use.
 
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.
 
Sony conducts insurance and banking 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. Aside from SFH, Sony is also engaged in a leasing and credit card business in Japan through Sony Finance International Inc. (“SFI”), a wholly-owned subsidiary of Sony Corporation. Sony is currently reviewing its strategic options with respect to SFI. As part of the review of its business lines, SFI stopped new contract subscriptions in its credit shopping service as well as in most of its affiliated credit card lines during the fiscal year ended March 31, 2010.
 
Sony Ericsson
 
Sony Ericsson is an entity accounted for under the equity method, as it is a 50-50 joint venture company between Sony Corporation and Ericsson. Sony presents the equity earnings for Sony Ericsson as a separate segment. Sony Ericsson undertakes product research, development, design, marketing, sales, production, distribution and customer services for mobile phones, accessories, services and applications.
 
All Other
 
All Other consists of various operating activities, including a mobile phone third-party original equipment manufacturing (OEM) business in Japan and So-net, an Internet-related service business subsidiary operating mainly in Japan. Sony’s products and services are generally unique to a single operating segment.
 
Sales and Distribution
 
Consumer Products & Devices / Networked Products & Services / B2B & Disc Manufacturing
 
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 via 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 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.


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Japan:
 
Sony Marketing (Japan) Inc. markets consumer electronics products mainly through retailers and also 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 Limited in the United Kingdom, Sony Deutschland G.m.b.H., Sony France S.A., ZAO Sony Electronics in Russia, Sony Italia S.P.A. and Sony Espana S.A.
 
Other Areas:
 
In overseas areas other than the U.S. and Europe, Sony’s electronics products and services are marketed through sales subsidiaries including Sony (China) Limited, Sony Corporation of Hong Kong Limited, Sony Taiwan Limited, Sony of Canada Limited and Sony de Mexico S.A.de C.V.
 
PS3, PSP and PS2 hardware and related software are marketed and distributed by SCEI, SCEA, SCEE and subsidiaries in Asia.
 
Hardware sales in the game business are dependent on the timing of the introduction of attractive software and a significant portion of overall demand is weighted towards the year-end holiday season.
 
Pictures
 
SPE generally retains all rights relating to the worldwide distribution of its internally produced motion pictures, including rights for theatrical exhibition, home entertainment distribution, pay and free television exhibition and other markets. SPE also acquires distribution rights to motion pictures produced by other companies and jointly produces films with other studios or production companies. These rights may be limited to particular geographic regions, specific forms of media or periods of time. SPE uses its own distribution service business, Sony Pictures Releasing, for the U.S. theatrical release of its films and for the theatrical release of films acquired from and produced by others.
 
Outside the U.S., SPE generally distributes and markets its films through one of its Sony Pictures Releasing International subsidiaries. In certain countries, however, SPE has joint distribution arrangements with other studios or arrangements with independent local distributors.
 
The worldwide home entertainment distribution of SPE’s motion pictures and television programming (and programming acquired or licensed from others) is handled through Sony Pictures Home Entertainment, except in certain countries where SPE has joint distribution arrangements with other studios or arrangements with independent local distributors. Product is distributed on DVD, Blu-ray, and various digital formats.
 
The worldwide television distribution of SPE’s motion pictures and television programming (and programming acquired or licensed from others) is handled through SPT. SPE’s library of television programming and motion pictures is licensed to affiliated and independent stations and broadcasters in the U.S. and to affiliated and independent international television stations and other broadcasters throughout the world. SPE’s global channel network generates advertising and subscription revenues.
 
Music
 
SME and SMEJ produce, market, and distribute CDs, DVDs, digital formats and other audio and audio/visual configurations. SME and its affiliates conduct business in countries other than Japan under “Columbia Records,” “Epic Records,” “RCA Records,” “Jive Records,” and other labels. SMEJ conducts business in Japan under “Sony Records,” “Epic Records,” “Ki/oon Records,” “SMEJ Associated Records,” “Defstar Records,” and other labels.


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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 through a joint venture with a third-party investor in countries other than Japan primarily under the Sony/ATV Music Publishing name.
 
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 and Partner independent sales agents. Sony Life provides tailor-made life insurance products that are optimized for each customer. As of March 31, 2010, Sony Life employed 4,036 Lifeplanner® sales employees. As of the same date, Sony Life maintained an extensive service network including 81 Lifeplanner® retail offices, 28 regional sales offices, and 2,089 sales agents in Japan. Sony Life also has one representative office in Beijing and Taipei, which opened in October 2008 and July 2009 respectively, for the purpose of researching the financial and life insurance market in China and Taiwan respectively. In addition, Sony Life’s life insurance business also includes sales in the Philippines through Sony Life’s wholly-owned subsidiary, Sony Life Insurance (Philippines) Corporation. As part of its plan to expand its sales of individual annuity products, Sony Life established a new Japanese joint venture company with AEGON N.V. The 50-50 joint venture, known as AEGON Sony Life Insurance Co., Ltd., obtained final approval from the Japanese regulatory authorities in August 2009, and launched the business in Japan in December 2009.
 
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 and cancer 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, mortgages and other individual loans. By using Sony Bank’s transaction channel, the “MONEYKit” service website, account holders can invest and manage assets according to their life plans over the Internet. As part of its plan to respond to its customers’ diverse asset management needs, Sony Bank launched online securities brokerage services through its wholly-owned subsidiary, Sony Bank Securities Inc., in October 2007.
 
All Other
 
The OEM business of Sony EMCS Corporation produces mobile phones to wireless customers. So-net provides Internet broadband network services to subscribers as well as creating and distributing content through its portal service to various platforms including PCs, mobile phones and other home electronics devices including TVs and game hardware.
 
Sales to Outside Customers by Geographic Area
 
The following table shows Sony’s consolidated sales to outside customers in each of its major markets for the periods indicated. Figures in parentheses indicate the percentage contribution of each region to total worldwide sales and operating revenue.
 
                                                 
    Fiscal Year Ended March 31  
    2008     2009     2010  
    (Yen in millions)  
 
Japan
    2,056,374       (23.2 )     1,873,219       (24.2 )     2,099,297       (29.1 )
United States
    2,221,862       (25.1 )     1,827,812       (23.6 )     1,595,016       (22.1 )
Europe
    2,328,233       (26.2 )     1,987,692       (25.7 )     1,644,698       (22.8 )
Other Areas
    2,264,945       (25.5 )     2,041,270       (26.5 )     1,874,987       (26.0 )
                                                 
Total
    8,871,414       (100.0 )     7,729,993       (100.0 )     7,213,998       (100.0 )
                                                 


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Sources of Supply
 
Sony pursues procurement of raw materials, parts and components to be 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. While Sony still maintains its general policy of multiple suppliers for most important parts and components, in the fiscal year ended March 31, 2010, Sony significantly reduced the total number of its suppliers to achieve efficiencies.
 
When raw materials, parts and components become scarce, the cost of production rises. For example, the market price of copper has the potential to proportionately affect the cost of parts that utilize copper, such as printed circuit boards and power cables. The price of cobalt, which is used in applications involving lithium-ion batteries as well as a range of recording media, may also fluctuate and impact the cost of those items. The price of resin may impact the cost of plastic parts, and the price of steel may give a similar impact. With respect to parts and components, LCD panels and memory devices, which are used in multiple applications, can influence Sony’s business performance when the cost of such parts and components fluctuates substantially.
 
After-Sales Service
 
In the CPD, NPS and B2B & Disc segments, Sony provides repair and servicing functions in the areas where its products are sold. Sony provides these services through its own call centers, service centers, factories, authorized independent service centers, authorized servicing dealers and subsidiaries.
 
In line with the industry practices of the electronics and game 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. In the case of broadcast- and professional-use products, Sony maintains support contracts with customers in addition to warranties. Warranties outside of Japan generally provide coverage for various periods of time depending on the product and the area in which it is marketed.
 
To further ensure customer satisfaction, Sony maintains customer information centers in its principal 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 licenses are important to Sony’s business, such as those for optical disc-related and Digital TV products. With respect to optical disc-related products, Sony products that employ DVD player functions, including PS3 and PS2 hardware, are substantially dependent upon certain patents that relate to technologies specified in the DVD specification and are licensed by MPEG LA LLC, Dolby Laboratories Licensing Corporation and Nissim Corp. Sony products that employ Blu-ray Disc player functions, including PS3 hardware, and that also employ DVD player functions, are substantially dependent upon certain patents that relate to technologies specified in the Blu-ray Disc specification and are licensed by MPEG LA LLC and AT&T Inc., in addition to the patents that relate to technologies specified in the DVD specification, as described above. Sony’s Digital TV products are substantially dependent upon certain patents that relate to technologies specified in the Digital TV specification and are licensed by Thomson Licensing Inc. Sony considers its overall license position beneficial to its operations. While Sony believes that its various proprietary intellectual property rights are important to its success, it believes that neither its business as a whole nor any business segment is materially dependent on any particular patent or license, or any particular group of patents or licenses, except as set forth above.
 
Competition
 
In each of its principal product lines, 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 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.”


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In the CPD, NPS, B2B & Disc segments, 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, 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.
 
In the Pictures segment, SPE faces intense competition from all forms of entertainment and other leisure activities to attract the attention of audiences worldwide. SPE competes with other major motion picture studios and, to a lesser extent, with independent production companies. SPE must compete to obtain story rights and talent, including writers, actors, directors and producers, which are essential to the success of SPE’s products. 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 intense competition from other entertainment companies to acquire premier motion pictures and television products from third parties. Competition in television production and distribution is also intense because available broadcast time is limited and the audience is increasingly fragmented among broadcast networks, cable and other outlets both in the U.S. and internationally. Furthermore, broadcast networks in the U.S. 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 global channel network competes for viewers with broadcast networks, cable and other forms of entertainment. The growth in the number of networks has increased the competition for advertising and subscription revenues, acquisition of programming, and distribution by cable, satellite and other distribution systems.
 
In the Music segment, success 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 their continuing ability to attract and develop artists who can achieve a high degree of public acceptance.
 
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 Japan’s largest financial services providers that either have their own insurance subsidiaries or enter into cooperative arrangements with major 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.
 
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 lending services for individuals, and faces significant competition in Japan’s retail financial services market. Sony Bank competes with Japan’s traditional


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banking institutions, regional banks, trust banks, non-bank companies, and Japan’s full-service and online brokerage firms.
 
Sony Life, Sony Assurance and Sony Bank may also compete with Japan Post Group, which provides banking and insurance services to individuals. Japan Post Group has numerous post office locations throughout Japan and has enhanced its banking and insurance services in recent years.
 
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 has maintained a high solvency margin ratio, relative to Japanese domestic criteria that require the maintenance of a minimum solvency margin ratio. Sony Assurance also has maintained a high solvency margin ratio relative to the aforementioned Japanese domestic criteria. Sony Bank has maintained an adequate capital adequacy ratio relative to the Japanese domestic criteria concerning this ratio.
 
Within All Other, So-net faces competition in Japan from many existing large companies, as well as from new entrants to the market. Telecommunications companies that possess a large Internet-ready infrastructure and other entrants that compete solely on the basis of price have created a market in which competitive price reductions are the norm. Rapid technological advancement has created many new opportunities but it has also increased the rate at which new and more efficient services must be brought to market to earn customer approval. Customer price elasticity is high, and users are able to change Internet service providers with increasing ease. The penetration of mobile Internet services provided by telecommunications companies may also provide a substitute to the home-centric Internet service provided by So-net.
 
Government Regulations
 
Sony’s business activities are subject to various governmental regulations in the 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, occupational health, and 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 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. Particularly, life insurance companies must maintain a premium reserve (for the portion of other than unearned premiums), an unearned premium reserve, a reserve for refunds with respect to certain insurance contracts of life insurance companies specified in such regulations, and a contingency reserve in amounts no lower than the amounts of the “standard policy reserve” as set forth by the regulatory guidelines. Non-life insurance companies are also required to provide a policy reserve. The primary purpose of the Insurance Business Act and related regulations is to protect policyholders, not shareholders. 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 II 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. In addition, Sony’s telecommunication businesses in Japan are subject to approvals and oversight from the Ministry of Internal Affairs and Communications, under its Telecommunication Business Act and other regulations related to the Internet businesses and communication methods in Japan.
 
Environmental Regulations
 
Sony monitors and evaluates 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”)


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regulation. Similar regulations are being formulated in other areas of the world, including China and South American countries.
 
Sony has taken steps to address new regulations or governmental policies related to climate change including carbon disclosure, green house gas emission reduction, carbon taxes and energy efficiency for electronics products. For example, Sony has established an internal risk management system in response to the EU directive on energy-related products and their energy efficiency (“ErP”). Moreover, Japan has already introduced a regulation for cargo owners such as Sony to exert efforts to control energy consumption and CO2 emissions from their logistics operations. Additionally, Sony recognizes that emissions trading systems are already established or being considered for legislation in various countries and regions. For example, EU-ETS (European Union) and CRC (UK) are already established, and although Sony is not subject to EU-ETS’s scope of application, Sony Group companies in the UK are responding to CRC. The Waxman-Markey bill (USA) and AU-ETS (Australia) are being considered for legislation and may have an effect on Sony Group companies in the region. In Japan, the City of Tokyo’s cap and trade system, “Obligation to Reduce Absolute Green House Gas Emissions and Emissions Trading System”, went into force in April 2010. This regulation requires large-sized sites in the City to reduce their average emissions over a five-year period to below a certain quantity and establishes an emission trading scheme to allow regulated entities to meet emission quantity targets set by law. Sony Corporation and Sony Life are subject to this regulation.
 
Also refer to “Risk Factors” in “Item 3. Key Information.
 
Organizational Structure
 
The following table sets forth the significant subsidiaries owned, directly or indirectly, by Sony Corporation.
 
             
    Country of
  (As of March 31, 2010)
Name of company   incorporation   Percentage owned
 
Sony EMCS Corporation
  Japan     100.0  
Sony Semiconductor Kyushu Corporation
  Japan     100.0  
Sony Marketing (Japan) Inc. 
  Japan     100.0  
Sony Computer Entertainment Inc. 
  Japan     100.0  
Sony Music Entertainment (Japan) Inc. 
  Japan     100.0  
Sony Financial Holdings Inc. 
  Japan     60.0  
Sony Life Insurance Co., Ltd. 
  Japan     100.0  
Sony Americas Holding Inc. 
  U.S.A.     100.0  
Sony Corporation of America
  U.S.A.     100.0  
Sony Electronics Inc. 
  U.S.A.     100.0  
Sony Computer Entertainment America LLC
  U.S.A.     100.0  
Sony Pictures Entertainment Inc. 
  U.S.A.     100.0  
Sony Europe G.m.b.H. 
  Germany     100.0  
Sony United Kingdom Ltd. 
  U.K.     100.0  
Sony Computer Entertainment Europe Ltd. 
  U.K.     100.0  
Sony Global Treasury Services Plc. 
  U.K.     100.0  
Sony Electronics Asia Pacific Pte. Ltd. 
  Singapore     100.0  
Sony Music Entertainment
  U.S.A.     100.0  
 
 
Property, Plant and Equipment
 
Sony has a number of offices, plants and warehouses throughout the world. Most of the buildings in, and land on, which they are located, are owned by Sony.


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The following table sets forth information as of March 31, 2010 with respect to plants used for the production of products mainly for the CPD and B2B & Disc segments with floor space of more than 500,000 square feet:
 
             
    Approximate
     
Location   floor space     Principal products produced
    (square feet)      
 
In Japan:
           
             
Nagasaki
(Sony Semiconductor Kyushu Corporation
— Nagasaki TEC)
    2,266,000     CMOS image sensors and other semiconductors
             
Kumamoto
(Sony Semiconductor Kyushu Corporation
— Kumamoto TEC)
    2,115,000     CCDs, CMOS image sensors, LCDs and other semiconductors
             
Kagoshima
(Sony Semiconductor Kyushu Corporation
— Kagoshima TEC)
    1,764,000     CCDs, CMOS image sensors, LCDs and other semiconductors
             
Higashiura, Aichi
(Sony Mobile Display Corporation)
    1,281,000     LCDs
             
Kohda, Aichi
(Sony EMCS Corporation — Tokai TEC — Kohda Site)
    878,000     Home-use video cameras, compact digital cameras and Memory Sticks
             
Inazawa, Aichi
(Sony EMCS Corporation — Inazawa TEC)
    842,000     LCD televisions and organic light-emitting diode televisions
             
Tochigi, Tochigi
(Sony Energy Devices Corporation
— Tochigi Plant)
    803,000     Magneto-optical disc and batteries
             
Kanuma, Tochigi
(Sony Chemicals & Information Device Corporation — Kanuma Plant)
    792,000     Magnetic tapes, adhesives and electronic components
             
Koriyama, Fukushima
(Sony Energy Devices Corporation
— Koriyama Plant)
    588,000     Batteries
             
Kosai, Shizuoka
(Sony EMCS Corporation — Kosai TEC)
    548,000     Broadcast- and professional-use video equipment
             
Kisarazu, Chiba
(Sony EMCS Corporation — Kisarazu TEC)
    541,000     Blu-ray Disc players/recorders, audio equipment and video conference systems
             
Minokamo, Gifu
(Sony EMCS Corporation — Tokai TEC — Minokamo Site)
    539,000     Home-use video cameras, compact digital cameras, digital SLR cameras, mobile phones and video conference systems


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    Approximate
     
Location   floor space     Principal products produced
    (square feet)      
 
Outside of Japan:            
             
Terre Haute, Indiana, U.S.A. 
(Sony DADC US Inc.)
    1,593,000     Blu-ray Disc-ROMs, CDs, DVDs and UMDs (Universal Media Disc)
             
Wuxi, China
(Sony Electronics (Wuxi) Co., Ltd., Sony Digital Products (Wuxi) Co., Ltd. and Sony (China) Ltd.)
    1,363,000     Batteries and compact digital cameras
             
Huizhou, China
(Sony Precision Devices (Huizhou) Co., Ltd.)
    1,354,000     Optical pickups and LCDs
             
Penang, Malaysia
(Sony EMCS (Malaysia) Sdn. Bhd. — PG TEC)
    988,000     Optical disc drives, batteries and audio equipment
             
Dothan, Alabama, U.S.A.
(Sony Dothan Alabama)
    809,000     Magnetic tapes
             
Bangi, Malaysia
(Sony EMCS (Malaysia) Sdn. Bhd. — KL TEC)
    797,000     LCD televisions, TV components, Blu-ray Disc players/Recorders and DVD-players/recorders
             
Tuas, Singapore
(Sony Electronics (Singapore) Pte. Ltd.) 
    776,000     Batteries
             
Guangzhou, China
(Sony Electronics Huanan Co., Ltd.)
    707,000     Optical pickups
             
Nitra, Slovakia
(Sony Slovakia, spol. s.r.o.)
    665,000     LCD televisions and TV components
             
Viladecavallas, Spain
(Sony Espana, S.A.)
    578,000     LCD televisions and TV components
             
Bangkadi, Thailand
(Sony Device Technology (Thailand) Co.
— Bangkadi Technology Centre)
    502,000     CCDs, CMOS image sensors and other semiconductors
 
In addition to the above facilities, Sony has a number of other plants for electronic products throughout the world. Sony owns research and development facilities, and employee housing and recreation facilities, as well as Sony Corporation’s headquarters main 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. SCEI leases its corporate headquarters buildings located in Tokyo, where administrative functions, product development, and software development are carried out. SCEA and SCEE 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 1,546,000 square feet. SPE also leases office space and motion picture and television support facilities from affiliates of Sony Corporation and other third parties 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.

