6-K 1 sony-6k_1115.htm Unassociated Document
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of November 2010
Commission File Number: 001-06439
SONY CORPORATION
(Translation of registrant’s name into English)
7-1, KONAN 1-CHOME, MINATO-KU, TOKYO 108-0075, JAPAN
(Address of principal executive offices)
The registrant files annual reports under cover of Form 20-F.
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F,
Form 20-F þ                    Form 40-F o
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934, Yes  o   No  þ
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):82-                    
 
 
 
 
 

 
 

 
Quarterly Securities Report
For the three months ended September 30, 2010

(TRANSLATION)




Sony Corporation
 
 
 
 

 
 

 

CONTENTS

 
   
  
Page
     
Note for readers of this English translation
Cautionary Statement
 
1
1
       
I
 
2
 
  
2
   
3
   
3
   
3
       
II
 
4
   
4
   
4
   
5
   
5
       
III
 
11
   
11
   
11
       
IV
 
12
   
12
   
16
   
16
       
V
  
17
   
18
   
39

 
 

 

Note for readers of this English translation
On November 12, 2010, Sony Corporation (the “Company” or “Sony Corporation”) filed its Japanese-language Quarterly Securities Report (Shihanki Houkokusho) for the three months ended September 30, 2010 with the Director-General of the Kanto Local Finance Bureau in Japan pursuant to the Financial Instruments and Exchange Act of Japan.  This document is an English translation of the Quarterly Securities Report in its entirety, except for (i) information that had been filed previously with or submitted to the U.S. Securities and Exchange Commission (the “SEC”) in a Form 20-F, Form 6-K or any other form and (ii) a description of differences between generally accepted accounting principles in the U.S. (“U.S. GAAP”) and generally accepted accounting principles in Japan (“J-GAAP”), which are required to be described in the Quarterly Securities Report under the Financial Instruments and Exchange Act of Japan if the Company prepares its financial statements in conformity with accounting principles other than J-GAAP.

Cautionary Statement
Statements made in this translation with respect to the current plans, estimates, strategies and beliefs and other statements of the Company and its consolidated subsidiaries (collectively “Sony”) 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 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, Professional & 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.

 
1

 

   
Yen in millions, Yen per share amounts
 
   
Six months
ended
September 30,
2009
   
Six months
ended
September 30,
2010
   
Three months
ended
September 30,
2009
   
Three months
ended
September 30,
2010
   
Fiscal year
ended
March 31, 2010
 
Sales and operating revenue
    3,261,063       3,394,201       1,661,210       1,733,152       7,213,998  
Operating income (loss)
    (58,292 )     135,667       (32,592 )     68,651       31,772  
Income (loss) before income taxes
    (49,970 )     141,620       (17,026 )     62,709       26,912  
Net income (loss) attributable to Sony Corporation’s stockholders
    (63,401 )     56,883       (26,308 )     31,146       (40,802 )
Total equity
 
   
      3,168,378       3,218,894       3,285,555  
Total assets
 
   
      12,473,822       13,009,766       12,866,114  
Stockholders’ equity per share of common stock (yen)
 
   
      2,872.48       2,871.12       2,955.47  
Net income (loss) attributable to Sony Corporation’s stockholders
per share of common stock, basic (yen)
    (63.18 )     56.68       (26.22 )     31.04       (40.66 )
Net income (loss) attributable to Sony Corporation’s stockholders
per share of common stock, diluted (yen)
    (63.18 )     56.61       (26.22 )     31.00       (40.66 )
Ratio of stockholders’ equity to total assets (%)
 
   
      23.1       22.1       23.1  
Net cash provided by operating activities
    232,432       112,829    
   
      912,907  
Net cash used in investing activities
    (329,949 )     (421,333 )  
   
      (746,004 )
Net cash provided by financing activities
    298,895       17,130    
   
      365,014  
Cash and cash equivalents at end of the period
 
   
      838,485       837,212       1,191,608  
Number of employees
 
   
      172,000       169,600       167,900  
Notes:
1.  
The Company’s consolidated financial statements are prepared in conformity with U.S. GAAP.
2.  
The Company reports equity in net income (loss) of affiliated companies as a component of operating income (loss).
3.  
Consumption taxes are not included in sales and operating revenue.
4.  
Total equity is presented based on U.S. GAAP.
5.  
Stockholders’ equity per share of common stock and Ratio of stockholders’ equity to total assets are calculated by using total equity attributable to the stockholders of the Company.
6.  
The Company prepares consolidated financial statements.  Therefore parent-alone selected financial data is not presented.
7.  
Figures of number of employees less than one hundred are rounded to the nearest unit.


 
2

 

There was no significant change in the business of Sony during the three months ended September 30, 2010.

Sony realigned its reportable segments effective from the first quarter of the fiscal year ending March 31, 2011.  For further information on the realignment, please refer to “V Financial Statements – Notes to Consolidated Financial Statements –8. Business segment information”.

As of September 30, 2010, the Company had 1,302 subsidiaries and 88 affiliated companies, of which 1,270 companies are consolidated subsidiaries (including variable interest entities) of the Company.  The Company has applied the equity accounting method for 80 affiliated companies.

Significant changes in subsidiaries and affiliated companies during the three months ended September 30, 2010 are as follows:

Sony Slovakia, spol. s.r.o. was excluded from the scope of consolidation because it was no longer a subsidiary due to the sale of approximately 90 percent of Sony’s equity interest in this entity.

The following table shows the number of employees as of September 30, 2010. 

Consolidated
    169,600 *
Parent-alone
    16,997  
* Figures less than one hundred are rounded to the nearest unit.

 
3

 

II       State of Business
The products that Sony manufactures and sells are extremely diverse.  Due to the cyclical nature of electronic devices, home game consoles, game software, and music and video software, Sony generally manufactures products based on forecasts.  Because Sony carries out the manufacturing of its products such that it maintains a relatively stable and necessary level of product inventory, its level of production in the Consumer, Professional & Devices (“CPD”) and Networked Products & Services (“NPS”) segments is generally similar to the level of sales in these segments.  Accordingly, the status of production and sales in the CPD and NPS segments is discussed in connection with the operating results of these segments in “(4) Management’s Discussion and Analysis of Financial Condition, Results of Operations and Status of Cash Flows” below.