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Most of SMEJ’s offices, including leased premises, are located in Tokyo, Japan.
 
In December 2008, SCA renewed its option under a lease with a variable interest entity which is consolidated by Sony, for its corporate headquarters. Sony has the option to purchase the building at any time during the lease term, which expires in December 2015. The aggregate floor space of this building is approximately 723,000 square feet.
 
During the fiscal year ended March 31, 2010, Sony ceased manufacturing at a total of ten manufacturing sites, five in Japan and five outside of Japan. Sony Baja California, S.A. de C.V.-Tijuana Factory has been removed from the table above due to the sale to the Hon Hai Group of approximately 90 percent of Sony’s ownership interest in Sony Baja California as well as certain manufacturing assets related to LCD televisions at the Sony Baja California’s Tijuana site in Mexico. Sony plans to cease manufacturing at the Sony Dothan Alabama plant by September 2010 following a phase out period that began in April 2010. In addition, Sony plans to sell to the Hon Hai Group approximately 90 percent of its ownership interest in the Sony Slovakia, spol. s.r.o.-Nitra plant.
 
Item 4A.   Unresolved Staff Comments
 
Not applicable.
 
Item 5.   Operating and Financial Review and Prospects
 
OPERATING RESULTS
 
Operating Results for the Fiscal Year Ended March 31, 2010 compared with the Fiscal Year Ended March 31, 2009
 
Sony realigned its reportable segments from the first quarter of the fiscal year ended March 31, 2010 to reflect its reorganization as of April 1, 2009, primarily repositioning operations previously reported within the Electronics and Game segments and establishing the Consumer Products & Devices (“CPD”), Networked Products & Services (“NPS”) and B2B & Disc Manufacturing (“B2B & Disc”) segments. The CPD segment includes products such as televisions, digital imaging, audio and video, semiconductors and components. The equity earnings of S-LCD Corporation (“S-LCD”) are also included within the CPD segment. The NPS segment includes the game business as well as PCs and other networked businesses. The B2B & Disc segment is comprised of the B2B business, including broadcast- and professional-use products, as well as Blu-ray Disctm, DVD and CD disc manufacturing.
 
Additionally, Music is a new reportable segment effective from the first quarter of the fiscal year ended March 31, 2010. The Music segment includes Sony Music Entertainment (“SME”), Sony Music Entertainment (Japan) Inc. (“SMEJ”), and a 50 percent owned U.S.-based joint venture in the music publishing business, Sony/ATV Music Publishing LLC (“Sony/ATV”).
 
Pictures and Financial Services continue to be reportable segments. The equity earnings from Sony Ericsson Mobile Communication AB (“Sony Ericsson”) are presented as a separate segment.
 
In connection with this realignment, both the sales and operating income (loss) of each segment in the fiscal year ended March 31, 2009 have been revised to conform to the presentation for the fiscal year ended March 31, 2010.
 
Operating Performance
 
                         
    Fiscal Year Ended
   
    March 31    
    2009   2010   Percent change
    (Yen in billions)    
 
Sales and operating revenue
    7,730.0       7,214.0       –6.7 %
Equity in net loss of affiliated companies
    (25.1 )     (30.2 )      
Operating income (loss)
    (227.8 )     31.8        
Income (loss) before income taxes
    (175.0 )     26.9        
Net loss attributable to Sony Corporation’s stockholders
    (98.9 )     (40.8 )      


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Sales
 
Sales and operating revenue (“sales”) for the fiscal year ended March 31, 2010 decreased by 516.0 billion yen, or 6.7 percent compared to the previous fiscal year (“year-on-year”), to 7,214.0 billion yen, primarily due to unfavorable foreign currency exchange rates and a decrease in sales in the CPD segment, partially offset by an increase in revenue in the Financial Services segment. A further breakdown of sales figures is presented under “Operating Performance by Business Segment” below.
 
During the fiscal year ended March 31, 2010, the average rate of the yen was 91.8 yen against the U.S. dollar and 129.7 yen against the euro, which was 8.4 percent and 9.5 percent higher, respectively, year-on-year.
 
“Sales” in the analysis of the ratio of cost of sales to sales, the ratio of research and development costs to sales, and the ratio of selling, general and administrative expenses to sales refers only to the “net sales” and “other operating revenue” portions of consolidated sales (which excludes financial service revenue). This is because “Financial service expenses” are recorded separately from cost of sales and selling, general and administrative expenses in the consolidated financial statements. The calculations of all ratios below that pertain to business segments include intersegment transactions.
 
Cost of Sales and Selling, General and Administrative Expenses
 
Cost of sales for the fiscal year ended March 31, 2010 decreased by 767.9 billion yen, or 13.6 percent year-on-year, to 4,892.6 billion yen, and improved from 78.5 percent to 76.7 percent as a percentage of sales.
 
Research and development costs (all research and development costs are included within cost of sales) decreased by 65.3 billion yen, or 13.1 percent year-on-year to 432.0 billion yen. The ratio of research and development costs to sales was 6.8 percent compared to 6.9 percent in the previous fiscal year.
 
Selling, general and administrative expenses decreased by 141.1 billion yen, or 8.4 percent year-on-year, to 1,544.9 billion yen, mainly due to the impact of the appreciation of the yen and a decrease in advertising and publicity expenses. The ratio of selling, general and administrative expenses to sales increased year-on-year from 23.4 percent to 24.2 percent.
 
Loss on sale, disposal or impairment of assets, net was 43.0 billion yen, compared with a loss of 38.3 billion yen in the previous fiscal year. This loss was primarily due to impairment charges including a 27.1 billion yen charge related to the impairment of LCD television assets*, a 7.8 billion yen charge related to the impairment of the small- and medium-sized amorphous thin film transistor (“TFT”) LCD fixed assets and other less significant losses on the sale, disposal or impairment of assets. These charges were partially offset by gains on the sales of assets including a 22.0 billion yen gain recognized from the sales of equity interests in HBO Latin America and HBO Central Europe. The loss recorded in the previous fiscal year was primarily the result of impairment charges including long-lived asset impairments mainly due to the downsizing and withdrawal from certain businesses as well as goodwill impairment charges. Refer to Notes 18 and 20 of the notes to the consolidated financial statements.
 
* The 27.1 billion yen loss on impairment, a non-cash charge recorded within operating income, primarily reflects a decrease in the estimated fair value of property, plant and equipment and certain intangible assets. Management’s strategic plans updated in the fourth quarter of the fiscal year ended March 31, 2010 resulted in decreases in the assets’ estimated service periods and corresponding estimated future cash flows leading to the impairment charge. Sony has excluded the loss on impairment from restructuring charges as it is not directly related to Sony’s ongoing restructuring initiatives. Sony defines restructuring initiatives as activities initiated by Sony, such as exiting a business or product category or implementing a headcount reduction program, which are designed to generate a positive impact on future profitability.
 
Equity in Net Income (Loss) of Affiliated Companies
 
Equity in net loss of affiliated companies, recorded within operating income, was 30.2 billion yen, an increased loss of 5.1 billion yen year-on-year. Sony recorded equity in net loss for Sony Ericsson of 34.5 billion yen compared to equity in net loss of 30.3 billion yen in the previous fiscal year. Equity in net income for S-LCD, a joint venture with Samsung Electronics Co., Ltd.(“Samsung”), decreased by 6.5 billion yen year-on-year to 0.4 billion yen.


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Operating Income (Loss)
 
Operating income for the fiscal year ended March 31, 2010 was 31.8 billion yen, an improvement of 259.6 billion yen year-on-year. Operating results improved significantly primarily due to an improvement in operating results in the Financial Services segment, as well as an improvement in the cost of sales ratio and a reduction in selling, general and administrative expenses mainly in the CPD segment. For a further breakdown of operating income (loss) for each segment, please refer to “Operating Performance by Business Segment” below.
 
Other Income and Expenses
 
For the fiscal year ended March 31, 2010, other income decreased by 55.0 billion yen, or 55.6 percent, to 43.8 billion yen, while other expenses increased by 2.7 billion yen, or 5.9 percent year-on-year, to 48.7 billion yen. The net amount of other income and other expenses was an expense of 4.9 billion yen, a deterioration of 57.7 billion yen year-on-year, primarily due to a net foreign exchange loss of 10.9 billion yen that was recorded for the fiscal year ended March 31, 2010, as compared to a net foreign exchange gain of 48.6 billion yen that was recorded in the previous fiscal year. A net foreign exchange loss was recorded mainly due to losses related to the period end valuation on derivative contracts entered into by Sony for the purpose of effective global cash management.
 
Interest and dividends in other income of 13.2 billion yen was recorded in the fiscal year ended March 31, 2010, a decrease of 9.1 billion yen, or 40.9 percent year-on-year. This decrease was mainly due to a decrease in interest received resulting from a lower rate of return on investments in Japan and the U.S. For the fiscal year ended March 31, 2010, interest recorded in other expenses totaled 22.5 billion yen, a decrease of 1.9 billion yen, or 7.7 percent year-on-year.
 
Income (Loss) before Income Taxes
 
For the fiscal year ended March 31, 2010, income before income taxes of 26.9 billion yen was recorded, an improvement of 201.9 billion yen year-on-year, mainly as a result of the above-noted improvement in operating results.
 
Income Taxes
 
During the fiscal year ended March 31, 2010, Sony recorded 14.0 billion yen of income taxes resulting in an effective tax rate of 51.9 percent. This effective tax rate was higher than the Japanese statutory tax rate primarily due to the impact of equity investments reported net of income taxes, partially offset by lower effective tax rates on profits in the insurance business of the Financial Services segment.
 
In the previous fiscal year, Sony recorded 72.7 billion yen of income tax benefit resulting in an effective tax rate of 41.6 percent. This income tax benefit was mainly due to a loss before income taxes and the partial reversal of certain deferred tax liabilities for the undistributed earnings of foreign subsidiaries and affiliates, due to a change in the tax regulations in Japan to treat 95 percent of the dividends from overseas subsidiaries as non-taxable income, partially offset by the impact of equity in net loss reported net of income taxes, the reversal of certain deferred tax assets, and an increase in valuation allowance.
 
Net Income (loss) attributable to Sony Corporation’s stockholders
 
For the fiscal year ended March 31, 2010, net loss attributable to Sony Corporation’s stockholders, which excludes net income attributable to noncontrolling interests, was 40.8 billion yen, a 58.1 billion yen improvement year-on-year.
 
Net income attributable to noncontrolling interest of 53.8 billion yen was recorded, as compared to net loss of 3.3 billion yen in the previous fiscal year. This was mainly due to the income recorded at Sony Financial Holdings, Inc. (“SFH”), for which there is a noncontrolling interest of 40 percent, primarily as a result of the improvement in net valuation gains from investments in convertible bonds in the general account at Sony Life Insurance Co., Ltd. (“Sony Life”) due to the improved situation in the Japanese stock market.


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Basic and diluted net loss per share attributable to Sony Corporation’s stockholders were both 40.66 yen compared with net loss per share of 98.59 yen in the previous fiscal year. Refer to Note 22 to the notes to 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 27 to the notes to the consolidated financial statements.
 
Business Segment Information
 
                         
    Fiscal Year Ended
   
    March 31    
    2009   2010   Percent change
    (Yen in billions)    
 
Sales and operating revenue
                       
Consumer Products & Devices
    4,031.5       3,227.7       −19.9 %
Networked Products & Services
    1,755.6       1,575.8       −10.2  
B2B & Disc Manufacturing
    560.0       504.2       −10.0  
Pictures
    717.5       705.2       −1.7  
Music
    387.1       522.6       +35.0  
Financial Services
    538.2       851.4       +58.2  
All Other
    318.4       261.9       −17.8  
Corporate and Elimination
    (578.3 )     (434.9 )      
                         
Consolidated
    7,730.0       7,214.0       −6.7  
                         
                         
    Fiscal Year Ended
   
    March 31    
    2009   2010   Percent change
    (Yen in billions)    
Operating income (loss)
                       
Consumer Products & Devices
     (115.1 )     (46.5 )     %
Networked Products & Services
    (87.4 )     (83.1 )      
B2B & Disc Manufacturing
    6.5       (7.2 )      
Pictures
    29.9       42.8       +43.1  
Music
    27.8       36.5       +31.1  
Financial Services
    (31.2 )      162.5        
Equity in net loss of Sony Ericsson
    (30.3 )     (34.5 )      
All Other
    (4.2 )     (4.8 )      
                         
Sub-Total
    (203.9 )     65.7        
Corporate and Elimination
    (23.9 )     (34.0 )      
                         
Consolidated
    (227.8 )     31.8        
                         
 
Consumer Products & Devices
 
Sales for the fiscal year ended March 31, 2010 decreased by 803.8 billion yen, or 19.9 percent year-on-year, to 3,227.7 billion yen. Sales to outside customers decreased 18.8 percent compared with the prior fiscal year. This was primarily as a result of unfavorable foreign currency exchange rates, a decrease in sales of LCD televisions due to a decline in unit selling prices and a decrease in sales of home-use video cameras and compact digital cameras due to the contraction of these markets.


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Operating loss of 46.5 billion yen was recorded, an improvement of 68.6 billion yen year-on-year. This was driven by an improvement in the cost of sales ratio, mainly of LCD televisions, and a reduction in selling, general and administrative expenses, partially offset by a decrease in gross profit due to lower sales, unfavorable foreign currency exchange rates and an increase in restructuring charges. Restructuring charges were 72.0 billion yen for the fiscal year ended March 31, 2010, which includes 7.3 billion yen of non-cash charges related to depreciation associated with restructured assets, compared with 49.3 billion yen of restructuring charges recorded in the prior fiscal year. Depreciation associated with restructured assets refers to the increase in depreciation expense caused by shortening the useful life or updating the salvage value of depreciable fixed assets to coincide with the end of production under an approved restructuring plan. In the fiscal year ended March 31, 2010, a 27.1 billion yen non-cash charge related to the impairment of LCD television assets, which was not included in restructuring charges, was also recorded. (Refer to Note 18 to the notes to the consolidated financial statements.)
 
Products contributing to the improvement in operating results (excluding restructuring charges) include LCD televisions and compact digital cameras, reflecting the benefits of cost reduction activities that exceeded the impact of the decrease in sales, and images sensors, that saw an increase in sales. This was partially offset by lower operating results for system LSIs for the game business which were affected by lower sales resulting from price reductions driven by cost saving efforts.
 
No additional provision or reversal of expenses relating to voluntary notebook computer battery pack recalls and the subsequent global replacement program, and free repair expenses relating to Sony products and the products of other companies containing Sony-made charged coupled devices (“CCDs”) was recorded in the fiscal year ended March 31, 2010, and the remaining balance of the provision as of March 31, 2010 was not significant.
 
Below are the sales to outside customers by product category and unit sales of major product categories:
 
Sales to outside customers by product category
 
Figures in parentheses indicate the percentage contribution of each product category to the segment total.
 
                                         
    Fiscal Year Ended March 31        
    2009     2010     Percent change  
    (Yen in millions)        
 
Televisions
    1,275,692       (35.5 )     1,005,773       (34.4 )     −21.2 %
Digital Imaging
    863,837       (24.0 )     679,225       (23.3 )     −21.4  
Audio and Video
    555,706       (15.5 )     469,606       (16.1 )     −15.5  
Semiconductors
    267,167       (7.4 )     277,885       (9.5 )     +4.0  
Components
    623,931       (17.3 )     479,145       (16.4 )     −23.2  
Other
    10,900       (0.3 )     9,769       (0.3 )     −10.4  
                                         
CPD Total
    3,597,233       (100.0 )     2,921,403       (100.0 )     −18.8  
                                         
 
Unit sales of major product categories
 
                                 
    Fiscal Year Ended March 31        
    2009   2010   Unit change   Percent change
    (Units in millions)        
 
LCD televisions within Televisions
    15.2       15.6       +0.4       +2.6 %
Home-use video cameras within Digital Imaging
    6.2       5.3       −0.9       −14.5  
Compact digital cameras within Digital Imaging
    22.0       21.0       −1.0       −4.5  
Blu-ray Disc recorders within Audio and Video
    0.5       0.7       +0.2       +40.0  
Blu-ray Disc players within Audio and Video
    2.2       3.3       +1.1       +50.0  
DVD players within Audio and Video
    9.7       11.5       +1.8       +18.6  


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Networked Products & Services
 
Sales for the fiscal year ended March 31, 2010 decreased by 179.8 billion yen, or 10.2 percent year-on-year, to 1,575.8 billion yen, primarily due to a decrease in sales in the game business and sales of PCs. Sales in the game business decreased year-on-year mainly due to unfavorable foreign currency exchange rates, decreases in unit sales of PSP®(PlayStation®Portable) (“PSP”) hardware and of PlayStation®2 (“PS2”) software. These decreases were partially offset by increased unit sales of PlayStation®3 (“PS3”) software, driven by the expanded PS3 platform as a result of the launch of a new model.
 
Operating loss of 83.1 billion yen was recorded, an improvement of 4.4 billion yen year-on-year. This was driven by an improvement in the cost of sales ratio, mainly of PS3 hardware, and a reduction in selling, general and administrative expenses, partially offset by unfavorable foreign currency exchange rates and a decrease in gross profit due to lower sales. Products contributing to the improvement in operating results (excluding restructuring charges) include flash memory digital audio players. On the other hand, operating results in the game business deteriorated mainly due to lower unit sales of PS2 software and of PSP hardware, partially offset by cost reductions in PS3 hardware and increased unit sales of PS3 software.
 
Below are the sales to outside customers by product category, unit sales of each platform within the Game category, and unit sales of major products within the PC and Other Networked Businesses category:
 
Sales to outside customers by product category
 
Figures in parentheses indicate the percentage contribution of each product category to the segment total.
 
                                         
    Fiscal Year Ended March 31        
    2009     2010     Percent change  
    (Yen in millions)        
 
Game
    984,855       (58.5 )     840,711       (55.6 )     −14.6 %
PC and Other Networked Businesses
    699,903       (41.5 )     670,904       (44.4 )     −4.1  
                                         
NPS Total
    1,684,758       (100.0 )     1,511,615       (100.0 )     −10.3  
                                         
 
Unit sales of each platform within the Game category
 
                                 
    Fiscal Year Ended
       
    March 31        
    2009   2010   Unit change   Percent change
    (Units in millions)        
 
Hardware
                               
PlayStation®3
    10.1       13.0       +2.9       +28.7 %
PSP (PlayStation®Portable)
    14.1       9.9       −4.2       −29.8  
PlayStation®2
    7.9       7.3       −0.6       −7.6  
Software*
                               
PlayStation®3
    103.7       115.6       +11.9       +11.5  
PSP®(PlayStation®Portable)
    50.3       44.4       −5.9       −11.7  
PlayStation®2
    83.5       35.7       −47.8       −57.2  
 
* Network downloaded software is not included within unit software sales in the table above.
 
Unit sales of major products within the PC and Other Networked Businesses category
 
                                 
    Fiscal Year Ended
       
    March 31        
    2009   2010   Unit change   Percent change
    (Units in millions)        
 
PCs
      5.8         6.8         +1.0       +17.2 %
Flash memory digital audio players
    7.0       8.0       +1.0       +14.3  


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B2B & Disc Manufacturing
 
Sales for the fiscal year ended March 31, 2010 decreased by 55.8 billion yen, or 10.0 percent year-on-year, to 504.2 billion yen. Sales to outside customers decreased 13.0 percent year-on-year. This decrease was primarily due to unfavorable foreign currency exchange rates and a decrease in sales of broadcast- and professional-use products in developed countries reflecting deterioration in the business environment. Unit selling price declines in the disc manufacturing business also contributed to the decrease in overall segment sales.
 
Operating loss of 7.2 billion yen was recorded compared to operating income of 6.5 billion yen in the previous fiscal year. This was due to deterioration in the profitability of broadcast- and professional-use products and in the disc manufacturing business brought on by the factors noted above.
 
Total for the CPD, NPS and B2B & Disc Segments
 
Inventory
 
Total Inventory for the CPD, NPS and B2B & Disc segments, as of March 31, 2010, was 570.0 billion yen, which represents a 174.3 billion yen, or 23.4 percent decrease compared with the level as of March 31, 2009, mainly due to company-wide efforts to maintain appropriate levels of inventory and to improve working capital.
 
Sales to Outside Customers by Geographic Area
 
Regarding sales to outside customers by geographic area for the CPD, NPS and B2B & Disc segments, total combined sales for the fiscal year ended March 31, 2010 decreased by 7 percent in Japan, 18 percent in the U.S., 25 percent in Europe, and 11 percent in non-Japan Asia and other geographic areas (“Other Areas”).
 
In Japan, sales of products such as LCD televisions increased while sales of products and services in the game business, products such as portable audio, system LSI, chemical products*, and broadcast- and professional-use products decreased. In the U.S., sales of products such as LCD televisions and products and services in the game business decreased. In Europe, sales of products such as LCD televisions, products and services in the game business and home-use video cameras decreased. In Other Areas, sales of products such as PCs increased while sales of products such as LCD televisions, compact digital cameras, products and services in the game business and home-use video cameras decreased.
 
* Chemical products include materials and components for electronic devices such as circuit boards and adhesives.
 
Manufacturing by Geographic Area
 
Approximately 45 percent of the CPD, NPS, B2B & Disc segments’ combined total annual production during the fiscal year ended March 31, 2010 took place in Japan, including the production of compact digital cameras, home-use video cameras, LCD televisions, PCs, semiconductors and components such as batteries and storage media. Approximately 60 percent of the annual production in Japan was destined for other countries. China accounted for approximately 20 percent of total annual production, approximately 65 percent of which was destined for other countries. Asia, excluding Japan and China, accounted for approximately 15 percent of total annual production, with approximately 50 percent destined for Japan, the Americas and Europe. The Americas and Europe together accounted for approximately 20 percent of total annual production, most of which was destined for local distribution and sale.
 
Pictures
 
Pictures segment results presented below 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.”
 
Sales for the fiscal year ended March 31, 2010 decreased by 12.3 billion yen, or 1.7 percent year-on-year, to 705.2 billion yen primarily due to the appreciation of the yen against the U.S. dollar. On a U.S. dollar basis, sales for the fiscal year ended March 31, 2010 increased by approximately 7 percent. Motion picture revenues, also on a


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U.S. dollar basis, increased by approximately 5 percent year-on-year, primarily due to higher worldwide theatrical and home entertainment revenues from the current year’s film slate which included strong performances from 2012, Angels & Demons and Michael Jackson’s This Is It. This increase was partially offset by a decrease in home entertainment revenues from prior year’s films. Television revenues, on a U.S. dollar basis, increased by approximately 9 percent year-on-year, primarily due to higher advertising revenues from several international channels, including a significant increase in India from the broadcasting of the Indian Premier League cricket competition.
 
Operating income increased by 12.9 billion yen, or 43.1 percent year-on-year, to 42.8 billion yen. Operating income increased by approximately 53 percent on a U.S. dollar basis. This increase was primarily from the sale of a portion of SPE’s equity interest in a Latin American premium pay television business (HBO Latin America) and a U.S. cable network (Game Show Network), as well as the sale of all of its equity interest in a Central European premium pay television business (HBO Central Europe). The total gain recognized from these sales was 30.3 billion yen. The benefit from these gains was partially offset by the decrease in home entertainment revenues noted above and the write-off of certain development costs.
 
As of March 31, 2010, unrecognized license fee revenue at SPE was approximately 1.3 billion U.S. dollars. SPE expects to record this amount in the future, having entered into contracts with television broadcasters to provide those broadcasters with completed motion picture and television products. The license fee revenue will be recognized in the fiscal year in which the product is made available for broadcast.
 
Music
 
Music segment results presented below include the yen-translated results of SME, a U.S.-based operation which aggregates the results of its worldwide subsidiaries on a U.S. dollar basis, the results of SMEJ, a Japan-based music company which aggregates its results in yen, and the yen-translated consolidated results of Sony/ATV, a 50 percent owned U.S.-based consolidated joint venture in the music publishing business which aggregates the results of its worldwide subsidiaries on a U.S. dollar basis.
 
Sales for the fiscal year ended March 31, 2010 increased by 135.6 billion yen, or 35.0 percent year-on-year, to 522.6 billion yen. The increase was mainly due to the fact that results for the fiscal year ended March 31, 2010 include the full year results of SME, which was consolidated as a wholly-owned subsidiary beginning October 1, 2008 upon Sony’s acquisition of Bertelsmann AG’s 50 percent interest. On a pro forma basis, had SME been fully consolidated for the previous fiscal year, sales in the Music segment for the previous fiscal year would have been 549.1 billion yen. Compared with these pro forma sales, Music segment sales decreased 5 percent year-on-year, primarily due to the appreciation of the yen against the U.S. dollar.
 
On a U.S. dollar basis, when comparing the full year results for SME to the full year results for the previous fiscal year on a pro forma basis, sales for SME increased by 2 percent. The increase in sales primarily reflects the favorable impact of new releases and strong sales of Michael Jackson catalog product, partially offset by the continued decline of the physical music market. In addition to Michael Jackson’s catalog albums, best-selling new releases during the fiscal year included Susan Boyle’s I Dreamed a Dream, the Michael Jackson’s This Is It soundtrack, Alicia Keys’ The Element of Freedom and Glee the Music Vol.1 & 2, music collections from the hit U.S. television show, Glee.
 
Sales at SMEJ included contributions from Michael Jackson’s catalog albums and ikimono-gakari’s HAJIMARI NO UTA.
 
Operating income increased by 8.7 billion yen, or 31.1 percent year-on-year, to 36.5 billion yen. Operating income for the previous fiscal year included equity in net loss of 6.0 billion yen for SONY BMG MUSIC ENTERTAINMENT (“SONY BMG”) through October 1, 2008. On a pro forma basis, had SME been fully consolidated for the previous fiscal year, operating income for the Music segment would have been 21.3 billion yen. Compared to this pro forma operating income, Music segment operating income increased 72 percent year-on-year. The increase in the pro-forma segment results is primarily due to improved results from SME and SMEJ.
 
On a U.S. dollar basis, when comparing the full year results for SME to the full year results for the previous year on a pro forma basis, operating income for SME increased by 487 percent, primarily due to the contribution


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from hit releases, Michael Jackson catalog product sales, growth in new music related businesses as well as a year-on-year decrease in overhead and restructuring costs.
 
SMEJ’s contribution to operating income increased mainly due to the contribution from hit releases as well as year-on-year decreases in advertisement expenses and restructuring charges.
 
Financial Services
 
The results of Sony Life discussed below on the basis of generally accepted accounting principles in the U.S. (“U.S. GAAP”) differ from the results that SFH and Sony Life disclose separately on a Japanese statutory basis.
 
Financial services revenue for the fiscal year ended March 31, 2010 increased by 313.2 billion yen, or 58.2 percent year-on-year to 851.4 billion yen mainly due to an increase in revenue at Sony Life. Revenue at Sony Life was 740.4 billion yen, a 309.9 billion yen or 72.0 percent increase year-on-year. Revenue increased significantly year-on-year mainly due to an improvement in net gains from investments in the separate account, an improvement in net valuation gains from investments in convertible bonds in the general account and a significant decrease in impairment losses on equity securities in the general account, all as a result of the significant rise in the Japanese stock market in the fiscal year ended March 31, 2010, as compared with a significant decline following the global financial crisis in the previous fiscal year. Revenue from insurance premiums at Sony Life increased, reflecting a steady increase in policy amount in force.
 
Operating income of 162.5 billion yen was recorded, compared to an operating loss of 31.2 billion yen in the previous fiscal year mainly as a result of a significant improvement in operating results at Sony Life. Operating income in the fiscal year ended March 31, 2010 at Sony Life was 166.6 billion yen, as compared to an operating loss of 29.8 billion in the previous fiscal year, mainly due to the improvement in net valuation gains from investments in convertible bonds in the general account, a decrease in the provision of policy reserves because of the revision of the future investment yield of variable life insurance products in the separate account and the significant decrease in impairment losses on equity securities in the general account, all as a result of the improved situation in the Japanese stock market mentioned above.
 
Information of Operations Separating Out the Financial Services Segment (Unaudited)
 
The following charts show Sony’s unaudited information of operations for the Financial Services segment alone and for all segments excluding the Financial Services segment. These separate condensed presentations are not required or prepared under U.S. GAAP, which is used in Sony’s consolidated financial statements. However, because the Financial Services segment is different in nature from Sony’s other segments, Sony utilizes this information to analyze its results without the Financial Services segment and believes that these presentations may be useful in understanding and analyzing Sony’s consolidated financial statements. Transactions between the Financial Services segment and all other segments excluding the Financial Services segment are eliminated in the consolidated figures shown below.
 
                 
    Fiscal Year Ended March 31
  Financial Services segment   2009   2010
    (Yen in millions)
 
Financial service revenue
    538,206       851,396  
Financial service expenses
    567,567       687,559  
Equity in net loss of affiliated companies
    (1,796 )     (1,345 )
                 
Operating income (loss)
    (31,157 )     162,492  
Other income (expenses), net
    28       (966 )
                 
Income (loss) before income taxes
    (31,129 )     161,526  
Income taxes and other
    (6,922 )     54,721  
                 
Net income (loss) attributable to Sony Corporation’s Stockholders
    (24,207 )     106,805  
                 


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    Fiscal Year Ended March 31
  Sony without the Financial Services segment   2009   2010
    (Yen in millions)
 
Net sales and operating revenue
    7,212,492       6,381,094  
Costs and expenses
    7,387,236       6,484,642  
Equity in net loss of affiliated companies
    (23,313 )     (28,890 )
                 
Operating loss
    (198,057 )     (132,438 )
Other income (expenses), net
    58,254       1,836  
                 
Loss before income taxes
    (139,803 )     (130,602 )
Income taxes and other
    (61,219 )     (34,081 )
                 
Net loss attributable to Sony Corporation’s Stockholders
    (78,584 )     (96,521 )
                 
 
                 
    Fiscal Year Ended March 31
  Consolidated   2009   2010
    (Yen in millions)
 
Financial service revenue
    523,307       838,300  
Net sales and operating revenue
    7,206,686       6,375,698  
                 
      7,729,993       7,213,998  
Costs and expenses
    7,932,667       7,151,991  
Equity in net loss of affiliated companies
    (25,109 )     (30,235 )
                 
Operating income (loss)
    (227,783 )     31,772  
Other income (expenses), net
    52,828       (4,860 )
                 
Income (loss) before income taxes
    (174,955 )     26,912  
Income taxes and other
    (76,017 )     67,714  
                 
Net loss attributable to Sony Corporation’s Stockholders
    (98,938 )     (40,802 )
                 
 
Sony Ericsson
 
Sony Ericsson’s operating results are accounted for under the equity method and are not consolidated in Sony’s consolidated financial statements, as Sony Corporation’s ownership percentage of Sony Ericsson is 50 percent. Sony Ericsson aggregates the results of its worldwide subsidiaries on a euro basis. However, Sony believes that the following disclosure provides additional useful analytical information to investors regarding Sony’s operating performance. Pursuant to Rule 3-09 of Regulation S-X under the Securities Exchange Act of 1934, as amended, Sony Ericsson’s financial statements are included in this Annual Report on Form 20-F on pages (A-1 to A-27) .
 
Sales for the year ended March 31, 2010 decreased by 3,821 million euro, or 37.2 percent year-on-year, to 6,457 million euro, mainly driven by significantly lower unit shipments as a result of continued challenging market conditions in all regions. A total of 53.0 million units were shipped for the year ended March 31, 2010, compared to 88.8 million units for the prior year. Despite the significantly lower sales, the loss before taxes increased only slightly by 21 million euro year-on-year to 654 million euro, primarily due to a reduction in research and development expenses as well as selling and administrative expenses. As a result, Sony recorded equity in the net loss of Sony Ericsson of 34.5 billion yen for the fiscal year ended March 31, 2010, compared to a loss of 30.3 billion yen in the prior fiscal year.


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All Other
 
Sales for the fiscal year ended March 31, 2010 decreased by 56.6 billion yen, or 17.8 percent year-on-year, to 261.9 billion yen. The decrease in sales is mainly due to a significant decrease in sales at a mobile phone third-party original equipment manufacturing (OEM) business in Japan, partially offset by an increase in sales at So-net Entertainment Corporation (“So-net”).
 
In terms of operating performance, operating loss for All Other increased by 0.6 billion yen year-on-year, to a loss of 4.8 billion yen. This increase was mainly due to charges related to the withdrawal from the property management operation of an entertainment complex in Japan and the termination payments of the property lease contract, partially offset by an increase in operating income at a mobile phone OEM business in Japan.
 
Restructuring
 
As the global economy experienced a sharp downturn following the autumn of 2008, the operating environment for Sony has become severe, with decreased demand, intensified pressure on pricing, and fluctuations in foreign exchange rates. In an attempt to cope with this environment, for the fiscal year ended March 31, 2010, Sony continued to implement restructuring initiatives to reform its operational structure with a priority on profitability and speed.
 
In the fiscal year ended March 31, 2010, Sony recorded restructuring charges of 124.3 billion yen, which includes 7.9 billion yen of non-cash charges related to depreciation associated with restructured assets, compared to 75.4 billion yen of restructuring charges recorded in the previous fiscal year. There were no non-cash charges related to depreciation associated with restructured assets in the previous fiscal year. Of the total 124.3 billion yen incurred in the fiscal year ended March 31, 2010, 65.1 billion yen were personnel-related costs. This charge was included primarily in selling, general and administrative expenses in the consolidated statements of income. Additionally, Sony either consolidated or sold five manufacturing sites in Japan and five manufacturing sites outside of Japan during the fiscal year ended March 31, 2010.
 
Restructuring charges were recorded mainly in the CPD segment, and All Other and Corporate. In the CPD segment, restructuring charges amounted to 72.0 billion yen, which includes 7.3 billion yen of non-cash charges related to depreciation associated with restructured assets for the fiscal year ended March 31, 2010, compared to 49.3 billion yen of restructuring charges recorded in the previous year. In the fiscal year ended March 31, 2010, restructuring activities included headcount reduction programs, initiatives to advance rationalization of manufacturing operations, shifting and aggregating manufacturing to lower-cost countries and utilizing the services of OEMs and third-party original design manufacturing (ODMs). In the CPD segment, most of the 35.9 billion yen of restructuring charges incurred within selling, general and administrative expenses were personnel-related costs. In the TV business, Sony ceased manufacturing operations at its Sony EMCS Corporation Ichinomiya TEC in June 2009, and at Sony Baja California, S.A. de C.V.’s Mexicali factory in September, 2009 and sold to the Hon Hai Group approximately 90 percent of Sony’s ownership interest in Sony Baja California and certain manufacturing assets related to LCD televisions at Sony Baja California’s Tijuana Factory in Mexico in January 2010, which mainly manufactures LCD televisions for the Americas region. The Tijuana Factory remains a key manufacturing facility of Sony LCD televisions for the Americas region.
 
In all segments, excluding the CPD segment, and All Other and Corporate, restructuring charges were recorded mainly due to headcount reductions through early retirement programs.
 
Restructuring charges discussed in Item 5, which include non-cash charges related to depreciation associated with restructured assets, are described in Note 18 to the notes to the consolidated financial statements.
 
Foreign Exchange Fluctuations and Risk Hedging
 
During the fiscal year ended March 31, 2010, the average value of the yen was 91.8 yen against the U.S. dollar, and 129.7 yen against the euro, which was 8.4 percent and 9.5 percent higher, respectively, year-on-year.
 
Sony’s consolidated results are subject to foreign currency rate fluctuations largely because the currency used in the countries where manufacturing takes place may be different from those where such products are sold. In order


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to reduce the risk caused by such fluctuations, Sony employs derivatives, including foreign exchange forward contracts and foreign currency option contracts, in accordance with a consistent risk management strategy. Such derivatives are used primarily to mitigate the effect of foreign currency exchange rate fluctuations on cash flows generated or anticipated by Sony Corporation and by its subsidiaries’ transactions and accounts receivable and payable denominated in foreign currencies.
 
Sony Global Treasury Services Plc (“SGTS”) in London provides integrated treasury services for Sony Corporation, its subsidiaries, and affiliated companies. Sony’s policy is that Sony Corporation and all subsidiaries with foreign exchange exposures should enter into commitments with SGTS for hedging their exposures. Sony Corporation and most of its subsidiaries utilize SGTS for this purpose. The concentration of foreign exchange exposures at SGTS means that, in effect, SGTS hedges most of the net foreign exchange exposure of Sony Corporation, its subsidiaries and affiliated companies. SGTS in turn enters into foreign exchange transactions with creditworthy third-party financial institutions. Most of these transactions are entered into against projected exposures before the actual export and import transactions take place. In general, SGTS hedges the projected exposures on average three months before the actual transactions take place. However, in certain cases SGTS partially hedges the projected exposures one month before the actual transactions take place when business requirements such as shorter production-sales cycles for certain products arise. Sony enters into foreign exchange transactions with financial institutions primarily for hedging purposes. Sony does not use these derivative financial instruments for trading or speculative purposes except for certain derivatives in the Financial Services segment. In the Financial Services segment, Sony uses derivatives for Asset Liability Management (“ALM”) and trading.
 
To minimize the effects of foreign exchange fluctuations on its financial results, particularly in the CPD and NPS segments, Sony seeks, when appropriate, to localize material and parts procurement, design and manufacturing operations in areas outside of Japan.
 
Changes in the fair value of derivatives designated as cash flow hedges are initially recorded in accumulated other comprehensive income and reclassified into earnings when the hedged transaction affects earnings. Foreign exchange forward contracts, foreign currency option contracts and other derivatives that do not qualify as hedges are marked-to-market with changes in value recognized in other income and expenses. The notional amount and the net fair value of all the foreign exchange derivative contracts as of March 31, 2010 were 2,026.4 billion yen and a liability of 13.2 billion yen, respectively.
 
Operating Results for the Fiscal Year Ended March 31, 2009 compared with the Fiscal Year Ended March 31, 2008
 
Sony realigned its segments from the first quarter of the fiscal year ended March 31, 2010 to reflect the company’s reorganization as of April 1, 2009. In connection with this realignment, both the sales and operating income (loss) of each segment in the fiscal year ended March 31, 2009 and in the fiscal year ended March 31, 2008 have been revised to conform to the presentation for the fiscal year ended March 31, 2010.
 