Note for readers of this English translation:
Aside from the amount of the revised estimate of the restructuring charges for the fiscal year ending March 31, 2011 in the risk factor below, there was no significant change from the information presented in the Risk Factors section of the Annual Report on Form 20-F filed with the SEC on June 28, 2010.  The change is indicated by underline below.  Any forward-looking statement included in the descriptions below is based on the current judgment of management.

URL: The Annual Report on Form 20-F filed with the SEC on June 28, 2010
http://sec.gov/Archives/edgar/data/313838/000095012310061435/k02298e20vf.htm

 
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 restructured assets, has been recorded in the fiscal year ended March 31, 2010.  Sony expects to record approximately 75 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 and other, net and thus initially deteriorate Sony’s operating income (loss) and net income (loss) attributable to Sony’s stockholders.  Sony expects to 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 has 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 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 would outsource a part of the human resources and accounting operation services of Sony and certain of its subsidiaries in Japan starting in 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.
 

 
 
4

 
 
There were no material contracts executed during the three months ended September 30, 2010.
 

Note for readers of this English translation:
The above means that there is no update from the description in the Annual Report on Form 20-F (“Patents and Licenses” in item 4) filed with the SEC on June 28, 2010.

URL: The Annual Report on Form 20-F filed with the SEC on June 28, 2010
http://www.sec.gov/Archives/edgar/data/313838/000095012310061435/k02298e20vf.htm

 
i) Results of Operations
 

Note for readers of this English translation:
Except for information specifically included in this English translation, this document omits certain information set out in the Japanese-language Quarterly Securities Report for the three-month period ended September 30, 2010, since it is the same as described in the press release previously submitted to the SEC.  Please refer to “Consolidated Financial Results for the Second Quarter Ended September 30, 2010” submitted to the SEC on Form 6-K on October 29, 2010.

URL: The press release titled “Consolidated Financial Results for the Second Quarter Ended September 30, 2010”
http://www.sec.gov/Archives/edgar/data/313838/000115752310006301/a6483336.htm

 
Foreign Exchange Fluctuations and Risk Hedging
 

Note for readers of this English translation:
Even though foreign exchange rates fluctuated, there was no significant change in risk hedging policy from the description in the Annual Report on Form 20-F filed with the SEC on June 28, 2010.

URL: The Annual Report on Form 20-F filed with the SEC on June 28, 2010
http://sec.gov/Archives/edgar/data/313838/000095012310061435/k02298e20vf.htm


Status of Cash Flows
The following analysis refers to the status of cash flows during the quarter ended September 30, 2010.

Operating Activities: During the quarter ended September 30, 2010, there was a net cash inflow of 119.7 billion yen from operating activities, a decrease of 55.8 billion yen, or 31.8%, compared to the same quarter of the previous fiscal year (“year-on-year”).

 
 
5

 
 
For all segments excluding the Financial Services segment, there was a net cash inflow of 38.3 billion yen during the current quarter, a decrease of 46.9 billion yen, or 55.1%, year-on-year.  During the current quarter, the major cash inflow factors included an increase in notes and accounts payable, trade, cash contributions from net income, after taking into account depreciation and amortization, as well as a decrease in notes and accounts receivable, trade.  This exceeded cash outflow factors, which included increases in inventories in anticipation of the holiday sales season.  The decrease in notes and accounts receivable, trade was primarily associated with sales of accounts receivables in the current quarter under a program in the U.S. (Please refer to Note 2 “Transfer of financial assets” of the notes to the consolidated financial statements).  Compared with the same quarter of the previous fiscal year, net cash generated decreased.  This was mainly due to an increase in inventories, a smaller increase in notes and accounts payable, trade, as well as increased tax payments.  These outflow factors exceeded inflow factors including a decrease in notes and accounts receivable, trade as well as increased cash contribution from net income (loss), after taking into account depreciation and amortization.

The Financial Services segment had a net cash inflow of 81.0 billion yen, a decrease of 9.2 billion yen, or 10.2%, year-on-year.  During the current quarter, net cash was generated mainly due to an increase in revenue from insurance premiums reflecting a steady increase in policy amount in force at Sony Life Insurance Co., Ltd. (“Sony Life”).  Compared with the same quarter of the previous fiscal year, net cash generated decreased year-on-year mainly due to an increase in marketable securities for trading purpose.

Investing Activities: During the current quarter, Sony used 239.5 billion yen of net cash in investing activities, an increase of 82.5 billion yen, or 52.5%, year-on-year.

For all segments excluding the Financial Services segment, 1.0 billion yen of net cash was used, a decrease of 84.2 billion yen, or 98.9%, year-on-year.  During the current quarter, net cash was used mainly to purchase manufacturing equipment.  This was partially offset by proceeds from the sale of a portion of Sony’s equity interest in the Nitra factory in Slovakia completed during the current quarter.  Compared with the same quarter of the previous fiscal year, net cash used decreased primarily due to the above-mentioned proceeds during the current quarter, as well as a decrease in purchases of manufacturing equipment.

The Financial Services segment used 231.2 billion yen of net cash during the current quarter, an increase of 159.3 billion yen, or 221.7%, year-on-year.  During the current quarter, cash payments for investments and advances, carried out primarily at Sony Life and Sony Bank Inc. (“Sony Bank”) where operations are expanding, exceeded proceeds from the maturities of marketable securities, sales of securities investments and collections of advances.  Compared with the same quarter of the previous fiscal year, an increase in the investments and advances noted above exceeded an increase in proceeds from the maturities of marketable securities, sales of securities investments and collections of advances.  As a result, net cash used within the Financial Services segment increased year-on-year.

In all segments excluding the Financial Services segment, net cash generated by operating and investing activities combined for the current quarter was 37.3 billion yen, compared to net cash used of 0.02 billion yen in the same quarter of the previous fiscal year.

Financing Activities: During the current quarter, there was 9.1 billion yen of net cash outflow in financing activities, compared to 33.6 billion yen of net cash inflow in the same quarter of the previous fiscal year.  For all segments excluding the Financial Services segment, there was 106.1 billion yen of net cash outflow during the current quarter, compared to a net cash inflow of 22.3 billion yen in the same quarter of the previous fiscal year.  This was primarily due to a 104.9 billion yen redemption of domestic straight bonds in the current quarter.  In the Financial Services segment, financing activities generated 90.0 billion yen of net cash, an increase of 78.6 billion yen, or 684.1%, year-on-year, mainly due to an increase in deposits from customers at Sony Bank compared to the same quarter of the previous fiscal year.
 