Operating Performance
 
                         
    Fiscal Year Ended
   
    March 31    
    2008   2009   Percent change
    (Yen in billions)    
 
Sales and operating revenue
    8,871.4       7,730.0       −12.9 %
Equity in net income (loss) of affiliated companies
    100.8       (25.1 )      
Operating income (loss)
    475.3       (227.8 )      
Income (loss) before income taxes
    567.1       (175.0 )      
Net income (loss) attributable to Sony Corporation’s stockholders
    369.4       (98.9 )      


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Sales
 
Sales for the fiscal year ended March 31, 2009 decreased by 1,141.4 billion yen, or 12.9 percent year-on-year, to 7,730.0 billion yen primarily due to unfavorable foreign currency exchange rates and a decrease in sales in the CPD and NPS segments. A further breakdown of sales figures is presented under “Operating Performance by Business Segment” below.
 
During the fiscal year ended March 31, 2009, the average value of the yen was 99.5 yen against the U.S. dollar and 142.0 yen against the euro, which was 13.8 percent and 12.7 percent higher, respectively, year-on-year.
 
“Sales” in the analysis of the ratio of cost of sales to sales, the ratio of research and development costs to sales, and the ratio of selling, general and administrative expenses to sales refers only to the “net sales” and “other operating revenue” portions of consolidated sales (which excludes financial service revenue). This is because “Financial Service expenses” are recorded separately from cost of sales and selling, general and administrative expenses in the consolidated financial statements. The calculations of all ratios below that pertain to business segments include intersegment transactions.
 
Cost of Sales and Selling, General and Administrative Expenses
 
Cost of sales for the fiscal year ended March 31, 2009 decreased by 629.5 billion yen, or 10.0 percent year-on-year, to 5,660.5 billion yen, and increased from 75.6 percent to 78.5 percent as a percentage of sales.
 
Research and development costs (all research and development costs are included within cost of sales) for the fiscal year ended March 31, 2009 decreased by 23.3 billion yen, or 4.5 percent year-on-year, to 497.3 billion yen. The ratio of research and development costs to sales was 6.9 percent compared to 6.3 percent in the previous fiscal year.
 
Selling, general and administrative expenses for the fiscal year ended March 31, 2009 decreased by 28.4 billion yen, or 1.7 percent, year-on-year to 1,686.0 billion yen, mainly due to the impact of the appreciation of the yen, partially offset by an increase in restructuring charges, primarily consisting of personnel-related costs. The overall ratio of selling, general and administrative expenses to sales increased year-on-year from 20.6 percent to 23.4 percent.
 
Loss on sale, disposal or impairment of assets, net was 38.3 billion yen for the fiscal year ended March 31, 2009, compared with a 37.8 billion yen gain on sale, disposal or impairment of assets, net in the previous fiscal year. This loss was primarily the result of impairment charges including long-lived asset impairments mainly as a result of the downsizing and withdrawal from certain businesses as well as goodwill impairment charges. The gain recorded in the previous fiscal year was primarily from a gain on the sale of a portion of the site of Sony’s former headquarters of 60.7 billion yen and a gain on the sale of “The Sony Center am Potsdamer Platz” in Berlin of 10.0 billion yen.
 
Equity in Net Income (Loss) of Affiliated Companies
 
Equity in net loss of affiliated companies, recorded within operating income, was 25.1 billion yen, a deterioration of 125.9 billion yen year-on-year. Sony recorded equity in net loss for Sony Ericsson of 30.3 billion yen, compared to equity in net income of 79.5 billion yen in the previous fiscal year, primarily as a result of a less favorable product mix and price pressure, a decrease in unit shipments due to the global economic slowdown, as well as the recording of restructuring charges. Equity in net income for S-LCD, a joint-venture with Samsung, decreased 0.5 billion yen compared with the prior fiscal year to 6.9 billion yen. Sony also recorded equity in net loss of 6.0 billion yen for SONY BMG, as opposed to equity in net income of 10.0 billion yen in the previous fiscal year.
 
Operating Income (Loss)
 
Operating loss for the fiscal year ended March 31, 2009 was 227.8 billion yen, compared with operating income of 475.3 billion yen in the previous fiscal year. The CPD segment, the NPS segment, the Financial Services segment and Sony Ericsson mainly contributed to the operating loss. For a further breakdown of operating income (loss) for each segment, please refer to “Operating Performance by Business Segment” below.


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Other Income and Expenses
 
For the fiscal year ended March 31, 2009, other income decreased by 50.6 billion yen, or 33.9 percent, to 98.8 billion yen, while other expenses decreased by 11.6 billion yen, or 20.2 percent year-on-year, to 46.0 billion yen. The net amount of other income and other expenses was net other income of 52.8 billion yen, a decrease of 39.0 billion yen, or 42.5 percent year-on-year. This decrease is mainly due to the recording of a gain of 81.0 billion yen for the change in interest in subsidiaries and equity investees as a result of the global initial public offering of shares of SFH in connection with the listing of shares on the First Section of the Tokyo Stock Exchange in the previous fiscal year.
 
Interest and dividends in other income of 22.3 billion yen was recorded in the fiscal year ended March 31, 2009, a decrease of 12.0 billion yen, or 34.9 percent year-on-year. For the fiscal year ended March 31, 2009, interest recorded in other expenses totaled 24.4 billion yen, an increase of 1.4 billion yen, or 6.3 percent year-on-year.
 
In addition, net foreign exchange income of 48.6 billion yen was recorded in the fiscal year ended March 31, 2009, a year-on-year increase of 43.0 billion yen. Net foreign exchange income was recorded due to the value of the yen, during the first through third quarter of the fiscal year ended March 31, 2009, appreciating against other currencies from the time that Sony entered into foreign exchange forward contracts and foreign currency option contracts.
 
These contracts were entered into by Sony to mitigate the effect of foreign currency exchange rate fluctuations on cash flows generated or anticipated by Sony Corporation and by its subsidiaries’ transactions and accounts receivable and payable denominated in foreign currencies.
 
Income (Loss) before Income Taxes
 
For the fiscal year ended March 31, 2009, a loss before income taxes of 175.0 billion yen was recorded, compared to income of 567.1 billion yen in the previous fiscal year.
 
Income Taxes
 
During the fiscal year ended March 31, 2009, Sony recorded an income tax benefit amounting to 72.7 billion yen resulting in an effective tax rate of 41.6 percent. This is mainly due to a loss before income taxes during the fiscal year ended March 31, 2009 and the partial reversal of certain deferred tax liabilities amounting to 55.5 billion yen for undistributed earnings of foreign subsidiaries and affiliates, due to a change in the tax regulations in Japan to treat 95 percent of the dividends from overseas subsidiaries as non-taxable income, partially offset by the impact of the inclusion of equity in net loss of affiliated companies into net loss before income taxes and minority interest, the reversal of certain deferred tax assets for foreign tax credits at Sony Corporation and an increase in valuation allowances recorded on deferred tax assets for net operating loss carryforwards at certain subsidiaries.
 
Net Income (Loss) attributable to Sony Corporation’s stockholders
 
Net loss attributable to Sony Corporation’s stockholders for the fiscal year ended March 31, 2009, which excludes net loss attributable to noncontrolling interests, was 98.9 billion yen, compared with net income of 369.4 billion yen in the previous fiscal year.
 
Net loss attributable to noncontrolling interest of 3.3 billion yen was recorded, a 2.5 billion yen decrease year-on-year. This was mainly due to the loss recorded at SFH which was negatively impacted by the increase in net valuation losses from convertible bonds and an impairment loss on equity securities at Sony Life.
 
Basic net loss per share attributable to Sony Corporation’s stockholders was 98.59 yen, compared with basic net income per share attributable to Sony Corporation’s stockholders of 368.33 yen in the previous fiscal year, and diluted net loss per share attributable to Sony Corporation’s stockholders was 98.59 yen, compared with diluted net income per share attributable to Sony Corporation’s stockholders of 351.10 yen in the previous fiscal year.


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Operating Performance by Business Segment
 
The following discussion is based on segment information. Sales in each business segment include intersegment transactions.
 
Business Segment Information
 
                         
    Fiscal Year Ended
       
    March 31        
    2008     2009     Percent change  
    (Yen in billions)        
 
Sales and operating revenue
                       
Consumer Products & Devices
    4,914.0       4,031.5       −18.0 %
Networked Products & Services
    2,120.7       1,755.6       −17.2  
B2B & Disc Manufacturing
    614.9       560.0       −8.9  
Pictures
    857.9       717.5       −16.4  
Music
    228.7       387.1       +69.3  
Financial Services
    581.1       538.2       −7.4  
All Other
    359.5       318.4       −11.4  
Corporate and Elimination
    (805.4 )     (578.3 )      
                         
Consolidated
    8,871.4       7,730.0       −12.9  
                         
 
                         
    Fiscal Year Ended
       
    March 31        
    2008     2009     Percent change  
    (Yen in billions)        
 
Operating income (loss)
                       
Consumer Products & Devices
     230.1        (115.1 )     %
Networked Products & Services
    (77.6 )     (87.4 )      
B2B & Disc Manufacturing
    64.5       6.5       −90.0  
Pictures
    58.5       29.9       −48.9  
Music
    35.1       27.8       −20.6  
Financial Services
    22.6       (31.2 )      
Equity in net loss of Sony Ericsson
    79.5       (30.3 )      
All Other
    10.3       (4.2 )      
                         
Sub-Total
    423.0       (203.9 )      
Corporate and Elimination
    52.3       (23.9 )      
                         
Consolidated
    475.3       (227.8 )      
                         
 
Consumer Products & Devices
 
Sales for the fiscal year ended March 31, 2009 decreased by 882.5 billion yen, or 18.0 percent year-on-year, to 4,031.5 billion yen. Sales to outside customers decreased 15.1 percent compared with the prior fiscal year. This decrease was mainly due to unfavorable foreign currency exchange rates, deterioration in the business environment brought on by the slowing global economy, and the intensification of price competition. With regard to products within the CPD segment, while LCD televisions saw higher sales due to increased unit sales, sales decreased significantly for products such as home-use video cameras and compact digital cameras. The absence of the previous year’s sales of LCD rear-projection televisions and CRT televisions, both businesses that Sony has exited, also contributed to the decrease in sales for the fiscal year ended March 31, 2009.
 
Operating loss of 115.1 billion yen was recorded for the fiscal year ended March 31, 2009, compared to income of 230.1 billion yen for the previous fiscal year. This decrease was primarily due to unfavorable foreign currency


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exchange rates, the higher cost of sales ratio due to intensified price competition, a decrease in sales due to deterioration in the business environment and an increase in selling, general and administrative expenses due to higher restructuring charges. Restructuring charges were 49.3 billion yen compared with 33.6 billion yen recorded for the fiscal year ended March 31, 2008. Products contributing to the significant decrease in the operating results included compact digital cameras, LCD televisions and home-use video cameras.
 
Additionally, a portion of the provision of the 51.2 billion yen charges recorded in the fiscal year ended March 31, 2007 related to notebook computer battery pack recalls and the subsequent global replacement program totaling 2.3 billion yen was reversed in the fiscal year ended March 31, 2009, compared to 15.7 billion yen reversed in the previous fiscal year, which was recorded in selling, general and administrative expenses. An additional provision was recorded during the previous fiscal year for free repair expenses relating to Sony products and the products of other companies containing Sony-made CCDs, but there was no such provision recorded in the fiscal year ended March 31, 2009.
 
Below are the sales to outside customers by product category and unit sales of major product categories:
 
Sales to outside customers by product category
 
Figures in parentheses indicate the percentage contribution of each product category to the segment total.
 
                                         
    Fiscal Year Ended March 31        
    2008     2009     Percent change  
          (Yen in millions)              
 
Televisions
    1,357,116       (32.0 )     1,275,692       (35.5 )     −6.0 %
Digital Imaging
    1,113,407       (26.3 )     863,837       (24.0 )     −22.4  
Audio and Video
    644,475       (15.2 )     555,706       (15.5 )     −13.8  
Semiconductors
    321,032       (7.6 )     267,167       (7.4 )     −16.8  
Components
    788,004       (18.6 )     623,931       (17.3 )     −20.8  
Other
    14,513       (0.3 )     10,900       (0.3 )     −24.9  
                                         
CPD Total
    4,238,547       (100.0 )     3,597,233       (100.0 )     −15.1  
                                         
 
Unit sales of major product categories
 
                                 
    Fiscal Year Ended
       
    March 31        
    2008   2009   Unit change   Percent change
    (Units in millions)        
 
LCD televisions within Televisions
    10.6       15.2       +4.6       +43.4 %
Home-use video cameras within Digital Imaging
    7.7       6.2       −1.5       −19.5  
Compact digital cameras within Digital Imaging
    23.5       22.0       −1.5       −6.4  
DVD recorders within Audio and Video
    1.7       1.2       −0.5       29.4  
DVD players within Audio and Video
    8.5       9.7       +1.2       +14.1  
 
Networked Products & Services
 
Sales for the fiscal year ended March 31, 2009 decreased 365.0 billion yen, or 17.2 percent year-on-year, to 1,755.6 billion yen. Sales to outside customers decreased 17.5 percent compared with the prior fiscal year. This decrease was mainly due to a decrease in sales in the game business and of PCs.
 
Sales in the game business decreased year-on-year, primarily as a result of unfavorable foreign currency exchange rates as well as a decrease in unit sales of PS2 hardware and software. PCs sales decreased mainly due to a decline in unit selling prices and unfavorable foreign currency exchange rates despite an increase in unit sales.
 
Operating loss of 87.4 billion yen was recorded, a deterioration of 9.8 billion yen year-on-year, mainly due to a deterioration in operating results in PCs, while operating results in the game business improved.


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The deterioration in operating results for PCs was mainly due to a decline in unit selling price and unfavorable foreign currency exchange rates. In the game business, the improvement in the operating results was mainly due to PS3 hardware cost reductions and increased PS3 software sales despite the impact of the decrease in sales in the PS2 hardware and software.
 
Below are the sales to outside customers by product category, unit sales of each platform within the Game category, and unit sales of major products within the PC and Other Networked Businesses category:
 
Sales to outside customers by product category
 
Figures in parentheses indicate the percentage contribution of each product category to the segment total.
 
                                         
    Fiscal Year Ended March 31        
    2008     2009     Percent change  
    (Yen in millions)        
 
Game
    1,219,004       (59.7 )     984,855       (58.5 )     −19.2 %
PC and Other Networked Businesses
    823,556       (40.3 )     699,903       (41.5 )     −15.0  
                                         
NPS Total
    2,042,560       (100.0 )     1,684,758       (100.0 )     −17.5  
                                         
 
Unit sales of each platform within the Game category
 
                                 
    Fiscal Year Ended
             
    March 31              
    2008     2009     Unit change     Percent change  
    (Units in millions)              
 
Hardware
                               
PlayStation®3
    9.1       10.1       +1.0       +11.0 %
PSP®(PlayStation®Portable)
    13.8       14.1       +0.3       +2.2  
PlayStation®2
    13.7       7.9       −5.8       −42.3  
Software*
                               
PlayStation®3
    57.9       103.7       +45.8       +79.1  
PSP®(PlayStation®Portable)
    55.5       50.3       −5.2       −9.4  
PlayStation®2
    154.0       83.5       −70.5       −45.8  
 
* Network downloaded software is not included within unit software sales in the table above.
 
Unit sales of major products within the PC and Other Networked Businesses category
 
                                 
    Fiscal Year Ended
       
    March 31        
    2008   2009   Unit change   Percent change
    (Units in millions)        
 
PCs
      5.2         5.8         +0.6       +11.5 %
Flash memory digital audio players
    5.8       7.0       +1.2       +20.7  
 
B2B & Disc Manufacturing
 
Sales for the fiscal year ended March 31, 2009 decreased 54.9 billion yen, or 8.9 percent year-on-year, to 560.0 billion yen. Sales to outside customers decreased 13.5 percent year-on-year. This decrease was primarily due to unfavorable foreign currency exchange rates and a decrease in sales of broadcast- and professional-use products in developed countries reflecting deterioration in the business environment brought on by the slowing global economy. Unit selling price declines in the disc manufacturing business also contributed to the decrease in overall segment sales.


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Operating income decreased 58.1 billion yen, or 90.0 percent year-on-year, to 6.5 billion yen. This decrease was primarily due to deterioration in the profitability of broadcast- and professional-use products and in the disc manufacturing business brought on by the factors noted above.
 
Total for the CPD, NPS and B2B & Disc Segments
 
Inventory
 
Total inventory for the CPD, NPS and B2B & Disc segments, as of March 31, 2009, was 744.3 billion yen.
 
Sales to Outside Customers by Geographic Area
 
Regarding sales to outside customers by geographic area within the CPD, NPS and B2B & Disc segments, total combined sales decreased by 13 percent in Japan, 20 percent in the U.S., 18 percent in Europe, and 11 percent in Other Areas.
 
In Japan, sales of products such as Blu-ray Disc recorders increased while sales of products such as CCDs and CMOS image sensors, PCs and sales at a contactless integrated circuit card business decreased. In the U.S., sales of products and services in the game business and products such as compact digital cameras and PCs decreased. In Europe, sales of products such as digital SLR cameras increased while sales of products and services in the game business and products such as home-use video cameras and PCs decreased. In Other Areas, sales of products such as LCD televisions increased while sales of products such as CRT televisions, a business from which Sony has already withdrawn, home-use video cameras, compact digital cameras and home audio systems decreased.
 
Manufacturing by Geographic Area
 
Approximately 45 percent of the CPD, NPS, B2B & Disc segments’ combined total annual production during the fiscal year ended March 31, 2009 took place in Japan, including the production of compact digital cameras, home-use video cameras, LCD televisions, PCs, semiconductors and components such as batteries and memory sticks. Approximately 60 percent of the annual production in Japan was destined for other countries. China accounted for approximately 15 percent of total annual production, approximately 70 percent of which was destined for other countries. Asia, excluding Japan and China, accounted for approximately 10 percent of total annual production, with approximately 50 percent destined for Japan, the Americas and Europe. The Americas and Europe together accounted for approximately 25 percent of total annual production, most of which was destined for local distribution and sale.
 
Pictures
 
Pictures segment results presented below are a yen-translation of the results of 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”.
 
Sales for the fiscal year ended March 31, 2009 decreased by 140.4 billion yen, or 16.4 percent year-on-year, to 717.5 billion yen. On a U.S. dollar basis, sales for the fiscal year in the Pictures segment decreased by approximately 360.7 million U.S. dollars (approximately 5 percent) year-on-year. Motion picture revenues decreased primarily due to lower home entertainment revenues of new release and catalog product. This decrease was due to an accelerated contraction in the market, brought on principally by the global economic downturn as well as fewer films being sold into the home entertainment market. The decrease in motion picture sales was partially offset by higher theatrical revenues driven by the successful film slate for fiscal year ended March 31, 2009, which included Hancock, Quantum of Solace and Paul Blart: Mall Cop. Total home entertainment revenues decreased by approximately 500 million U.S. dollars while theatrical revenues increased by approximately 266 million U.S. dollars as compared to the previous fiscal year. Sales for the fiscal year ended March 31, 2008 in the Pictures segment also benefited from the sale of a bankruptcy claim against KirchMedia GmbH & Co. KGaA (“KirchMedia”), a former licensee of motion picture and television product. Television revenues increased by approximately 101 million U.S. dollars year-on-year due to increased advertising revenue from several international channels.