 
 
6

 

 
Total Cash and Cash Equivalents: Accounting for the above factors and the effect of fluctuations in foreign exchange rates, the total outstanding balance of cash and cash equivalents as of September 30, 2010 was 837.2 billion yen.  The outstanding balance of cash and cash equivalents of all segments excluding the Financial Services segment was 683.8 billion yen, a decrease of 97.2 billion yen, or 12.4%, compared with the balance as of June 30, 2010.  This is an increase of 18.2 billion yen, or 2.7%, compared with the balance as of September 30, 2009.  Sony believes it continues to maintain sufficient liquidity through access to a total, translated into yen, of approximately 757.5 billion yen of unused committed lines of credit with financial institutions in addition to the cash and cash equivalents balance at September 30, 2010.  Within the Financial Services segment, the outstanding balance of cash and cash equivalents was 153.4 billion yen, a decrease of 60.2 billion yen, or 28.2%, compared with the balance as of June 30, 2010.  This is a decrease of 19.5 billion yen, or 11.3%, compared with the balance as of September 30, 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 Condensed Statements of Cash Flows provided below.  This information and the separate condensed presentations below are not required or prepared in accordance with U.S. GAAP.  The Financial Services segment’s cash flow is excluded from the measure because Sony Financial Holdings, Inc., 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 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, 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:

 
Yen in billions
 
 
Three months ended September 30
 
 
2009
 
2010
 
Net cash provided by operating activities reported in the
consolidated statements of cash flows
   ¥ 175.5      ¥ 119.7  
Net cash used in investing activities reported in the consolidated
statements of cash flows
    (157.1 )     (239.5 )
      18.4       (119.8 )
                 
Less: Net cash provided by operating activities within the
Financial Services segment
    90.2       81.0  
Less: Net cash used in investing activities within the Financial
Services segment
    (71.9 )     (231.2 )
Eliminations **
    (0.1 )     6.9  
                 
Cash flow provided by (used in) operating and investing activities
combined excluding the Financial Services segment’s activities
   ¥ (0.0 )    ¥ 37.3  

**  Eliminations primarily consist of intersegment loans and dividend payments.  Intersegment loans are between Sony Corporation and Sony Financial International Inc., an entity included within the Financial Services segment.

 
 
7

 
 
Information on Cash Flow Separating Out the Financial Services Segment (Unaudited)

The following charts show Sony’s unaudited cash flow information for all segments (consolidated), all segments excluding the Financial Services segment and for the Financial Services segment alone.  These separate condensed presentations are not required under U.S. GAAP, which Sony uses in its consolidated financial statements.  However, because the Financial Services segment is different in nature from Sony’s other segments, Sony utilizes this information to analyze the 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 segments excluding the Financial Services segment are eliminated in the consolidated figures shown below.

Condensed Statements of Cash Flows  (Unaudited)
     
   
Yen in millions
 
Financial Services
 
Three months ended September 30
 
   
2010
 
Net cash provided by operating activities
   ¥ 81,014  
Net cash used in investing activities
    (231,221 )
Net cash provided by financing activities
    90,036  
Net increase (decrease) in cash and cash equivalents
    (60,171 )
Cash and cash equivalents at beginning of the quarter
    213,535  
Cash and cash equivalents at the end of the quarter
   ¥ 153,364  
         
   
Yen in millions
 
Sony without Financial Services
 
Three months ended September 30
 
      2010  
Net cash provided by operating activities
   ¥ 38,273  
Net cash used in investing activities
    (965 )
Net cash used in financing activities
    (106,072 )
Effect of exchange rate changes on cash and cash equivalents
    (28,480 )
Net increase (decrease) in cash and cash equivalents
    (97,244 )
Cash and cash equivalents at beginning of the quarter
    781,092  
Cash and cash equivalents at the end of the quarter
   ¥ 683,848  
         
   
Yen in millions
 
Consolidated
 
Three months ended September 30
 
      2010  
Net cash provided by operating activities
   ¥ 119,677  
Net cash used in investing activities
    (239,542 )
Net cash used in financing activities
    (9,070 )
Effect of exchange rate changes on cash and cash equivalents
    (28,480 )
Net increase (decrease) in cash and cash equivalents
    (157,415 )
Cash and cash equivalents at beginning of the quarter
    994,627  
Cash and cash equivalents at the end of the quarter
   ¥ 837,212  


 
8

 

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

Note for readers of this English translation:
Excluding the below, there was no significant change from the information presented as the Issues Facing Sony and Management’s Response to those Issues in the Trend Information section of the Annual Report on Form 20-F filed with the SEC on June 28, 2010, or such information presented in the Quarterly Securities Report for the three months ended June 30, 2010 on Form 6-K filed with the SEC on August 11, 2010.  The change during the current quarter is indicated by underline below.  Any forward-looking statement included in the descriptions below is based on the current judgment of management.
 
URL: The Annual Report on Form 20-F filed with the SEC on June 28, 2010
http://sec.gov/Archives/edgar/data/313838/000095012310061435/k02298e20vf.htm

 
Sony expects to record restructuring charges of approximately 75 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.

• 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 were reduced from 57 sites in December 2008 to 46 sites as of March 31, 2010.  Sony continues to review 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 manufactures LCD televisions for the European region), the termination of production at Sony Hungária Kft., Godollo TEC, and the transfer to Ficosa International, S.A. and COMSA EMTE SL of Sony Espana S.A.’s Barcelona Technology Center (which manufactures LCD televisions for the European region).

Sony realigned its reportable segments from the first quarter of the fiscal year ending March 31, 2011, to reflect modifications to the organizational structure as of April 1, 2010, primarily repositioning the operations of the previously reported B2B & Disc Manufacturing segment.  In connection with this realignment, the Consumer Products & Devices segment was renamed the Consumer, Professional & Devices (“CPD”) segment.  The CPD segment includes televisions, digital imaging, audio and video, semiconductors and components as well as professional solutions (the B2B business which was previously included in the B2B & Disc Manufacturing segment).  The equity results of S-LCD Corporation, a joint venture with Samsung Electronics Co., Ltd., are also included within the CPD segment.  The disc manufacturing business previously included in the B2B & Disc Manufacturing segment is now included in All Other.

The NPS, Pictures, Music and Financial Services segments remain unchanged.  The equity earnings from Sony Ericsson Mobile Communications AB continue to be presented as a separate segment.

Despite the realignment of Sony’s reportable segments mentioned above, there has been no change in either the issues management believes each business continues to face or how each business is addressing those issues.


 
9

 

iii) Research and Development
 

Note for readers of this English translation:
Excluding the below, there was no significant change from the information presented in the Research and Development section of the Annual Report on Form 20-F filed with the SEC on June 28, 2010.

URL: The Annual Report on Form 20-F filed with the SEC on June 28, 2010
http://www.sec.gov/Archives/edgar/data/313838/000095012310061435/k02298e20vf.htm

 
Research and development costs for the three months ended September 30, 2010 decreased 2.2 billion yen, or 2.0%, to 106.9 billion yen, compared with the same quarter of the previous fiscal year.  The ratio of research and development costs to sales (which excludes financial services segment revenue) decreased from 7.5% to 7.1%.  Expenses in the CPD segment increased 2.1 billion yen, or 2.9%, to 76.2 billion yen and expenses in the NPS segment decreased 3.9 billion yen, or 15.4%, to 21.2 billion yen.  In the CPD segment, approximately 72% of expenses were for the development of new product prototypes while the remaining 28% was spent on the development of mid- to long-term new technologies in areas such as next-generation displays, semiconductors, new materials and software.

iv) Liquidity and Capital Resources
 

Note for readers of this English translation:
Aside from the description of a total amount, translated into yen, in committed lines of credit below, there was no significant change from the information presented in the Annual Report on Form 20-F filed with the SEC on June 28, 2010.  The changes are indicated by underline below.  Any forward-looking statement included in the descriptions below is based on the current judgment of management.

URL: The Annual Report on Form 20-F filed with the SEC on June 28, 2010
http://sec.gov/Archives/edgar/data/313838/000095012310061435/k02298e20vf.htm

Sony typically raises funds through straight bonds, CP programs and bank loans (including syndicated loans); however, in the unlikely event Sony cannot access liquidity from these sources, Sony could also draw on committed lines of credit from various financial institutions.  Sony has a total, translated into yen, of 757.5 billion yen in committed lines of credit, none of which had been used as of September 30, 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, a 1.5 billion U.S. dollar multi-currency committed line of credit also with a syndicate of Japanese banks, effective until December 2013, and a 1.87 billion U.S. dollar multi-currency committed line of credit contracted with a syndicate of global banks, effective until April 2012, in all of which Sony Corporation and Sony Global Treasury Services Plc are defined as the borrowers.  These contracts are aimed at securing sufficient liquidity even in the event of financial and capital markets turmoil like that seen in the period following September 2008.

 
10

 

Sony Slovakia, spol. s.r.o. was no longer Sony’s subsidiary due to the sale of a portion of Sony’s equity interest in this entity during the three months ended September 30, 2010.  As a result, Sony no longer owned the following property, plant and equipment.

       
Book Value (Yen in millions)
   
Number
of
employees
 
Name
 
Name of
Segment
Principal
products
produced
 
Land
(Approximate
floor space
(square feet))
   
Buildings
   
Machinery
and
equipment
   
Total
     
Sony Slovakia, spol. s.r.o.
Consumer,
Professional
& Devices
LCD televisions and TV components
   
1,153
(665,000)
      9,400       9,401       19,955       2,300  
Notes:
1.  Consumption taxes are not included in the above amounts.
2.  Construction in progress is included in the “Machinery and equipment”.
3.  Figures of number of employees less than one hundred are rounded to the nearest unit.

During the three months ended September 30, 2010, there was no significant change in the purchase and retirement of property, plant and equipment from the plan at June 30, 2010. During the three months ended September 30, 2010, there was no significant new firm plan for the purchase and retirement of major property, plant and equipment.


 
11

 

IV           Company Information
i) Total Number of Shares
1) Total Number of Shares
Class
 
Total number of shares authorized to be issued
 
Common stock
   3,600,000,000  
Total
   3,600,000,000  

2) Number of Shares Issued
 
Number of shares issued
Name of Securities Exchanges
where the shares are listed or
authorized Financial
Instruments Firms Association
where the shares are registered
Description
Class
As of the end of the
second quarterly
period
(September 30, 2010)
As of the filing date of
the Quarterly
Securities Report
(November 12, 2010)
Common
stock
1,004,584,264 1,004,584,864
Tokyo Stock Exchange
Osaka Securities Exchange
New York Stock Exchange
London Stock Exchange
The number of
shares constituting
one full unit is one
hundred (100).
Total
1,004,584,264 1,004,584,864
Notes:
1.
The Company’s shares of common stock are listed on the First Sections of the Tokyo Stock Exchange and the Osaka Securities Exchange in Japan.
2.
The number of shares issued as of the filing date of this Quarterly Securities Report does not include shares issued upon the exercise of stock acquisition rights (“SARs”) (including the conversion of convertible bonds issued under the former Commercial Code of Japan) during November 2010, the month in which this Quarterly Securities Report (Shihanki Houkokusho) was filed.

ii) Stock Acquisition Rights


Note for readers of this English translation:
The Japanese-language Quarterly Securities Report includes a summary of the main terms and conditions of the SARs and convertible bonds listed below.  A summary of such terms and conditions has previously been filed with or submitted to the SEC under Form 20-F, Form 6-K or Form S-8.  There has been no change to such terms and conditions since the applicable date of such filings or submissions, except a revision of the total outstanding number of SARs issued and number of outstanding shares to be issued or transferred and outstanding balance of convertible bonds, as provided in the schedule below.

URL: The list of documents previously submitted by the Company
http://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000313838&owner=include&count=40


 
 
12

 

Stock acquisition rights (Outstanding as of September 30, 2010)
Name
(Date of shareholders’ resolution)
 