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Operating income decreased by 28.6 billion yen, or 48.9 percent year-on-year, to 29.9 billion yen and the operating margin decreased from 6.8 percent to 4.2 percent. On a U.S. dollar basis, operating income decreased by approximately 234.0 million U.S. dollars (approximately 43 percent) year-on-year. Operating income for the segment decreased primarily due to the lower home entertainment revenues and the absence of the previous fiscal year’s sale of the bankruptcy claim against KirchMedia. Operating income from motion picture product decreased by approximately 139 million U.S. dollars reflecting the negative impact of the lower home entertainment revenues. Operating income from television product increased by approximately 70 million U.S. dollars reflecting the benefit of the higher advertising revenues noted above as well as higher equity income, partially due to the gain recorded by an equity affiliate from the sale of a European cable television channel. Results for the fiscal year were also negatively impacted by 53 million U.S. dollars of restructuring charges.
 
As of March 31, 2009, unrecognized license fee revenue at SPE was approximately 1.2 billion U.S. dollars. SPE expects to record this amount in the future having entered into contracts with television broadcasters to provide those broadcasters with completed motion picture and television products. The license fee revenue will be recognized in the fiscal year in which the product is made available for broadcast.
 
Music
 
Music segment results presented below include the yen-translated results of SME, a U.S.-based operation which aggregates the results of its worldwide subsidiaries on a U.S. dollar basis, the results of SMEJ, a Japan-based music company which aggregates its results in yen, and the yen-translated consolidated results of Sony/ATV, a 50 percent owned U.S.-based consolidated joint venture in the music publishing business which aggregates the results of its worldwide subsidiaries on a U.S. dollar basis.
 
Sales for the fiscal year ended March 31, 2009 increased by 158.4 billion yen, or 69.3 percent year-on-year, to 387.1 billion yen. The increase in sales is mainly due to the consolidation of SME on October 1, 2008.
 
During the six-month period ended March 31, 2009, sales at SME were 169.3 billion yen. On a pro forma basis, this represents a 16 percent decrease on a U.S. dollar basis compared with the same six months of the previous fiscal year when sales of SME were not consolidated. Revenues were negatively impacted by unfavorable foreign currency exchange rates and the accelerated decline of the worldwide physical music market resulting from the global economic slowdown. Best selling albums that contributed to sales during the six months ended March 31, 2009 included AC/DC’s Black Ice, Beyoncé’s I AM... SASHA FIERCE, P!nk’s Funhouse and Britney Spears’ Circus.
 
Sales at SMEJ decreased year-on-year, mainly due to a decrease in album sales resulting from a continuing decline in the physical music market. SMEJ’s best-selling albums during the fiscal year ended March 31, 2009 included I LOVED YESTERDAY by YUI, My song Your song by ikimono-gakari and VOICE by Mika Nakashima.
 
Operating income decreased by 7.2 billion yen, or 20.6 percent year-on-year, to 27.8 billion yen. Operating income for the segment decreased primarily due to lower results for both SME and SMEJ. The results of SME for the fiscal year ended March 31, 2009 include equity in net loss of SONY BMG of 6.0 billion yen for the six-months ended September 30, 2008 and operating income for the six-month period ended March 31, 2009 of 13.7 billion yen, which totaled 7.7 billion yen of operating income on a combined basis for the full fiscal year. In comparison, the previous year’s results included 10.0 billion yen of equity in net income for Sony’s then 50 percent share of SONY BMG. On a pro forma basis, the 13.7 billion yen operating income for the six-month period ended March 31, 2009 represents a 30 percent decrease compared to the operating income for the comparable period of the previous fiscal year when the results of SONY BMG were not consolidated. This decrease was due to lower sales, higher restructuring charges and unfavorable foreign currency exchange rates.
 
Operating income at SMEJ decreased approximately 10 percent year-on-year, mainly due to a decrease in album sales.


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Financial Services
 
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.
 
Financial service revenue for the fiscal year ended March 31, 2009 decreased by 42.9 billion yen, or 7.4 percent year-on-year, to 583.2 billion yen due to a decrease in revenue at Sony Life. Revenue at Sony Life was 430.5 billion yen, a 33.5 billion yen or 7.2 percent decrease year-on-year. Revenue decreased year-on-year due to an increase of net valuation losses from convertible bonds and an increase of impairment losses on equity securities in the general account and an increase of net losses from investments in the separate account, as a result of a decline in the Japanese stock market during this fiscal year that was larger than the decline in the previous fiscal year. Partially offsetting this was an increase in revenue from insurance premiums reflecting a higher policy amount in force.
 
Operating loss of 31.2 billion yen was recorded compared to operating income of 22.6 billion yen in the previous fiscal year. This decrease was mainly due to a deterioration in profitability at Sony Life. The operating loss at Sony Life was 29.8 billion yen, compared to operating income of 11.5 billion yen in the previous fiscal year. This deterioration of profitability was mainly due to increased net valuation losses from convertible bonds and impairment losses on equity securities in the general account and the additional recording of policy reserves for variable life insurance products in the separate account, as a result of the significant decline in the Japanese stock market. This increase in losses more than offset the contribution from increased revenue from insurance premiums at Sony Life.
 
Information of Operations Separating Out the Financial Services Segment (Unaudited)
 
The following charts show Sony’s unaudited information of operations for the Financial Services segment alone and for all segments excluding the Financial Services segment. These separate condensed presentations are not required or prepared under U.S. GAAP, which is used in Sony’s consolidated financial statements. However, because the Financial Services segment is different in nature from Sony’s other segments, Sony utilizes this information to analyze its results without the Financial Services segment and believes that these presentations may be useful in understanding and analyzing Sony’s consolidated financial statements. Transactions between the Financial Services segment and all other segments excluding the Financial Services segment are eliminated in the consolidated figures shown below.
 
                 
    Fiscal Year Ended March 31  
  Financial Services segment   2008     2009  
    (Yen in millions)  
 
Financial service revenue
    581,121       538,206  
Financial service expenses
    558,488       567,567  
Equity in net income (loss) of affiliated companies
          (1,796 )
                 
Operating income (loss)
    22,633       (31,157 )
Other income (expenses), net
    (383 )     28  
                 
Income (loss) before income taxes
    22,250       (31,129 )
Income taxes and other
    11,908       (6,922 )
                 
Net income (loss) attributable to Sony Corporation’s stockholders
    10,342       (24,207 )
                 
 


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    Fiscal Year Ended March 31  
  Sony without the Financial Services segment   2008     2009  
    (Yen in millions)  
 
Net sales and operating revenue
    8,324,828       7,212,492  
Costs and expenses
    7,974,630       7,387,236  
Equity in net income (loss) of affiliated companies
    100,817       (23,313 )
                 
Operating income (loss)
    451,015       (198,057 )
Other income (expenses), net
    100,479       58,254  
                 
Income (loss) before income taxes
    551,494       (139,803 )
Income taxes and other
    194,190       (61,219 )
                 
Net income (loss) attributable to Sony Corporation’s stockholders
    357,304       (78,584 )
                 
 
                 
    Fiscal Year Ended March 31  
  Consolidated   2008     2009  
    (Yen in millions)  
 
Financial service revenue
    553,216       523,307  
Net sales and operating revenue
    8,318,198       7,206,686  
                 
      8,871,414       7,729,993  
Costs and expenses
    8,496,932       7,932,667  
Equity in net income (loss) of affiliated companies
    100,817       (25,109 )
                 
Operating income (loss)
    475,299       (227,783 )
Other income (expenses), net
    91,835       52,828  
                 
Income (loss) before income taxes
    567,134       (174,955 )
Income taxes and other
    197,699       (76,017 )
                 
Net income (loss) attributable to Sony Corporation’s stockholders
    369,435       (98,938 )
                 
 
Sony Ericsson
 
Sony Ericsson’s operating results are accounted for under the equity method and are not consolidated in Sony’s consolidated financial statements, as Sony Corporation’s ownership percentage of Sony Ericsson is 50 percent. Sony Ericsson aggregates the results of its worldwide subsidiaries on a euro basis. However, Sony believes that the following disclosure provides additional useful analytical information to investors regarding Sony’s operating performance.
 
Sony Ericsson’s sales for the year ended March 31, 2009 decreased by 2,415 million euro or 19.0 percent year-on-year, to 10,278 million euro, mainly due to lower volumes as a result of the global economic slowdown. A total of 88.8 million units were shipped during the year ended March 31, 2009 compared to 103.9 million units during the prior year. A loss before taxes of 633 million euro was recorded, compared to income of 1,405 million euro in the previous year, primarily due to a less favorable product mix and price pressure, a decrease in unit shipments, as well as the recording of restructuring charges. As a result, Sony recorded equity in the net loss of 30.3 billion yen for the year ended March 31, 2009, compared to equity in net income of 79.5 billion yen for the previous year.

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All Other
 
During the fiscal year ended March 31, 2009, sales within All Other were comprised mainly of a mobile phone OEM business in Japan and So-net.
 
Sales for the fiscal year ended March 31, 2009 decreased by 41.0 billion yen, or 11.4 percent year-on-year, to 318.4 billion yen. The decrease in sales is mainly due to a year-on-year decrease in sales at a mobile phone OEM business in Japan, partially offset by an increase in sales at So-net compared with the prior fiscal year.
 
In terms of operating performance, operating income for All Other decreased by 14.6 billion yen year-on-year, to a loss of 4.2 billion yen. This decrease was mainly due to the absence of a 10.0 billion yen gain on the sale of the urban entertainment complex “The Sony Center am Potsdamer Platz” in Berlin, Germany, recorded in the fiscal year ended March 31, 2008 and due to losses attributed to a goodwill impairment in the fiscal year ended March 31, 2009. This decrease was partially offset by a significant increase in operating income at a mobile phone OEM business in Japan and a slight increase in the operating income of So-net.
 
Restructuring
 
As the global economy experienced a sharp downturn following the autumn of 2008, the operating environment for Sony has become severe, with decreased demand, intensified pressure on pricing, and fluctuations in foreign exchange rates. In an attempt to cope with this environment, for the fiscal year ended March 31, 2009, Sony implemented restructuring initiatives to reform its operational structure with a priority on profitability and speed.
 
In the fiscal year ended March 31, 2009, Sony incurred 75.4 billion yen of restructuring charges, mainly within the CPD segment, compared with 47.3 billion yen for the fiscal year ended March 31, 2008. Of the 75.4 billion yen in restructuring charges, 56.4 billion yen was for personnel-related restructuring costs.
 
In the CPD segment, restructuring charges were 49.3 billion yen compared with 33.6 billion yen recorded for the fiscal year ended March 31, 2008. Restructuring efforts undertaken in the fiscal year ended March 31, 2009 included headcount reduction programs, initiatives to advance rationalization of manufacturing operations, shifting and aggregating manufacturing to lower cost countries and utilizing the services of OEMs and ODMs. As part of its restructuring efforts, Sony ceased production in February 2009 at Sony Technology Center — Pittsburgh, United States (where LCD televisions were manufactured), and in April 2009 at Sony France S.A. — Dax Technology Center (where tape and other recording media were manufactured).
 
As part of the above restructuring measures, Sony has undergone several headcount reduction programs to further reduce operating costs within its CPD segment. As a result of these programs, Sony recorded in the CPD segment restructuring charges related mainly to employee termination benefits totaling 37.9 billion yen in selling, general and administrative expenses in the consolidated statements of income for the fiscal year ended March 31, 2009.
 
Foreign Exchange Fluctuations and Risk Hedging
 
During the fiscal year ended March 31, 2009, the average value of the yen was 99.5 yen against the U.S. dollar, and 142.0 yen against the euro, which was 13.8 percent and 12.7 percent higher, respectively, year-on-year.
 
Sony’s consolidated results are subject to foreign currency rate fluctuations largely because the currency used in the countries where manufacturing takes place may be different from those where such products are sold. In order to reduce the risk caused by such fluctuations, Sony employs derivatives, including foreign exchange forward contracts and foreign currency option contracts, in accordance with a consistent risk management strategy. Such derivatives are used primarily to mitigate the effect of foreign currency exchange rate fluctuations on cash flows generated or anticipated by Sony Corporation and by its subsidiaries’ transactions and accounts receivable and payable denominated in foreign currencies.
 
SGTS in London provides integrated treasury services for Sony Corporation, its subsidiaries, and affiliated companies. Sony’s policy is that Sony Corporation and all subsidiaries with foreign exchange exposures should


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enter into commitments with SGTS for hedging their exposures. Sony Corporation and most of its subsidiaries utilize SGTS for this purpose. The concentration of foreign exchange exposures at SGTS means that, in effect, SGTS hedges most of the net foreign exchange exposure of Sony Corporation, its subsidiaries and affiliated companies. SGTS in turn enters into foreign exchange transactions with creditworthy third-party financial institutions. Most of these transactions are entered into against projected exposures before the actual export and import transactions take place. In general, SGTS hedges the projected exposures on average three months before the actual transactions take place. However, in certain cases SGTS partially hedges the projected exposures one month before the actual transactions take place when business requirements such as shorter production-sales cycles for certain products arise. Sony enters into foreign exchange transactions with financial institutions primarily for hedging purposes. Sony does not use these derivative financial instruments for trading or speculative purposes except for certain derivatives in the Financial Services segment. In the Financial Services segment, Sony uses derivatives for ALM and trading.
 
To minimize the effects of foreign exchange fluctuations on its financial results, particularly in the CPD and NPS segments, Sony seeks, when appropriate, to localize material and parts procurement, design and manufacturing operations in areas outside of Japan.
 
Changes in the fair value of derivatives designated as cash flow hedges are initially recorded in accumulated other comprehensive income and reclassified into earnings when the hedged transaction affects earnings. Foreign exchange forward contracts, foreign currency option contracts and other derivatives that do not qualify as hedges are marked-to-market with changes in value recognized in other income and expenses. The notional amount and the net fair value of all the foreign exchange derivative contracts as of March 31, 2009 were 1,951.0 billion yen and a liability of 4.5 billion yen, respectively.
 
Assets, Liabilities and Stockholders’ Equity
 
Assets
 
Total assets as of March 31, 2010 increased by 852.6 billion yen, or 7.1 percent year-on-year, to 12,866.1 billion yen. Total assets as of March 31, 2010 in all segments excluding the Financial Services segment increased by 151.9 billion yen, or 2.4 percent year-on-year, to 6,522.8 billion yen. Total assets as of March 31, 2010 in the Financial Services segment increased by 671.5 billion yen, or 11.4 percent year-on-year, to 6,577.1 billion yen.
 
Current Assets
 
Current assets as of March 31, 2010 increased by 512.2 billion yen, or 14.1 percent year-on-year, to 4,132.9 billion yen. Current assets as of March 31, 2010 in all segments, excluding the Financial Services segment, increased by 277.9 billion yen, or 9.8 percent, to 3,119.3 billion yen.
 
Cash and cash equivalents as of March 31, 2010 in all segments, excluding the Financial Services segment, increased 419.9 billion yen, or 74.3 percent year-on-year, to 984.9 billion yen. This was primarily due to an increase in operating cash flow as a result of the improvement in net income (loss) attributable to Sony Corporation’s stockholders and lower purchases of manufacturing equipment and lower investment levels. Refer to “Cash Flows” below.
 
Notes and accounts receivable, trade (net of allowance for doubtful accounts and sales returns) as of March 31, 2010, excluding the Financial Services segment, increased 40.5 billion yen, or 4.8 percent year-on-year, to 887.7 billion yen.
 
Other current assets as of March 31, 2010 in all segments, excluding the Financial Services segment, decreased 182.7 billion yen, or 12.8 percent, year-on-year to 1,243.3 billion yen, mainly due to a decrease in inventory.
 
Inventories as of March 31, 2010 decreased by 167.6 billion yen, or 20.6 percent, year-on-year to 645.5 billion yen primarily due to company-wide reduction efforts.


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The inventory to cost of sales turnover ratio (based on the average of inventories at the end of each fiscal year and the previous fiscal year) was 1.79 months compared to 1.94 months at the end of the previous fiscal year. Sony considers this level of inventory to be appropriate in the aggregate.
 
Current assets as of March 31, 2010 in the Financial Services segment increased by 217.2 billion yen, or 26.1 percent, year-on-year to 1048.3 billion yen primarily due to business expansions at Sony Life and Sony Bank.
 
Investments and Advances
 
Investments and advances as of March 31, 2010 increased by 501.0 billion yen, or 10.4 percent year-on-year, to 5,299.4 billion yen.
 
Investments and advances as of March 31, 2010 in all segments, excluding the Financial Services segment, increased by 37.3 billion yen, or 11.0 percent, to 376.7 billion yen primarily due to valuation gains from securities and investments to establish a joint venture with Sharp to produce large-sized LCD panels.
 
Investments and advances as of March 31, 2010 in the Financial Services segment increased by 456.5 billion yen, or 10.1 percent, year-on-year to 4,967.1 billion yen. This increase was primarily due to the expansion of businesses of Sony Life and Sony Bank, such as an increase in investments mainly in Japanese fixed income securities by Sony Life, and in mortgage loans at Sony Bank. Also refer to “Investments” below.
 
Property, Plant and Equipment (after deduction of accumulated depreciation)
 
Property, plant and equipment as of March 31, 2010 decreased by 167.9 billion yen, or 14.3 percent year-on-year, to 1,008.0 billion yen. Property, plant and equipment as of March 31, 2010 in all segments, excluding the Financial Services segment, decreased by 171.9 billion yen, or 15.0 percent, year-on-year to 973.2 billion yen.
 
Capital expenditures (additions to property, plant and equipment) for the fiscal year ended March 31, 2010 decreased by 139.3 billion yen, or 42.0 percent year-on-year, to 192.7 billion yen. Factors other than capital expenditures contributing to the decrease in property, plant and equipment includes the recording of an impairment charge related to LCD television assets and the sale or disposal of assets due to the sale of certain factories.
 
Property, plant and equipment as of March 31, 2010 in the Financial Services segment increased by 3.9 billion yen, or 12.8 percent, year-on-year to 34.7 billion yen.
 
Other Assets
 
Other assets as of March 31, 2010 increased by 4.1 billion yen, or 0.2 percent, year-on-year to 2,115.8 billion yen primarily due to an increase in deferred tax assets, partially offset by a decrease in intangible assets.
 
Liabilities
 
Total current and long-term liabilities as of March 31, 2010 increased by 783.7 billion yen, or 8.9 percent year-on-year, to 9,580.6 billion yen. Total current and long-term liabilities as of March 31, 2010 in all segments, excluding the Financial Services segment, increased by 199.3 billion yen, or 5.5 percent, to 3,803.1 billion yen.
 
Total current and long-term liabilities in the Financial Services segment as of March 31, 2010 increased by 555.1 billion yen, or 10.4 percent, year-on-year to 5,894.5 billion yen.
 
Current Liabilities
 
Current liabilities as of March 31, 2010 increased by 249.0 billion yen, or 6.5 percent year-on-year, to 4,059.9 billion yen. Current liabilities as of March 31, 2010 in all segments excluding the Financial Services segment increased by 11.8 billion yen, or 0.5 percent, to 2,326.4 billion yen.
 
Short-term borrowings and the current portion of long-term debt as of March 31, 2010 in all segments, excluding the Financial Services segment, decreased by 200.9 billion yen, or 46.6 percent, year-on-year to 230.6 billion yen primarily as a result of the repayment of commercial paper (“CP”).


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Notes and accounts payable, trade as of March 31, 2010 in all segments, excluding the Financial Services segment, increased by 258.2 billion yen, or 47.3 percent, year-on-year to 804.3 billion yen primarily due to year-on-year increases in the procurement of raw materials compared to the previous fiscal year which was impacted by the worldwide economic slowdown.
 
Current liabilities as of March 31, 2010 in the Financial Services segment increased by 221.2 billion yen, or 14.2 percent, to 1,773.8 billion yen, mainly due to an increase in deposits from customers at Sony Bank.
 
Long-term Liabilities
 
Long-term liabilities as of March 31, 2010 increased by 534.6 billion yen, or 10.7 percent year-on-year, to 5,520.6 billion yen.
 
Long-term liabilities as of March 31, 2010 in all segments, excluding the Financial Services segment, increased by 187.5 billion yen, or 14.5 percent, to 1,476.6 billion yen. In addition, long-term debt as of March 31, 2010 in all segments, excluding the Financial Services segment, increased by 307.8 billion yen, or 52.6 percent, to 893.4 billion yen. This was primarily due to issuances of long-term corporate bonds and borrowings from banks.
 
Long-term liabilities as of March 31, 2010 in the Financial Services segment increased by 333.9 billion yen, or 8.8 percent, to 4,120.7 billion yen. This was primarily due to an increase in policy amount in force at Sony Life.
 
Total Interest-bearing Debt
 
Total interest-bearing debt inclusive of long-term debt and short-term borrowings as of March 31, 2010 increased by 97.5 billion yen, or 8.8 percent year-on-year, to 1,208.8 billion yen. Total interest-bearing debt as of March 31, 2010 in all segments, excluding the Financial Services segment, increased by 106.9 billion yen, or 10.5 percent, to 1,124.0 billion yen.
 
Sony Corporation’s Stockholders’ Equity
 
Sony Corporation’s stockholders’ equity as of March 31, 2010 was virtually flat year-on-year at 2,965.9 billion yen. Retained earnings decreased by 65.9 billion yen, or 3.4 percent, year-on-year to 1,851.0 billion yen as a result of the recording of 40.8 billion yen in net loss attributable to Sony Corporation’s stockholders and dividend payments of 25.1 billion yen. Accumulated other comprehensive income improved by 64.4 billion yen, or 8.8 percent year-on-year, to a loss of 669.1 billion yen primarily due to the recording of 32.3 billion yen of unrealized gains on securities and 23.7 billion yen of pension liability adjustments. The ratio of Sony Corporation’s stockholders’ equity to total assets decreased 1.6 percentage points compared to the end of the previous fiscal year, from 24.7 percent to 23.1 percent.
 
Information of Financial Position Separating Out the Financial Services Segment (Unaudited)
 
The following charts show Sony’s unaudited information of financial position for all segments excluding the Financial Services segment, and for the Financial Services segment alone. These separate condensed presentations are not required or prepared under U.S. GAAP, which is used in Sony’s consolidated financial statements. However, because the Financial Services segment is different in nature from Sony’s other segments, Sony utilizes this information to analyze its results without the Financial Services segment and believes that these presentations may be useful in understanding and analyzing Sony’s consolidated financial statements. Transactions between the Financial Services segment and all other segments excluding the Financial Services segment are eliminated in the consolidated figures shown below.


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Financial Services segment
 
                 
    March 31
    2009   2010
    (Yen in millions)
 
ASSETS
               
Current assets:
               
Cash and cash equivalents
    95,794       206,742  
Marketable securities
    463,809       576,129  
Notes and accounts receivable, trade
    13,380       10,099  
Other
    258,162       255,366  
                 
      831,145       1,048,336  
Investments and advances
    4,510,668       4,967,125  
Property, plant and equipment
    30,778       34,725  
Other assets:
               
Deferred insurance acquisition costs
    400,412       418,525  
Other
    132,654       108,421  
                 
      533,066       526,946  
                 
      5,905,657       6,577,132  
                 
                 
LIABILITIES AND EQUITY                
Current liabilities:
               
Short-term borrowings
    65,636       86,102  
Notes and accounts payable, trade
    16,855       13,709  
Deposits from customers in the banking business
    1,326,360       1,509,488  
Other
    143,781       164,545  
                 
      1,552,632       1,773,844  
Long-term liabilities:
               
Long-term debt
    97,296       42,536  
Accrued pension and severance costs
    10,889       12,144  
Future insurance policy benefits and other
    3,521,060       3,876,292  
Other
    157,520       189,681  
                 
      3,786,765       4,120,653  
Sony Corporation’s stockholders’ equity
    565,135       681,500  
Noncontrolling interests
    1,125       1,135  
                 
      5,905,657       6,577,132  
                 


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Sony without the Financial Services segment
 
                 
    March 31
    2009   2010
    (Yen in millions)
 
ASSETS
               
Current assets:
               
Cash and cash equivalents
    564,995       984,866  
Marketable securities
    3,103       3,364  
Notes and accounts receivable, trade
    847,214       887,694  
Other
    1,426,045       1,243,345  
                 
      2,841,357       3,119,269  
Film costs
    306,877       310,065  
Investments and advances
    339,389       376,669  
Investments in Financial Services, at cost
    116,843       116,843  
Property, plant and equipment
    1,145,085       973,226  
Other assets
    1,621,396       1,626,764  
                 
      6,370,947       6,522,836  
                 
                 
LIABILITIES AND EQUITY                
Current liabilities:
               
Short-term borrowings
    431,536       230,631  
Notes and accounts payable, trade
    546,125       804,336  
Other
    1,336,947       1,291,481  
                 
      2,314,608       2,326,448  
Long-term liabilities:
               
Long-term debt
    585,636       893,418  
Accrued pension and severance costs
    354,817       283,382  
Other
    348,684       299,808  
                 
      1,289,137       1,476,608  
Sony Corporation’s stockholders’ equity
    2,727,562       2,662,712  
Noncontrolling interests
    39,640       57,068  
                 
      6,370,947       6,522,836  
                 


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Consolidated
 
                 
    March 31
    2009   2010
    (Yen in millions)
 
ASSETS
               
Current assets:
               
Cash and cash equivalents
    660,789       1,191,608  
Marketable securities
    466,912       579,493  
Notes and accounts receivable, trade
    853,454       891,625  
Other
    1,639,480       1,470,146  
                 
      3,620,635       4,132,872  
Film costs
    306,877       310,065  
Investments and advances
    4,798,430       5,299,393  
Property, plant and equipment
    1,175,863       1,007,951  
Other assets:
               
Deferred insurance acquisition costs
    400,412       418,525  
Other
    1,711,294       1,697,308  
                 
      2,111,706       2,115,833  
                 
      12,013,511       12,866,114  
                 
                 
LIABILITIES AND EQUITY                
Current liabilities:
               
Short-term borrowings
    451,155       284,607  
Notes and accounts payable, trade
    560,795       817,118  
Deposits from customers in the banking business
    1,326,360       1,509,488  
Other
    1,472,590       1,448,712  
                 
      3,810,900       4,059,925  
Long-term liabilities:
               
Long-term debt
    660,147       924,207  
Accrued pension and severance costs
    365,706       295,526  
Future insurance policy benefits and other
    3,521,060       3,876,292  
Other
    439,096       424,609  
                 
      4,986,009       5,520,634  
Sony Corporation’s stockholders’ equity
    2,964,653       2,965,905  
Noncontrolling interests
    251,949       319,650  
                 
      12,013,511       12,866,114  
                 


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Investments
 
The following table contains available-for-sale and held-to-maturity securities, including the breakdown of unrealized gains and losses by investment category.
 
                                 
    March 31, 2010  
                      Fair
 
          Unrealized
    Unrealized
    Market
 
    Cost     Gain     Loss     Value  
    Yen in millions  
 
Financial Services Business:
                               
Available-for-sale
                               
Debt securities
                               
Sony Life
    1,068,445       30,557       (979 )     1,098,023  
Sony Bank
    856,597       8,411       (9,108 )     855,900  
Other
    12,573       57       (1 )     12,629  
Equity securities
                               
Sony Life
    54,897       14,786       (761 )     68,922  
Sony Bank
    7,848       978             8,826  
Other
    370       5,821             6,191  
Held-to-maturity
                               
Debt securities
                               
Sony Life
    2,283,559       2,627       (31,010 )     2,255,176  
Sony Bank
    15,699       579             16,278  
Other
    55,460       625       (57 )     56,028  
 
 
Total Financial Services
    4,355,448       64,441       (41,916 )     4,377,973  
 
 
Non-Financial Services:
                               
Available-for-sale securities
    44,196       53,087       (2,711 )     94,572  
Held-to-maturity securities
    1       1       (1 )     1  
 
 
Total Non-Financial Services
    44,197       53,088       (2,712 )     94,573  
 
 
Consolidated
    4,399,645       117,529       (44,628 )     4,472,546  
 
 
 
As of March 31, 2010, Sony Life had debt and equity securities which had gross unrealized losses of 32.0 billion yen and 0.8 billion yen, respectively. Of the unrealized loss amounts recorded by Sony Life, approximately 60.1 percent related to securities being in an unrealized loss position for a period longer than 12 months as of March 31, 2010. These securities primarily consist of Japanese government bonds classified as held-to-maturity securities. Sony Life principally invests in debt securities in various industries. Almost all of these securities were rated “BBB” or higher by Standard & Poor’s, Moody’s or other rating agencies.
 
As of March 31, 2010, Sony Bank had debt securities which had gross unrealized losses of 9.1 billion yen. Of the unrealized losses recorded by Sony Bank, approximately 94.8 percent related to securities being in an unrealized loss position for a period longer than 12 months as of March 31, 2010. Sony Bank principally invests in Japanese government bonds, Japanese corporate bonds and foreign bonds. Almost all of these securities were rated “BBB” or higher by Standard & Poor’s, Moody’s or other rating agencies.
 
These unrealized losses related to numerous investments, with no single investment being in a material unrealized loss position for longer than 12 months. In addition, there was no individual security with unrealized losses that met the test for impairment as the declines in value were observed to be small both in amounts and percentage, and therefore, the decline in value for those investments was still determined to be temporary in nature.


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For fixed maturity securities with unrecognized losses held by Sony Life as of March 31, 2010 (32.0 billion yen), maturity dates vary as follows:
 
         
• Within 1 year:
    0.1 percent  
• 1 to 5 years:
     
• 5 to 10 years:
    0.1 percent  
• above 10 years:
    99.8 percent  
 
For fixed maturity securities with unrecognized losses held by Sony Bank as of March 31, 2010 (9.1 billion yen), maturity dates vary as follows:
 
         
• Within 1 year:
    5.5 percent  
• 1 to 5 years:
    66.6 percent  
• 5 to 10 years:
    0.3 percent  
• above 10 years:
    27.6 percent  
 
In the ordinary course of business, Sony maintains long-term investment securities, included in securities investments and other issued by a number of non-public companies. The aggregate carrying amount of the investments in non-public companies as of March 31, 2010 was 70.7 billion yen. A non-public equity investment is primarily valued at cost if fair value is not readily determinable. If the value is estimated to have declined and such decline is judged to be other-than-temporary, the impairment of the investment is recognized immediately and the carrying value is reduced to its fair value.
 
For the fiscal years ended March 31, 2008, 2009 and 2010, total realized impairment losses were 37.1 billion yen, 45.6 billion yen and 5.5 billion yen, respectively, of which 24.0 billion yen, 41.2 billion yen and 2.6 billion yen, respectively, were recorded in financial service revenue by the subsidiaries in the Financial Services segment. Realized impairment losses recorded other than by subsidiaries in the Financial Services segment in each of the three fiscal years were reflected in non-operating expenses and primarily relate to certain strategic investments in non-financial services businesses. These investments primarily relate to certain strategic investments in Japan and the U.S. with which Sony has strategic relationships for the purposes of developing and marketing new technologies. Impairment losses were recorded for each of the three fiscal years as certain companies failed to successfully develop and market such technology, resulting in the operating performance of these companies being more unfavorable than previously expected. As a result the decline in the fair value of these companies was judged as other-than-temporary. None of these impairment losses was individually material to Sony.
 
Upon determination that the value of an investment is impaired, the value of the investment is written down to its fair value. For an investment where the quoted price is available in an active market, fair value is determined based on unadjusted quoted prices as of the date on which the impairment determination is made. For investments where the quoted price is not available in an active market, fair value is usually determined based on quoted prices of securities with similar characteristics or measured through the use of various methodologies such as pricing models, discounted cash flow techniques or similar techniques that require significant management judgment or estimation of assumptions that market participants would use in pricing the investments. The impairment losses that were recorded in each of the three fiscal years related to the unique facts and circumstances of each individual investment and did not significantly impact other investments.
 
Sony Life and Sony Bank’s investments constitute the majority of the investments in the Financial Services segment. Sony Life and Sony Bank account for approximately 78 percent and 20 percent of the investments in the Financial Services segment, respectively.


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Contractual obligations, commitments, and contingent liabilities
 
The following table summarizes Sony’s contractual obligations and commitments as of March 31, 2010. The references to the notes below refer to the corresponding notes within the notes to the consolidated financial statements.
 
                                         
        Less than
  1 to 3
  3 to 5
  More than
    Total   1 year   years   years   5 years
 
    (Yen in millions)
 
Contractual Obligations and Commitments:
                                       
Short-term debt (Note 11)
    48,785       48,785                    
Long-term debt (Notes 8 and 11)
                                       
Capital lease obligations
    35,013       7,131       8,943       4,287       14,652  
Other long-term debt
    1,125,016       228,691       373,851       348,121       174,353  
Interest on other long-term debt
    50,836       12,592       20,110       11,878       6,256  
Minimum rental payments required under operating leases (Note 8)
    184,083       40,715       56,050       32,148       55,170  
Purchase commitments (Note 26)
                                       
Purchase commitments for property, plant and equipment
    33,008       32,987       21              
Expected cost for the production or purchase of motion pictures and television programming or certain rights
    130,021       37,479       41,811       26,432       24,299  
Long-term contracts with recording artists and companies
    44,443       16,570       14,577       8,726       4,570  
Other purchase commitments
    97,617       46,645       28,849       17,844       4,279  
Future insurance policy benefits and other in the life insurance business* (Note 10)
    11,302,972       309,934       647,039       690,610       9,655,389  
Gross unrecognized tax benefits** (Note 21)
    229,228       167                    
 
 
Total
    13,281,022       781,696       1,191,251       1,140,046       9,938,968  
 
 
 
* Future insurance policy benefits and other in the life insurance business is the estimated future cash payments to be made to policy holders and others for future policy benefits, policyholders’ account balances, policyholders’ dividends, separate account liabilities and others. These cash payments are based upon assumptions including morbidity, mortality, withdrawals and other factors. Amounts presented in the above table are undiscounted. The sum of the cash payments of 11,303.0 billion yen exceeds the corresponding liability amounts of 3,858.4 billion yen included in the consolidated financial statements principally due to the time value of money (please refer to Note 10 to the notes to the consolidated financial statements).
 
** The total amounts represent the liability for gross unrecognized tax benefits in accordance with the accounting guidance for uncertain tax positions. Sony estimates 167 million yen of the liability is expected to be settled within one year. The settlement period for the remaining portion of the liability, which totaled 229.1 billion yen, cannot be reasonably estimated due to the uncertainty associated with the timing of the settlements with the various taxing authorities (please refer to Note 21 to the notes to the consolidated financial statements).


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The following items are not included in either the above table or the total amount of commitments outstanding at March 31, 2010:
 
  •  The total amount of expected future pension payments is not included as such amount is not currently determinable. Sony expects to contribute approximately 33 billion yen to Japanese pension plans and approximately 17 billion yen to foreign pension plans during the fiscal year ending March 31, 2011 (please refer to Note 15 to the notes to the consolidated financial statements).
 
  •  The total unused portion of the line of credit extended under loan agreements in the Financial Services segment is not included as it is not foreseeable what loans will be incurred under such line of credit. The total unused portion of the line of credit extended under these contracts was 176.6 billion yen as of March 31, 2010 (please refer to Note 26 to the notes to the consolidated financial statements).
 
  •  Purchases are made during the ordinary course of business from certain component manufacturers and contract manufacturers in order to establish the best pricing and continuity of supply for Sony’s production and are not included in the above table as there are typically no binding purchase obligations. Purchase obligations are defined as contractual obligations to purchase goods or services that are enforceable and legally binding on Sony. These obligations specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. Purchase obligations do not include contracts that may be cancelled without penalty. Sony enters into arrangements with certain component manufacturers whereby Sony procures goods and services, including product components, for these component manufacturers and is reimbursed for the related purchases. Sony’s supply chain management allows for flexible and mutually beneficial purchase arrangements with these manufacturers in order to minimize inventory risk. Consistent with industry practice, Sony purchases processed goods that meet technical criteria from these component manufacturers after issuing to these manufacturers information on Sony’s projected demand and manufacturing needs. Further, in connection with the sale of its LCD television manufacturing operations in Mexico during the fiscal year ended March 31, 2010, Sony entered into an agreement with the buyer, a contract manufacturer, to purchase certain LCD televisions in the future. The initial term of the agreement is for one year. In this agreement, Sony agreed to purchase a specified share of the LCD televisions that Sony sells in certain markets, including the U.S. market. However, there is no binding purchase obligation as the specified share and pricing terms only apply to actual sales.
 
In order to fulfill its commitments, Sony will use existing cash, cash generated by its operating activities, and intra-group borrowings, where possible. Further, Sony may raise funds through bonds, CP programs and committed lines of credit from banks, when necessary.
 
The following table summarizes Sony’s contingent liabilities as of March 31, 2010.
 
         
    Total Amounts of
    Contingent Liabilities
 
Contingent Liabilities: (Note 26)
    (Yen in millions )
Loan guarantees to a creditor of the third party investor
    27,912  
Guarantees for a portion of Sony Ericsson’s debt
    18,738  
Other
    35,726  
Total contingent liabilities
    82,376  
 
Off-Balance Sheet Arrangements
 
Sony has certain off-balance sheet arrangements that provide liquidity, capital resources and/or credit risk support.
 
Sony has established several accounts receivable sales programs in Japan whereby Sony can sell up to 50.0 billion yen of eligible trade accounts receivable in the aggregate at any one time. Through these programs, Sony can sell receivables to qualified special purpose entities owned and operated by banks. Sony can sell


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receivables in which the agreed upon original due dates are no more than 190 days after the sales of receivables. These transactions are accounted for as sales in accordance with the accounting guidance for transfers and servicing of financial assets and extinguishments of liabilities, because Sony has relinquished control of the receivables. Total trade accounts receivable sold during the fiscal years ended March 31, 2008, 2009 and 2010 were 181.4 billion yen, 130.8 billion yen and 109.3 billion yen, respectively. Losses from these transactions were insignificant. In addition to the cash proceeds from the sales transactions above, net cash flows between the qualified special purpose entities and Sony, including servicing fees, in the fiscal years ended March 31, 2008, 2009 and 2010 related to these transactions were insignificant. Although Sony continues servicing the receivables subsequent to being sold, no servicing liabilities are recorded as the costs of collection of the sold receivables are insignificant.
 