Total outstanding
number of
SARs issued
   
Number of shares of
common stock to be issued
or transferred
 
The first series of Common Stock Acquisition Rights
(June 20, 2002)
    9,878       987,800  
The third series of Common Stock Acquisition Rights
(June 20, 2002)
    9,282       928,200  
The fourth series of Common Stock Acquisition Rights
(June 20, 2003)
    8,145       814,500  
The sixth series of Common Stock Acquisition Rights
(June 20, 2003)
    8,941       894,100  
The seventh series of Common Stock Acquisition Rights
(June 22, 2004)
    9,540       954,000  
The ninth series of Common Stock Acquisition Rights
(June 22, 2004)
    8,085       808,500  
The tenth series of Common Stock Acquisition Rights
(June 22, 2005)
    10,093       1,009,300  
The eleventh series of Common Stock Acquisition Rights
(June 22, 2005)
    10,437       1,043,700  
The twelfth series of Common Stock Acquisition Rights
(June 22, 2006)
    10,579       1,057,900  
The thirteenth series of Common Stock Acquisition Rights
(June 22, 2006)
    13,734       1,373,400  
The fourteenth series of Common Stock Acquisition Rights
(June 21, 2007)
    7,962       796,200  
The fifteenth series of Common Stock Acquisition Rights
(June 21, 2007)
    15,844       1,584,400  
The sixteenth series of Common Stock Acquisition Rights
(June 20, 2008)
    8,318       831,800  
The seventeenth series of Common Stock Acquisition Rights
(June 20, 2008)
    16,608       1,660,800  
The eighteenth series of Common Stock Acquisition Rights
(June 19, 2009)
    7,905       790,500  
The nineteenth series of Common Stock Acquisition Rights
(June 19, 2009)
    15,283       1,528,300  

Convertible bonds (Outstanding as of September 30, 2010)
Name (Date of issuance)
 
Outstanding balance
(Thousands of U.S. dollars)
 
2011 due U.S. Dollar denominated convertible bonds (April 16, 2001)
    41,945  
2012 due U.S. Dollar denominated convertible bonds (April 15, 2002)
    28,893  

iii) Status of the Exercise of Moving Strike Convertible Bonds
Not applicable.

 
 
13

 
 
iv) Description of Rights Plan
Not applicable.

v) Changes in the Total Number of Shares Issued and the Amount of Common Stock, etc.
   
Change in the
total number of
shares issued
   
Balance of the
total number of
shares issued
   
Change in
the amount of
common stock
   
Balance of
the amount of
common stock
   
Change in the
additional
paid-in capital
   
Balance of the
additional paid-in
capital
 
Period
 
(Thousands)
   
(Thousands)
   
(Yen in Millions)
   
(Yen in Millions)
   
(Yen in Millions)
   
(Yen in Millions)
 
From July 1 to September 30, 2010
    1       1,004,584       1       630,842       1       837,530  
Notes:
1.       The increase is due to the exercise of SARs.
2.
Upon the exercise of SARs during the period from October 1, 2010 to October 31, 2010, the total number of shares issued increased by 600 shares, the amount of common stock increased by 864 thousand yen and the additional paid-in capital increased by 864 thousand yen.

vi) Status of Major Shareholders
(As of September 30, 2010)            
Name
Address
 
Number of
shares held
(Thousands)
   
Number of
shares held as
a percentage
of total shares
issued (%)
 
Moxley and Company *1
(Local Custodian: The Bank of Tokyo-Mitsubishi UFJ, Ltd.)
New York, U.S.A.
(2-7-1, Marunouchi, Chiyoda-ku,
Tokyo)
    87,871       8.75  
Japan Trustee Services Bank, Ltd. (Trust account) *2
1-8-11, Harumi, Chuo-ku, Tokyo
    62,181       6.19  
The Master Trust Bank of Japan, Ltd.
(Trust account) *2
2-11-3, Hamamatsu-cho, Minato-ku,
Tokyo
    44,742       4.45  
State Street Bank and Trust Company *3
(Local Custodian: The Hongkong and Shanghai
Banking Corporation Limited)
Boston, U.S.A.
(3-11-1, Nihonbashi, Chuo-ku,
Tokyo)
    20,795       2.07  
JPMorgan Chase Bank 380055 *3
(Local Custodian: Mizuho Corporate Bank, Ltd.)
New York, U.S.A.
(4-16-13, Tsukishima, Chuo-ku,
Tokyo)
    17,018       1.69  
SSBT OD05 Omnibus Account - Treaty Clients *3
(Local Custodian: The Hongkong and Shanghai
Banking Corporation Limited)
Sydney, Australia
(3-11-1, Nihonbashi, Chuo-ku,
Tokyo)
    16,124       1.61  
Japan Trustee Services Bank, Ltd.
(Trust account 9) *2
1-8-11, Harumi, Chuo-ku, Tokyo
    13,642       1.36  
 
 
 
14

 
 
 
Mellon Bank, N.A. as Agent for its Client Mellon
Omnibus US Pension *3
(Local Custodian: Mizuho Corporate Bank, Ltd.)
Boston, U.S.A.
(4-16-13, Tsukishima, Chuo-ku,
Tokyo)
    10,869       1.08  
The Chase Manhattan Bank, N.A. London Secs Lending Omnibus Account *3
(Local Custodian: Mizuho Corporate Bank, Ltd.)
London, U.K.
(4-16-13, Tsukishima, Chuo-ku,
Tokyo)
    10,554       1.05  
State Street Bank and Trust Company 505225 *3
(Local Custodian: Mizuho Corporate Bank, Ltd.)
Boston, U.S.A.
(4-16-13, Tsukishima, Chuo-ku,
Tokyo)
    10,135       1.01  
Total
    293,932       29.26  
 
Notes:
*1.
Moxley and Company is the nominee of JPMorgan Chase Bank, N.A., which is the Depositary for holders of the Company’s American Depositary Receipts (“ADRs”).
*2.
The shares held by each shareholder are held in trust for investors, including shares in securities investment trusts.
*3.
Each shareholder provides depositary services for shares owned by institutional investors, mainly in Europe and North America.  They are also the nominees for these investors.
4.
Dodge & Cox sent a copy of the “Amendment to the Bulk Shareholding Report” (which was filed with the Director-General of the Kanto Local Finance Bureau in Japan as of August 6, 2009) to the Company and reported that they held shares of the Company (including ADRs) as of July 31, 2009 as provided in the table below.  The Company has not been able to confirm any entry of Dodge & Cox in the register of shareholders as of September 30, 2010.
Name
 
Number of shares held
(Thousands)
   
Number of shares held as a percentage of total
shares issued (%)
 
Dodge & Cox
    51,320       5.11  

vii) Status of Voting Rights
 
1) Shares Issued
(As of September 30, 2010)           
Classification
 
Number of shares of
common stock
   
Number of voting rights
(Units)
   
Description
 
Shares without voting rights
                 
Shares with restricted voting rights
(Treasury stock, etc.)
                 