A subsidiary of the Financial Services segment has established several receivables sales programs whereby the subsidiary can sell up to 23.0 billion yen of eligible receivables in the aggregate at any one time. Through these programs, the subsidiary can sell receivables to qualified special purpose entities owned and operated by banks. The subsidiary can sell receivables in which the agreed upon original due dates are no more than 180 days after the sales of receivables. These transactions are accounted for as sales in accordance with the accounting guidance for transfers and servicing of financial assets and extinguishments of liabilities, since the subsidiary has relinquished control of the receivables. Total receivables sold during the fiscal years ended March 31, 2008, 2009 and 2010 were 113.8 billion yen, 166.1 billion yen and 183.8 billion yen, respectively. Losses from these transactions were insignificant. In addition to the cash proceeds from the sales transactions above, net cash flows between the qualified special purpose entities and Sony, including servicing fees, in the fiscal years ended March 31, 2008, 2009 and 2010 related to these transactions were insignificant. Although the subsidiary continues servicing the receivables subsequent to being sold, no servicing liabilities are recorded, as the costs of collection of the sold receivables are insignificant.
 
During the fiscal year ended March 31, 2010, Sony established an accounts receivable sales program in the United States. Through this program, a newly created special purpose entity, which is consolidated by a U.S. subsidiary, can sell up to 450 million U.S. dollars of eligible trade accounts receivables in the aggregate at any one time to a commercial bank. These transactions are accounted for as a sale in accordance with the accounting guidance for transfers and servicing of financial assets and extinguishments of liabilities, because Sony has relinquished control of the receivables. Total trade accounts receivables sold during the fiscal year ended March 31, 2010 were 258.1 billion yen (2,893 million U.S. dollars). Losses from these transactions were insignificant. In addition to the cash proceeds from the sales transactions above, net cash flows between the special purpose entity which is consolidated by Sony and the commercial bank, including servicing fees, in the fiscal year ended March 31, 2010 related to these transactions were insignificant. Although Sony continues servicing the receivables subsequent to being sold or contributed, no servicing liabilities are recorded as the costs of collection of the sold or contributed receivables are insignificant.
 
Sony has, from time to time, entered into various arrangements with variable interest entities (“VIEs”). These arrangements include facilities which provide for the leasing of certain property, the financing of film production, the U.S. based music publishing business, several joint ventures in the recorded music business and the outsourcing of manufacturing operations. In several of the arrangements in which Sony holds significant variable interests, Sony is the primary beneficiary and therefore consolidates these VIEs. Arrangements in which Sony holds significant variable interests in VIEs but Sony is not the primary beneficiary and therefore does not consolidate are described as follows:
 
A subsidiary in the Pictures segment entered into a joint venture agreement with a VIE to acquire the international distribution rights, as defined, to 12 pictures. The subsidiary is required to distribute the product internationally, for contractually defined fees determined as percentages of gross receipts and is responsible for all distribution and marketing expenses, which are recouped from such distribution fees, each as defined. The VIE was capitalized with total financing of 406 million U.S. dollars. Of this amount, 11 million U.S. dollars was contributed by the subsidiary, 95 million U.S. dollars was provided by unrelated third party investors and the remaining funding was provided through a 300 million U.S. dollar bank credit facility. Under the agreement, the subsidiary’s 11 million U.S. dollars equity investment is the last equity to be repaid. Based on the factors above, it was previously determined that the subsidiary was the primary beneficiary as it was projected to absorb the majority of the losses or residual returns. As of March 31, 2009, the bank credit facility had been terminated and the third party


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investors have been repaid their 95 million U.S. dollar investment. On May 11, 2009, the subsidiary repurchased from the VIE the international distribution rights to the 12 pictures and the VIE received a participation interest in these films on identical financial terms to those described above. As a result of repurchasing the international distribution rights from the VIE, Sony determined that the subsidiary is no longer the primary beneficiary as it is not projected to absorb the majority of the losses or residual returns of the VIE. No gain or loss was recognized by the subsidiary on the deconsolidation of the VIE. As of March 31, 2010, the subsidiary’s balance sheet includes 316 million yen of film costs related to the international distribution rights acquired from the VIE and 1,647 million yen of participation liabilities due to the VIE.
 
A subsidiary in the Pictures segment entered into two separate production/co-financing agreements with VIEs to co-finance 19 films that were released over the 31 months ended July 31, 2008. The subsidiary received 568 million U.S. dollars over the term of the agreements to fund the production or acquisition cost of films (including fees and expenses). Additionally, on January 9, 2007, the subsidiary entered into a third production/co-financing agreement with another VIE to co-finance a majority of the films to be submitted through March 2012. The subsidiary has received a commitment from the third VIE that it will fund up to 525 million U.S. dollars on a revolving basis to fund the production or acquisition cost of films (including fees and expenses). As of March 31, 2010, 14 films of the subsidiary have been released and approximately 392 million U.S. dollars have been funded by the third VIE. Under all three agreements, the subsidiary is responsible for the marketing and distribution of the product through its global distribution channels. The VIEs share in the net profits, as defined, of the films after the subsidiary recoups a distribution fee, its marketing and distribution expenses, and third party participation and residual costs, each as defined. As the subsidiary did not make any equity investment in these three VIEs nor issue any guarantees with respect to the VIEs, the subsidiary does not absorb the majority of the losses or residual returns, and therefore does not qualify as the primary beneficiary for any of the VIEs. As of March 31, 2010, there are no amounts recorded on the subsidiary’s balance sheet that relate to any of the VIEs other than the investors’ earned but unpaid share of the films’ net profits, as defined.
 
In January 2010, Sony sold approximately 90 percent of its interest in a Mexican subsidiary which primarily manufactured LCD televisions, as well as other assets including machinery and equipment of 4,520 million yen and inventory of 5,619 million yen, to a contract manufacturer. The continuing entity, which will perform this manufacturing going forward, was determined to be a VIE as it is thinly capitalized and dependent on funding from the parent entity. Sony was not considered to be the primary beneficiary as it is not expected to absorb the majority of the expected losses of the entity. In connection with the sale of Sony’s controlling interest in the subsidiary, Sony received 11,189 million yen and recorded a loss of 1,664 million yen during the fiscal year ended March 31, 2010. Concurrent with the sale, Sony entered into an agreement with the VIE and its parent company in which Sony agreed to purchase a significant share of the LCD televisions that Sony sells in certain markets, including the U.S. market. As of March 31, 2010, the amounts recorded on Sony’s balance sheet that relate to the VIE include accounts receivable-non trade of 6,991 million yen and accounts payable, trade of 30,263 million yen. Sony’s maximum exposure to losses is considered insignificant.
 
Refer to Note 23 to the notes to the consolidated financial statements for more information on variable interest entities.
 
Cash Flows
(The fiscal year ended March 31, 2010 compared with the fiscal year ended March 31, 2009)
 
Operating Activities: During the fiscal year ended March 31, 2010, there was a net cash inflow of 912.9 billion yen from operating activities, an increase of 505.8 billion yen, or 124.2 percent year-on-year.
 
For all segments excluding the Financial Services segment, there was a net cash inflow of 570.2 billion yen for the fiscal year ended March 31, 2010, an increase of 457.5 billion yen, or 406.0 percent year-on-year. The major cash inflow factors included a cash contribution from net income after taking into account depreciation and amortization (including amortization of film costs), an increase in notes and accounts payable, trade, and a decrease in inventories. This exceeded cash outflow, which included increases in film costs and in notes and accounts receivable, trade. Compared with the prior fiscal year, the net cash inflow increased mainly due to an increase in notes and accounts payable, trade in the fiscal year ended March 31, 2010 compared to a decrease in the prior fiscal


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year and lower tax payments. This increase was partially offset by an increase in notes and accounts receivable, trade in the fiscal year ended March 31, 2010 compared to a decrease in the prior fiscal year.
 
The Financial Services segment had a net cash inflow of 348.0 billion yen, an increase of 47.9 billion yen, or 16.0 percent year-on-year. For the fiscal year ended March 31, 2010, net cash inflow was generated primarily due to an increase in revenue from insurance premiums as a result of a steady increase in policy amount in force at Sony Life. Compared with the previous fiscal year, net cash inflow increased primarily reflecting the increase in revenue from insurance premiums at Sony Life.
 
Investing Activities: During the fiscal year ended March 31, 2010, Sony used 746.0 billion yen of net cash in investing activities, a decrease of 335.3 billion yen, or 31.0 percent year-on-year.
 
For all segments excluding the Financial Services segment, there was 247.9 billion yen of net cash used, a decrease of 239.5 billion yen, or 49.1 percent year-on-year. During the fiscal year ended March 31, 2010, net cash was used mainly for purchases of manufacturing equipment. The net cash used decreased year-on-year primarily as a result of lower investments in and purchases of manufacturing equipment, although the previous fiscal year benefited from proceeds generated mainly from the sale of semiconductor fabrication equipment.
 
The Financial Services segment used 475.7 billion yen of net cash, a decrease of 126.6 billion yen, or 21.0 percent year-on-year. Payments for investments and advances, carried out primarily at Sony Life and Sony Bank, where operations are expanding, exceeded proceeds from the maturities of marketable securities, sales of securities investments and collections of advances. The net cash used within the Financial Services segment decreased year-on-year primarily due to a decrease in investments at Sony Bank.
 
In all segments excluding the Financial Services segment, net cash generated by operating and investing activities combined* for the fiscal year ended March 31, 2010 was 322.3 billion yen, an improvement of 697.1 billion yen compared to net cash used in the previous fiscal year.
 
Financing Activities: During the fiscal year ended March 31, 2010, 365.0 billion yen of net cash was provided by financing activities, an increase of 97.6 billion yen, or 36.5 percent year-on-year. For all segments excluding the Financial Services segment, there was a 98.6 billion yen net cash inflow, an increase of 88.7 billion yen, or 891.7 percent year-on year. This was primarily due to issuances of long-term corporate bonds and borrowings from banks in the fiscal year ended March 31, 2010, which were partially offset by net repayments of short-term borrowings including commercial paper. In June 2009, Sony Corporation issued domestic straight bonds totaling 220 billion yen in Japan with maturities ranging from 3 to 10 years. In the Financial Services segment, financing activities generated 238.6 billion yen of net cash, a decrease of 21.7 billion yen, or 8.3 percent year-on-year, primarily due to a decrease in short-term borrowings, net for the fiscal year ended March 31, 2010 compared to an increase for the prior fiscal year.
 
Total Cash and Cash Equivalents: Accounting for the above factors and the effect of fluctuations in exchange rates, the total outstanding balance of cash and cash equivalents at March 31, 2010 was 1,191.6 billion yen, an increase of 530.8 billion yen, or 80.3 percent compared with the balance as of March 31, 2009. The outstanding balance of cash and cash equivalents of all segments excluding the Financial Services segment was 984.9 billion yen, an increase of 419.9 billion yen, or 74.3 percent, compared with the balance as of March 31, 2009. Sony believes it continues to maintain sufficient liquidity through access to a total, translated into yen, of 788.5 billion yen of unused committed lines of credit with financial institutions in addition to the cash and cash equivalents balance at March 31, 2010. Within the Financial Services segment, the outstanding balance of cash and cash equivalents was 206.7 billion yen, an increase of 110.9 billion yen, or 115.8 percent, compared with the balance as of March 31, 2009.
 
* Sony has included the information for cash flow from operating and investing activities combined excluding the Financial Services segment’s activities, as management frequently monitors this financial measure, and believes this non-GAAP measurement is important for use in evaluating Sony’s ability to generate cash to maintain liquidity and fund debt principal and dividend payments from business activities other than its Financial Services segment. This information is derived from the reconciliations prepared in the section “Information of Cash Flows Separating Out the Financial Services Segment.” This information and the separate condensed presentations shown below are not required or prepared in accordance with U.S. GAAP. The Financial Services segment’s cash flow is excluded


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from the measure because SFH, which constitutes a majority of the Financial Services segment, is a separate publicly traded entity in Japan with a significant minority interest and it, as well as its subsidiaries, secure liquidity on their own. This measure may not be comparable to those of other companies. This measure has limitations, because it does not represent residual cash flows available for discretionary expenditures principally due to the fact that the measure does not deduct the principal payments required for debt service. Therefore, Sony believes it is important to view this measure as supplemental to its entire statement of cash flows and together with Sony’s disclosures regarding investments, available credit facilities and overall liquidity.
 
A reconciliation of the differences between the Consolidated Statement of Cash Flows reported and cash flows from operating and investing activities combined excluding the Financial Services segment’s activities is as follows:
 
                 
    Fiscal Year Ended March 31
    2009   2010
    (Billions of yen)
 
Net cash provided by operating activities reported in the consolidated statements of cash flows
    407.2       912.9  
Net cash used in investing activities reported in the consolidated statements of cash flows
    (1,081.3 )     (746.0 )
                 
      (674.1 )     166.9  
Less: Net cash provided by operating activities within the Financial Services segment
    300.1       348.0  
Less: Net cash used in investing activities within the Financial Services segment
    (602.4 )     (475.7 )
Eliminations **
    (3.0 )     27.7  
                 
Cash flow from operating and investing activities combined excluding the Financial Services segment’s activities
    (374.8 )     322.3  
 
** Eliminations primarily consist of intersegment loans and dividend payments. Intersegment loans are between Sony Corporation and Sony Financial International Inc. (“SFI”), an entity included within the Financial Services segment.
 
Information of Cash Flows Separating Out the Financial Services Segment (Unaudited)
 
The following charts show Sony’s unaudited cash flow information for all segments, excluding the Financial Services segment, and for the Financial Services segment alone. These separate condensed presentations are not required or prepared under U.S. GAAP, which is used in Sony’s consolidated financial statements. However, because the Financial Services segment is different in nature from Sony’s other segments, Sony utilizes this information to analyze its results without the Financial Services segment and believes that these presentations may be useful in understanding and analyzing Sony’s consolidated financial statements. Transactions between the Financial Services segment and all other segments excluding the Financial Services segment are eliminated in the consolidated figures shown below.
 
                 
    Fiscal Year Ended March 31
  Financial Services segment   2009   2010
    (Yen in millions)
 
Net cash provided by operating activities
    300,096       348,033  
Net cash used in investing activities
    (602,368 )     (475,720 )
Net cash provided by financing activities
    260,345       238,635  
                 
Net increase (decrease) in cash and cash equivalents
    (41,927 )     110,948  
Cash and cash equivalents at beginning of the fiscal year
    137,721       95,794  
                 
Cash and cash equivalents at end of the fiscal year
    95,794       206,742  
                 
 


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    Fiscal Year Ended March 31
  Sony without the Financial Services segment   2009   2010
    (Yen in millions)
 
Net cash provided by operating activities
    112,695       570,222  
Net cash used in investing activities
    (487,446 )     (247,897 )
Net cash provided by financing activities
    9,947       98,644  
Effect of exchange rate changes on cash and cash equivalents
    (18,911 )     (1,098 )
                 
Net increase (decrease) in cash and cash equivalents
    (383,715 )     419,871  
Cash and cash equivalents at beginning of the fiscal year
    948,710       564,995  
                 
Cash and cash equivalents at end of the fiscal year
    564,995       984,866  
                 
 
                 
    Fiscal Year Ended March 31  
  Consolidated   2009     2010  
    (Yen in millions)  
 
Net cash provided by operating activities
    407,153       912,907  
Net cash used in investing activities
    (1,081,342 )     (746,004 )
Net cash provided by financing activities
    267,458       365,014  
Effect of exchange rate changes on cash and cash equivalents
    (18,911 )     (1,098 )
                 
Net increase (decrease) in cash and cash equivalents
    (425,642 )     530,819  
Cash and cash equivalents at beginning of the fiscal year
    1,086,431       660,789  
                 
Cash and cash equivalents at end of the fiscal year
    660,789       1,191,608  
                 
 
Cash Flows
(The fiscal year ended March 31, 2009 compared with the fiscal year ended March 31, 2008)
 
Operating Activities: During the fiscal year ended March 31, 2009, there was net cash inflow of 407.2 billion yen in operating activities, a decrease of 350.5 billion yen, or 46.3 percent year-on-year.
 
For all segments excluding the Financial Services segment, there was net cash inflow of 112.7 billion yen in operating activities, a decrease of 406.4 billion yen, or 78.3 percent year-on-year. The major cash inflow factors include a cash contribution from net income (loss), after taking into account depreciation and amortization, and decreases in notes and accounts receivable, trade primarily due to a decrease in sales during the fiscal year ended March 31, 2009. These factors exceeded cash outflows, which included decreases in notes and accounts payable, trade. Compared with the previous fiscal year, net cash provided by operating activities decreased mainly as a result of a decrease in net income (loss), after taking into account depreciation and amortization.
 
The Financial Services segment had a net cash inflow of 300.1 billion yen from operating activities, an increase of 57.5 billion yen, or 23.7 percent year-on-year. The Financial Services segment generated net cash mainly from an increase in revenue from insurance premiums, reflecting a steady increase in policy amount in force, primarily at Sony Life. Compared with the previous fiscal year, net cash provided increased mainly due to an increase in revenue from insurance premiums at Sony Life.
 
Investing Activities: During the fiscal year ended March 31, 2009, Sony used 1,081.3 billion yen of net cash in investing activities, an increase of 170.9 billion yen, or 18.8 percent year-on-year.
 
For all segments, excluding the Financial Services segment, 487.4 billion yen of net cash was used in investing activities, an increase of 472.5 billion yen, or 3,166.0 percent year-on-year. During the fiscal year ended March 31, 2009, payments for items such as purchases of manufacturing equipment and the acquisition of Bertelsmann’s 50 percent interest in SONY BMG exceeded proceeds generated mainly from the sales of semiconductor fabrication equipment. Compared with the previous fiscal year, net cash used in investing activities increased. The previous

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fiscal year’s net cash outflows were partially offset by proceeds from the sale of shares in SFH, the sale of “The Sony Center am Potsdamer Platz” in Berlin, and the sale of a portion of the site which was Sony’s former headquarters.
 
The Financial Services segment used 602.4 billion yen in net cash, a decrease of 271.3 billion yen, or 31.1 percent year-on-year. Within the Financial Services segment, payments primarily for investments carried out at Sony Life, as well as for investments and advances carried out at Sony Bank, where operations are expanding, exceeded proceeds mainly from the maturities and sales of marketable securities and collections of advances. Net cash used in investing activities within the Financial Services segment decreased mainly because an increase in investment asset sales exceeded an increase in investments at Sony Life.
 
In all segments, excluding the Financial Services segment, net cash provided by operating activities and used in investing activities combined* was a net outflow of 374.8 yen billion, a deterioration of 878.9 billion yen year-on-year.
 
Financing Activities: During the fiscal year ended March 31, 2009, 267.5 billion yen of net cash was provided by financing activities, a decrease of 238.1 billion yen, or 47.1 percent year-on-year. For all segments excluding the Financial Services segment, there was a net cash inflow of 9.9 billion yen in financing activities, an increase of 22.0 billion yen compared to a net cash outflow of 12.1 billion yen in the previous fiscal year. This was primarily due to issuances of CP and corporate bonds and borrowings from banks in the fiscal year ended March 31, 2009, partially offset by the redemption of convertible bonds. In the Financial Services segment, since the increase primarily in policyholder accounts at Sony Life and in deposits from customers at Sony Bank were less than the increases in the previous fiscal year, financing activities generated 260.3 billion yen of net cash, a decrease of 231.4 billion yen, or 47.1 percent year-on-year.
 