Shares with restricted voting rights
(Others)
                 
Shares with full voting rights
(Treasury stock, etc.)
    1,029,100              
Shares with full voting rights
(Others)
    1,000,903,100       10,009,031        
Fractional unit shares
    2,652,064          
Shares less than
one full unit of stock
(100 shares)
 
Total number of shares issued
    1,004,584,264              
Total voting rights held by all shareholders
          10,009,031        
 
 
 
 
Note:  Included in “Shares with full voting rights (Others)” under “Number of shares of common stock” are 19,700 shares of common stock held under the name of Japan Securities Depository Center, Incorporated.  Also included in “Shares with full voting rights (Others)” under “Number of voting rights (Units)” are 197 units of voting rights relating to the shares of common stock with full voting rights held under the name of Japan Securities Depository Center, Incorporated.
 
 
 
15

 

 
2) Treasury Stock, Etc.
 
(As of September 30, 2010)
Name of shareholder
Address of shareholder
Number of
shares held
under own name
Number of
shares held
under the
names of
others
Total
number of
shares held
Total of
shares held
to total
shares
issued
(%)
Sony Corporation
(Treasury stock)
1-7-1, Konan, Minato-ku, Tokyo
 1,029,100    1,029,100  0.10
Total
   1,029,100    1,029,100  0.10
 
 
Note:  In addition to the 1,029,100 shares listed here, there are 300 shares of common stock held in the name of the Company in the register of shareholders that the Company does not beneficially own.  These shares are included in “Shares with full voting rights (Others)” in table 1 “Shares Issued” above.

Highest and lowest prices during the six months ended September 30, 2010
Month of 2010
April
May
June
  July
August
September
Highest (Yen)
 3,620  3,225  2,810  2,745 2,803 2,694
Lowest (Yen)
 3,230  2,691  2,350  2,258 2,353 2,338
 
Note:  As quoted on the First Section of the Tokyo Stock Exchange.

There was no change in directors or corporate executive officers in the period from the filing date of the Securities Report (Yukashoken Houkokusho) for the fiscal year ended March 31, 2010 to the filing date of this Quarterly Securities Report (Shihanki Houkokusho).


 
16

 

V           Financial Statements
   
Page
 
    18  
(i)
Consolidated Balance Sheets
    18  
(ii)
Consolidated Statements of Income
    20  
(iii)
Consolidated Statements of Cash Flows
    22  
(2) Other Information
    39  

 
 

 
17

 

(1) Consolidated Financial Statements

 (i)  Consolidated Balance Sheets (Unaudited)

Sony Corporation and Consolidated Subsidiaries
             
   
Yen in millions
 
   
At September 30,
2010
   
At March 31, 
2010
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
    837,212       1,191,608  
Marketable securities
    659,052       579,493  
Notes and accounts receivable, trade
    886,716       996,100  
Allowance for doubtful accounts and sales returns
    (76,688 )     (104,475 )
Inventories
    917,284       645,455  
Deferred income taxes
    220,954       197,598  
Prepaid expenses and other current assets
    781,026       627,093  
     Total current assets
    4,225,556       4,132,872  
                 
Film costs
    282,990       310,065  
                 
Investments and advances:
               
Affiliated companies
    223,402       229,051  
Securities investments and other
    5,372,086       5,070,342  
      5,595,488       5,299,393  
                 
Property, plant and equipment:
               
Land
    151,511       153,067  
Buildings
    847,439       897,054  
Machinery and equipment
    2,057,117       2,235,032  
Construction in progress
    69,358       71,242  
      3,125,425       3,356,395  
Less – Accumulated depreciation
    2,194,100       2,348,444  
      931,325       1,007,951  
                 
Other assets:
               
Intangibles, net
    351,067       378,917  
Goodwill
    418,593       438,869  
Deferred insurance acquisition costs
    420,608       418,525  
Deferred income taxes
    349,428       403,537  
Other
    434,711       475,985  
      1,974,407       2,115,833  
                 
Total assets
    13,009,766       12,866,114  
(Continued on following page.)

 
18

 

Consolidated Balance Sheets (Unaudited)


             
   
Yen in millions
 
   
At September 30, 
2010
   
At March 31, 
2010
 
LIABILITIES
           
Current liabilities:
           
Short-term borrowings
    68,392       48,785  
Current portion of long-term debt
    181,810       235,822  
Notes and accounts payable, trade
    976,154       817,118  
Accounts payable, other and accrued expenses
    964,934       1,003,197  
Accrued income and other taxes
    79,708       69,175  
Deposits from customers in the banking business
    1,583,975       1,509,488  
Other
    359,128       376,340  
     Total current liabilities
    4,214,101       4,059,925  
                 
Long-term debt
    835,662       924,207  
Accrued pension and severance costs
    277,630       295,526  
Deferred income taxes
    242,343       236,521  
Future insurance policy benefits and other
    4,033,714       3,876,292  
Other
    187,422       188,088  
Total liabilities
    9,790,872       9,580,559  
Commitments and contingent liabilities
               
                 
EQUITY
Sony Corporation’s stockholders’ equity:
Common stock, no par value –
At September 30, 2010–Shares authorized: 3,600,000,000, shares issued: 1,004,584,264
At March 31, 2010–Shares authorized: 3,600,000,000, shares issued: 1,004,571,464
   
 
 
 
    630,843
            630,822  
Additional paid-in capital
    1,158,701       1,157,812  
Retained earnings
    1,895,242       1,851,004  
Accumulated other comprehensive income –
               
   Unrealized gains on securities, net
    65,233       62,337  
 Unrealized losses on derivative instruments, net
    (2,002 )     (36 )
   Pension liability adjustment
    (145,484 )     (148,989 )
   Foreign currency translation adjustments
    (716,597 )     (582,370 )
      (798,850 )     (669,058 )
Treasury stock, at cost
               
Common stock
At September 30, 2010–1,029,100 shares
At March 31, 2010–1,039,656 shares
–1,013,287 shares
   
 
(4,606
 
)
    (4,675 )
      2,881,330       2,965,905  
Noncontrolling interests
    337,564       319,650  
Total equity
    3,218,894       3,285,555  
                 
Total liabilities and equity
    13,009,766       12,866,114  

The accompanying notes are an integral part of these statements.

.

 
19

 

Sony Corporation and Consolidated Subsidiaries
   
Yen in millions
 
   
Six months ended September 30
 
   
2009
   
2010
 
Sales and operating revenue:
           
Net sales
    2,797,682       2,967,907  
Financial service revenue
    422,658       386,074  
Other operating revenue
    40,723       40,220  
      3,261,063       3,394,201  
Costs and expenses:
               
Cost of sales
    2,196,244       2,236,918  
Selling, general and administrative
    748,305       723,165  
Financial service expenses
    340,068       311,851  
(Gain) loss on sale, disposal or impairment of assets and other, net
    7,333       (1,667 )
      3,291,950       3,270,267  
Equity in net income (loss) of affiliated companies
    (27,405 )     11,733  
Operating income (loss)
    (58,292 )     135,667  
Other income:
               
Interest and dividends
    8,081       5,680  
Foreign exchange gain, net
    6,635       17,731  
Other
    12,882       5,884  
      27,598       29,295  
Other expenses:
               
Interest
    12,166       11,962  
Loss on devaluation of securities investments
    1,135       6,683  
Other
    5,975       4,697  
      19,276       23,342  
Income (loss) before income taxes
    (49,970 )     141,620  
Income taxes
    (13,887 )     64,419  
Net income (loss)
    (36,083 )     77,201  
Less - Net income attributable to noncontrolling interests
    27,318       20,318  
Net income (loss) attributable to Sony Corporation's stockholders
    (63,401 )     56,883  


   
Yen
 
   
Six months ended September 30
 
   
2009
   
2010
 
Per share data:
          -  
Net income (loss) attributable to Sony Corporation's stockholders
             
Basic
    (63.18 )     56.68  
Diluted
    (63.18 )     56.61  

The accompanying notes are an integral part of these statements.

 
20

 

Consolidated Statements of Income (Unaudited)

Sony Corporation and Consolidated Subsidiaries

   
Yen in millions
 
   
Three months ended September 30
 
   
2009
   
2010
 
Sales and operating revenue:
           
Net sales
    1,442,917       1,494,434  
Financial service revenue
    199,306       219,476  
Other operating revenue
    18,987       19,242  
      1,661,210       1,733,152  
Costs and expenses:
               
Cost of sales
    1,134,820       1,127,627  
Selling, general and administrative
    370,268       363,395  
Financial service expenses
    165,365       175,751  
(Gain) loss on sale, disposal or impairment of assets and other, net
    11,002       2,797  
      1,681,455       1,669,570  
Equity in net income (loss) of affiliated companies
    (12,347 )     5,069  
Operating income (loss)
    (32,592 )     68,651  
Other income:
               
Interest and dividends
    3,661       2,467  
Foreign exchange gain, net
    11,603       3,800  
Other
    8,903       2,970  
      24,167       9,237  
Other expenses:
               
Interest
    6,133       5,860  
Loss on devaluation of securities investments
    115       6,682  
Other
    2,353       2,637  
      8,601       15,179  
Income (loss) before income taxes
    (17,026 )     62,709  
Income taxes
    (1,699 )     20,746  
Net income (loss)
    (15,327 )     41,963  
Less - Net income attributable to noncontrolling interests
    10,981       10,817  
Net income (loss) attributable to Sony Corporation's stockholders
    (26,308 )     31,146  


   
Yen
 
   
Three months ended September 30
 
   
2009
   
2010
 
Per share data:
          -  
Net income (loss) attributable to Sony Corporation's stockholders
             
Basic
    (26.22 )     31.04  
Diluted
    (26.22 )     31.00  

The accompanying notes are an integral part of these statements.

 
 
21

 

 (iii)  Consolidated Statements of Cash Flows (Unaudited)

Sony Corporation and Consolidated Subsidiaries
   
Yen in millions
 
   
Six months ended September 30
 
   
2009
   
2010
 
Cash flows from operating activities:
           
 Net income (loss)
    (36,083 )     77,201  
 Adjustments to reconcile net income (loss) to net cash
               
provided by operating activities –
               
Depreciation and amortization, including amortization
     of deferred insurance acquisition costs
    181,026       167,675  
Amortization of film costs
    118,839       106,755  
  Stock-based compensation expense
    1,154       970  
    Accrual for pension and severance costs, less payments
    (19,391 )     (9,274 )
    (Gain) loss on sale, disposal or impairment of assets and other, net
    7,333       (1,667 )
    Loss on devaluation of securities investments
    1,135       6,683  
(Gain) loss on revaluation of marketable securities held in the
financial service business for trading purpose, net
    (30,272 )     22,361  
(Gain) loss on revaluation or impairment of securities investments
held in the financial service business, net
    (46,240 )     2,917  
    Deferred income taxes
    (34,136 )     (5,794 )
Equity in net (income) losses of affiliated companies, net of dividends
    28,667       (11,721 )
    Changes in assets and liabilities:
               
     (Increase) decrease in notes and accounts receivable, trade
    (39,292 )     31,848  
     Increase in inventories
    (82,506 )     (333,527 )
     Increase in film costs
    (151,215 )     (110,586 )
     Increase in notes and accounts payable, trade
    243,325       165,059  
     Increase in accrued income and other taxes
    50,234       7,793  
     Increase in future insurance policy benefits and other
    150,871       115,758  
     Increase in deferred insurance acquisition costs
    (34,495 )     (33,775 )
     Increase in marketable securities held in the
financial service business for trading purpose
    (7,703 )     (13,559 )
     Increase in other current assets
    (114,862 )     (193,314 )
     Increase (decrease) in other current liabilities
    (23,953 )     35,373  
    Other
    69,996       85,653  
          Net cash provided by operating activities
    232,432       112,829  

(Continued on following page.)

 
22

 

Consolidated Statements of Cash Flows (Unaudited)


             
   
Yen in millions
 
   
Six months ended September 30
 
   
2009
   
2010
 
Cash flows from investing activities:
           
 Payments for purchases of fixed assets
    (189,711 )     (130,919 )
 Proceeds from sales of fixed assets
    5,836       6,950  
Payments for investments and advances by financial service business
    (680,984 )     (974,501 )
Payments for investments and advances (other than financial service business)
    (16,024 )     (14,977 )
Proceeds from maturities of marketable securities, sales of securities
investments and collections of advances by financial service business
    537,775       638,339  
Proceeds from maturities of marketable securities, sales of
securities investments and collections of advances
(other than financial service business)
    10,004       5,187  
Proceeds from sales of businesses
    5,628       46,067  
Other
    (2,473 )     2,521  
          Net cash used in investing activities
    (329,949 )     (421,333 )
Cash flows from financing activities:
               
 Proceeds from issuance of long-term debt
    509,096       796  
 Payments of long-term debt
    (89,913 )     (113,208 )
 Increase (decrease) in short-term borrowings, net
    (171,194 )     21,119  
Increase in deposits from customers in the financial service business, net
    52,744       125,987  
Increase in call money and bills sold in the banking business, net
    14,100       -  
 Dividends paid
    (12,483 )     (12,498 )
 Other
    (3,455 )     (5,066 )
          Net cash provided by financing activities
    298,895       17,130  
Effect of exchange rate changes on cash and cash equivalents
    (23,682 )     (63,022 )
Net increase (decrease) in cash and cash equivalents
    177,696       (354,396 )
Cash and cash equivalents at beginning of the fiscal year
    660,789       1,191,608  
Cash and cash equivalents at end of the period
    838,485       837,212  
                 
The accompanying notes are an integral part of these statements.