Accounting for the above factors and the effect of fluctuations in exchange rates, the total outstanding balance of cash and cash equivalents at March 31, 2009 was 660.8 billion yen, a decrease of 425.6 billion yen, or 39.2 percent compared with the balance as of March 31, 2008. The outstanding balance of cash and cash equivalents of all segments excluding the Financial Services segment was 565.0 billion yen, a decrease of 383.7 billion yen, or 40.4 percent compared with the balance as of March 31, 2008. Within the Financial Services segment, the outstanding balance of cash and cash equivalents was 95.8 billion yen, a decrease of 41.9 billion yen, or 30.4 percent compared with the balance as of March 31, 2008.
 
* A reconciliation of the differences between the Consolidated Statement of Cash Flows reported and cash flows from operating and investing activities combined excluding the Financial Services segment’s activities is as follows:
                 
    Fiscal Year Ended March 31  
    2008     2009  
    (Billions of yen)  
 
Net cash provided by operating activities reported in the consolidated statements of cash flows
    757.7       407.2  
Net cash used in investing activities reported in the consolidated statements of cash flows
    (910.4 )     (1,081.3 )
                 
      (152.7 )     (674.1 )
Less: Net cash provided by operating activities within the Financial Services segment
    242.6       300.1  
Less: Net cash used in investing activities within the Financial Services segment
    (873.6 )     (602.4 )
Eliminations **
    25.9       (3.0 )
                 
Cash flow from operating and investing activities combined excluding the Financial Services segment’s activities
    504.2       (374.8 )
 
** Eliminations primarily consist of intersegment loans and dividend payments. Intersegment loans are between Sony Corporation and SFI, an entity included within the Financial Services segment.


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Information of Cash Flows Separating Out the Financial Services Segment (Unaudited)
 
The following charts show Sony’s unaudited cash flow information for all segments, excluding the Financial Services segment, and for the Financial Services segment alone. These separate condensed presentations are not required or prepared under U.S. GAAP, which is used in Sony’s consolidated financial statements. However, because the Financial Services segment is different in nature from Sony’s other segments, Sony utilizes this information to analyze its results without the Financial Services segment and believes that these presentations may be useful in understanding and analyzing Sony’s consolidated financial statements. Transactions between the Financial Services segment and all other segments excluding the Financial Services segment are eliminated in the consolidated figures shown below.
 
                 
    Fiscal Year Ended March 31  
  Financial Services segment   2008     2009  
    (Yen in millions)  
 
Net cash provided by operating activities
    242,610       300,096  
Net cash used in investing activities
    (873,646 )     (602,368 )
Net cash provided by financing activities
    491,709       260,345  
                 
Net decrease in cash and cash equivalents
    (139,327 )     (41,927 )
Cash and cash equivalents at beginning of the fiscal year
    277,048       137,721  
                 
Cash and cash equivalents at end of the fiscal year
    137,721       95,794  
                 
 
                 
    Fiscal Year Ended March 31  
  Sony without the Financial Services segment   2008     2009  
    (Yen in millions)  
 
Net cash provided by operating activities
    519,112       112,695  
Net cash used in investing activities
    (14,925 )     (487,446 )
Net cash provided by (used in) financing activities
    (12,100 )     9,947  
Effect of exchange rate changes on cash and cash equivalents
    (66,228 )     (18,911 )
                 
Net increase (decrease) in cash and cash equivalents
    425,859       (383,715 )
Cash and cash equivalents at beginning of the fiscal year
    522,851       948,710  
                 
Cash and cash equivalents at end of the fiscal year
    948,710       564,995  
                 
 
                 
    Fiscal Year Ended March 31  
  Consolidated   2008     2009  
    (Yen in millions)  
 
Net cash provided by operating activities
    757,684       407,153  
Net cash used in investing activities
    (910,442 )     (1,081,342 )
Net cash provided by financing activities
    505,518       267,458  
Effect of exchange rate changes on cash and cash equivalents
    (66,228 )     (18,911 )
                 
Net increase (decrease) in cash and cash equivalents
    286,532       (425,642 )
Cash and cash equivalents at beginning of the fiscal year
    799,899       1,086,431  
                 
Cash and cash equivalents at end of the fiscal year
    1,086,431       660,789  
                 


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LIQUIDITY AND CAPITAL RESOURCES
 
The description below covers basic financial policy and figures for Sony’s consolidated operations except for the Financial Services segment and So-net, which secure liquidity on their own. Furthermore, the Financial Services segment is described separately at the end of this section.
 
Liquidity Management and Market Access
 
An important financial objective of Sony is to maintain the strength of its balance sheet, while securing adequate liquidity for business activities. Sony defines its liquidity sources as the amount of cash and cash equivalents (“cash balance”) (excluding restrictions on capital transfers mainly due to country regulations) and the unused amount of committed lines of credit. Sony’s basic liquidity management policy is to secure sufficient liquidity throughout the relevant fiscal year, covering such factors as 50 percent of monthly consolidated sales and repayments on debt that comes due within six months.
 
Funding requirements that arise from maintaining liquidity are principally covered by cash flow from operating and investing activities combined and by the cash balance; however, as needed, Sony has demonstrated the ability to procure funds from financial and capital markets. In the event financial and capital markets became illiquid, based on its current forecasts, Sony could sustain sufficient liquidity through access to committed lines of credit with financial institutions, together with its cash balance.
 
Sony procures funds mainly from the financial and capital markets through Sony Corporation and SGTS, a finance subsidiary in the U.K. In June 2009, Sony Corporation issued domestic straight bonds totaling 220 billion yen (3 years, 5 years and 10 years maturity) for redemption of domestic bonds and CP and executed loans totaling 162.5 billion yen from a syndicate of banks (3 years, 5 years and 7 years maturity), of which the proceeds were used for the redemption of syndicated loans and for general business activities, including working capital. In addition, Sony Corporation executed a 1.0 billion U.S. dollar long-term bank loan in July 2009 (3 years maturity). The proceeds were used as general corporate funds for overseas operations, in regions including the U.S. and Europe.
 
In order to meet working capital requirements, Sony Corporation and SGTS maintain CP programs which have the ability to access the Japanese, the U.S. and European CP markets, subject to prevailing market conditions. As of March 31, 2010, the CP program limit amounts translated into yen was 1,151.3 billion yen in total for Sony Corporation and SGTS. There was no outstanding balance of CP as of March 31, 2010, although the largest month-end outstanding balance of CP during the fiscal year ended March 31, 2010 was 189.9 billion yen in May 2009. While Sony mainly issued CP in the Japanese CP market for the fiscal year ended March 31, 2010, due to the recent recovery of the U.S. and European CP markets, Sony currently believes funding from these markets is also available.
 
Sony typically raises funds through the aforementioned straight bonds, CP programs and bank loans (including syndicated loans); however, in the unlikely event Sony could not access liquidity from these sources, Sony can also draw on committed lines of credit from various financial institutions. Sony has a total, translated into yen, of 788.5 billion yen in committed lines of credit, none of which had been used as of March 31, 2010. Details of those committed lines of credit are: a 475 billion yen committed line of credit contracted with a syndicate of Japanese banks, effective until November 2012, 1.5 billion U.S. dollars multi-currency committed line of credit also with a syndicate of Japanese banks, effective until December 2013, and 1.87 billion U.S. dollars of another multi-currency committed line of credit contracted with a syndicate of global banks, effective until April 2012, in all of which Sony Corporation and SGTS are defined as the borrowers. These contracts are aimed at securing sufficient liquidity in a quick and stable manner even in the event of financial and capital markets turmoil seen since September 2008.
 
In the event of a downgrade in Sony’s credit ratings, even though the cost of some of those borrowings could increase, there are no financial covenants in any of Sony’s material financial agreements that would cause an acceleration of the obligation or any impairment on the ability to drawdown on unused facilities. Furthermore, there are no restrictions on the uses of most proceeds except that certain borrowings may not be used to acquire securities listed on a U.S. stock exchange or traded over-the-counter in the U.S. in accordance with the rules and regulations issued by authorities such as the Board of Governors of the Federal Reserve Board.


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Ratings
 
Sony considers one of management’s top priorities to be the maintenance of stable and appropriate credit ratings in order to ensure financial flexibility for liquidity and capital management and continued adequate access to sufficient funding resources in the financial and capital markets.
 
In order to facilitate access to global capital markets, Sony obtains credit ratings from two rating agencies, Moody’s Investors Service (“Moody’s”) and Standard and Poor’s Rating Services (“S&P”). In addition, Sony maintains a rating from Rating and Investment Information, Inc. (“R&I”), a rating agency in Japan, for access to the Japanese capital markets.
 
Sony’s current debt ratings from each agency as of June 28, 2010 are noted below:
 
                   
      Moody’s     S&P     R&I
Long-term debt
    A3 (Outlook: negative)     A- (Outlook: negative)     AA- (Outlook: negative)
Short-term debt
    P-2     A-2     a-1+
                   
 
Cash Management
 
Sony manages its global cash management activities mainly through SGTS. The excess or shortage of cash at most of Sony’s subsidiaries is invested or funded by SGTS on a net basis, although Sony recognizes that fund transfers are limited in certain countries and geographic areas due to restrictions on capital transactions. In order to pursue more efficient cash management, cash surpluses among Sony’s subsidiaries are deposited with SGTS and cash shortfalls among subsidiaries are covered by loans through SGTS, so that Sony can make use of excess cash balances and reduce third-party borrowings.
 
Financial Services segment
 
The management of SFH, Sony Life, Sony Assurance and Sony Bank recognizes the importance of securing sufficient liquidity to cover the payment of obligations that these companies incur in the ordinary course of business. Sony Life, Sony Assurance and Sony Bank maintain a sufficient cash balance and secure sufficient means to meet their obligations while abiding by laws and regulations such as the Insurance Business Act or the Banking Act of Japan, and restrictions imposed by the Financial Services Agency (“FSA”) and other regulatory authorities as well as establishing and operating under company guidelines that comply with these regulations. Sony Life and Sony Assurance establish a sufficient level of liquidity for the smooth payment of insurance claims when they invest primarily in various securities cash inflows which are mainly from policyholders’ insurance premiums. Sony Bank establish a necessary level of liquidity for the smooth settlement of transactions when it uses its cash inflows, which come mainly from customers’ deposits in local or foreign currencies, in order to offer mortgage loans to individuals or to make bond investments.
 
SFH currently has an AA- rating from R&I for issuer rating. Sony Life currently has ratings from four rating agencies: A+ from S&P for insurer financial strength rating, Aa3 from Moody’s for insurance financial strength rating, AA from R&I for ability to pay insurance claims and AA from the Japan Credit Rating Agency Ltd. (“JCR”) for ability to pay insurance claims. Sony Bank obtained an A-rating from S&P for its long-term counterparty credit rating, an A-2 rating from S&P for its short-term counterparty credit rating and an AA- rating from the JCR for long-term senior debt rating.
 
RESEARCH AND DEVELOPMENT
 
It is necessary for Sony to continue technological innovation in order to maintain group-wide growth. Sony believes that technology made possible by our research and development activities is key to the differentiation of products in existing businesses and the source of creating value in new businesses.
 
Research and development is focused in four key domains: a common development platform technology for home and mobile electronics, and semiconductor, device, and software technologies, which are essential for product differentiation and for creating value-added products.
 
Research and development costs for the fiscal year ended March 31, 2010 decreased by 65.3 billion yen, or 13.1 percent year-on-year, to 432.0 billion yen. The ratio of research and development costs to sales (which


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excludes Financial Services segment revenue) decreased from 6.9 percent to 6.8 percent. Expenses in the CPD segment decreased 56.3 billion yen, or 17.8 percent year-on-year, to 259.4 billion yen and expenses in the NPS segment decreased 3.9 billion yen, or 4.2 percent year-on-year, to 89.2 billion yen. In the CPD segment, approximately 73 percent of expenses were for the development of new product prototypes while the remaining 27 percent were for the development of mid- to long-term new technologies in such areas as next generation displays, semiconductors, new materials and software. Consolidated research and development costs for the fiscal year ending March 31, 2011 are expected to increase by 4.2 percent to 450 billion yen.
 
Research and development costs for the fiscal year ended March 31, 2009 decreased by 23.3 billion yen, or 4.5 percent year-on-year, to 497.3 billion yen. The ratio of research and development costs to sales (which excludes Financial Services segment revenue) increased from 6.3 percent to 6.9 percent. Expenses in the CPD segment were 315.8 billion yen and expenses in the NPS segment were 93.1 billion yen. In the CPD segment, approximately 76 percent of expenses were for the development of new product prototypes while the remaining 24 percent were for the development of mid- to long-term new technologies in such areas as next generation displays, semiconductors, new materials and software.
 
Research and development costs for the fiscal year ended March 31, 2008 decreased by 23.4 billion yen, or 4.3 percent year-on-year, to 520.6 billion yen. The ratio of research and development costs to sales (which excludes Financial Services segment revenue) decreased from 7.1 percent to 6.3 percent.
 
TREND INFORMATION
 
This section contains forward-looking statements about the possible future performance of Sony and should be read in light of the cautionary statement on that subject, which appears on the inside front cover page and applies to this entire document.
 
Issues Facing Sony and Management’s Response to those Issues
 
The global economy experienced a sharp downturn beginning in the autumn of 2008, following the most severe financial crisis in recent years. Central governments and central banks of major global economies launched large-scale economic stimulus measures and the global economy started to show signs of recovery in late 2009, led mainly by continuously strong growth in domestic demand in emerging markets. Sony has been implementing a number of measures, particularly in the CPD segment, to transform its operational structure. In line with this recovery trend, Sony recorded operating income of 31.8 billion yen in the fiscal year ended March 31, 2010, compared to operating loss of 227.8 billion yen in the previous fiscal year.
 
In emerging markets, increasing demand for entry-level priced products and services is expected to cause intensified competition with new entrants. Developed countries’ economies are anticipated to recover slowly, with high uncertainty and weak improvement in unemployment rates and consumer spending, significant levels of government debt, significant fluctuations in foreign exchange rates, and remaining instability in the financial markets.
 
In such an operating environment, Sony plans to continue enhancing profitable business structures through transformation initiatives and cost reductions in the future. At the same time, Sony plans to aggressively launch 3D-related products and network services and plans to develop other new businesses to realize future growth and create future revenue sources.
 
Transformation initiatives and cost reductions
 
Since April 1, 2009, Sony has been implementing major reorganizations. Sony established three horizontal platforms for (1) manufacturing, logistics, procurement and customer services, (2) R&D and common software development, and (3) global sales and marketing functions, and has been undertaking transformation and business process optimization efforts to enhance profitability. Sony plans to continue the initiatives described below, mainly in the CPD segment. Sony expects restructuring charges to total approximately 80 billion yen in the fiscal year ending March 31, 2011 compared with the 124.3 billion yen, including 7.9 billion yen of non-cash charges related to depreciation associated with restructured assets, recorded in the fiscal year ended March 31, 2010 (please refer to “Restructuring” in “Item 5 Operating Results”).


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•  Realignment of manufacturing sites:
 
By rationalizing its manufacturing operations, shifting and aggregating manufacturing to lower-cost countries and utilizing the services of OEMs and ODMs, Sony has undertaken fixed cost and total asset reductions. Sony’s total manufacturing sites have been reduced from 57 sites in December 2008 to 46 sites as of March 31, 2010. Sony will continue reviewing the efficiency of its manufacturing structure in relation to its operating environments. The realignment of manufacturing sites to be undertaken during the fiscal year ending March 31, 2011 includes the closure of Sony Precision Engineering Malaysia Sdn. Bhd., the transfer to KYOCERA Corporation of design and manufacturing operations of small-and mid-sized TFT LCD displays at the Yasu site of Sony Mobile Display Corporation, the termination of production at Sony Electronics Inc.’s Dothan, Alabama site, the transfer to the Hon Hai Group of approximately 90 percent of Sony’s equity interest in the Nitra plant in Slovakia (which currently manufactures LCD televisions for the European region), and the termination of production at Sony Hungária Kft., Gödöllö TEC.
 
•  Reductions in procurement cost for components and software:
 
Sony has started developing a common procurement platform and consolidating its suppliers during the fiscal year ended March 31, 2010. Sony expects the substantial benefit of procurement cost reduction through these measures. Since April, 2010, Sony has been integrating software procurement functions that had been diversified within each business unit to the headquarter procurement division, reviewing its various business processes and starting the consolidation of its software vendors.
 
Below is a description of the issues management believes each business continues to face and an explanation as to how each business is addressing those issues, including the above measures it has taken to reduce costs.
 
Consumer Products & Devices
 
Sony’s television business will strive to expand its unit sales significantly by enhancing product competitiveness with the launch of 3D televisions and Internet televisions as well as with an increased product range of LED backlit televisions, and by proactively launching strategic models targeting emerging markets where significant volume growth is anticipated. The television business is creating global standards for the basic design of hardware and for software as well as integrating its design and development resources around the world. The business will continue to improve its supply chains and increase the active use of OEMs and ODMs, to build stable and profitable business structures even in the changing operating environment such as global market expansion of entry-level priced models and the price declines accompanying intensified competition. In connection with its strategy for procuring panels, which is important for improving profitability in the television business, Sony will conduct flexible sourcing of LCD panels at competitive prices from panel suppliers including Sony’s two joint ventures, S-LCD and Sharp Display Products Corporation (“SDP”). While Sony will place significant emphasis on sourcing from its joint ventures, it will also continue utilizing open market sources depending on the panel market conditions and television model features. Sony obtains its supply of TFT LCD panels from the 7th and 8th generation production lines at S-LCD, a joint venture located in Korea with Samsung. In the fiscal year ended March 31, 2010, Sony established SDP, a joint venture entity with Sharp, to produce and sell large-sized LCD panels and modules, utilizing the new LCD panel production plant using the 10th generation glass substrate. Sony obtains its supply of LCD panels and modules from SDP. Based on the joint venture agreement with Sharp, Sony invested 10 billion yen in this joint venture in December, 2009 and plans to make a number of additional capital injections, resulting in a maximum 34 percent ownership by Sony by the end of April, 2011.
 
Sony’s digital imaging business expects price declines in the mature market due to intensified competition. The business will strive to differentiate the performance of its products with key devices such as image sensors and graphic engines, improve product attractiveness through enhanced network connectivity and continuously strengthen cost competitiveness. In addition, it will aim for further expansion of its market share, with an enhanced line-up of digital SLR models and of entry-level priced models for emerging markets.


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Networked Products & Services
 
Sony’s game business intends to expand all game platforms through an enhanced line-up of software. It also intends to introduce PlayStation®Move motion controller and 3D games for PS3. Sony will strive to expand the business by providing content through both packaged software and utilizing PlayStation®Network. Sony will also strive to improve profitability of the entire game business by improving the profitability of PS3 through hardware cost reduction measures, including reducing the size of key semiconductors and the number of components.
 
Sony’s network-related business plans to utilize the PlayStation®Network platform and expand