 
23

 

Index to Notes to Consolidated Financial Statements

Sony Corporation and Consolidated Subsidiaries

 
Notes to Consolidated Financial Statements
 
Page
 
1.   
Summary of significant accounting policies
    25  
2.   
Transfer of financial assets
    26  
3.   
Marketable securities and securities investments
    27  
4.   
Fair value measurements
    28  
5.   
Supplemental equity and comprehensive income information
    29  
6.   
Reconciliation of the differences between basic and diluted EPS
    30  
7.   
Commitments and contingent liabilities
    31  
8.   
Business segment information
    32  
           


 

 
24

 

Notes to Consolidated Financial Statements (Unaudited)
Sony Corporation and Consolidated Subsidiaries

 
1. Summary of significant accounting policies
 
Sony Corporation and its subsidiaries in Japan maintain their records and prepare their financial statements in accordance with accounting principles generally accepted in Japan while its foreign subsidiaries maintain their records and prepare their financial statements in conformity with accounting principles generally accepted in the countries of their domiciles.  Certain adjustments and reclassifications have been incorporated in the accompanying consolidated financial statements to conform with accounting principles generally accepted in the United States of America (“U.S. GAAP”), except for certain disclosures which have been omitted.

(1)  Recently adopted accounting pronouncements:
 
Multiple element arrangements and software deliverables -
 
In October 2009, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance for arrangements with multiple deliverables.  Specifically, the new standard requires an entity to allocate consideration at the inception of an arrangement to all of its deliverables based on their relative selling prices.  In the absence of the vendor-specific objective evidence or third-party evidence of the selling prices, consideration must be allocated to the deliverables based on management’s best estimate of the selling prices.  In addition, the guidance eliminates the use of the residual method of allocation.  Also in October 2009, the FASB issued accounting guidance which changes revenue recognition for tangible products containing software and hardware elements.  Specifically, tangible products containing software and hardware that function together to deliver the tangible products’ essential functionality are scoped out of the existing software revenue recognition guidance and will be accounted for under the revenue recognition guidance for multiple element arrangements.  Sony adopted the new guidance on April 1, 2010.  The adoption of the new guidance did not have a material impact on Sony’s results of operations and financial position.

Transfers of financial assets -
 
In June 2009, the FASB issued new accounting guidance on accounting for transfers of financial assets.  This guidance amends previous guidance by including: the elimination of the qualifying special-purpose entity (“QSPE”) concept; a new participating interest definition that must be met for transfers of portions of financial assets to be eligible for sale accounting; clarifications and changes to the derecognition criteria for a transfer to be accounted for as a sale; and a change to the amount of recognized gain or loss on a transfer of financial assets accounted for as a sale when beneficial interests are received by the transferor.  Additionally, the guidance requires new disclosures regarding an entity's involvement in a transfer of financial assets.  Finally, existing QSPEs must be evaluated for consolidation in accordance with the applicable consolidation guidance upon the elimination of this concept.  This guidance is effective for Sony as of April 1, 2010.  The adoption of this guidance did not have a material impact on Sony’s results of operations and financial position.

Variable interest entities -
 
In June 2009, the FASB issued new accounting guidance for determining whether to consolidate a variable interest entity (“VIE”).  This guidance changes the approach for determining the primary beneficiary of a VIE from a quantitative risk and reward model to a qualitative model based on control, and requires an ongoing reassessment of whether an entity is the primary beneficiary.  This guidance is effective for Sony as of April 1, 2010.  The adoption of this guidance did not have a material impact on Sony’s results of operations and financial position.

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

Income Taxes -
 
Sony estimates the annual effective tax rate (“ETR”) derived from a projected annual net income before taxes and calculates interim period income tax provision based on the year-to-date income tax provision computed by applying the ETR to the year-to-date net income before taxes at the end of each interim period.  The income tax provision based on the ETR reflects anticipated income tax credits and net operating loss carryforwards; however, it excludes income tax provision related to significant unusual or extraordinary transactions.  Such income tax provision will be separately reported from the provision based on the ETR in the interim period in which they occur.
 
 
 
25

 

(3)  
Reclassifications:
 
Certain reclassifications of the financial statements for the six months or three months ended September 30, 2009 have been made to conform to the presentation for the interim period ended September 30, 2010.

2. Transfer of financial assets 

During the fiscal year ended March 31, 2010, Sony established an accounts receivable sales program in the United States. Through this program, a special purpose entity, which has been consolidated by a U.S. subsidiary, could 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 were accounted for as a sale in accordance with the accounting guidance for transfers and servicing of financial assets and extinguishments of liabilities, because Sony had relinquished control of the receivables.

During the three months ended September 30, 2010, Sony amended the accounts receivable sales program in the United States, with the transactions continuing to qualify as sales under the new accounting guidance on accounting for transfers of financial assets.  The amended program requires that a portion of the sales proceeds be held back and deferred until collection of the related receivables.  The portion of the sales proceeds held back and deferred is initially recorded at estimated fair value and included in other current assets.  Sony includes collections on such receivables as cash flows within operating activities in the consolidated statements of cash flows since such receivables are the result of operating activities and the associated interest rate risk is insignificant due to its short-term nature.  During the three months ended September 30, 2010, total trade accounts receivables sold under the program were 71,247 million yen (855 million U.S. dollars), of which 37,115 million yen (443 million U.S. dollars) was held back and deferred and remained in other current assets at September 30, 2010.


 
26

 
 

3. Marketable securities and securities investments 

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

   
Yen in millions
 
   
September 30, 2010
   
March 31, 2010
 
   
Cost
   
Gross
unrealized
gains
   
Gross
unrealized
losses
   
Fair value
   
Cost
   
Gross
unrealized
gains
   
Gross
unrealized
losses
   
Fair value
 
                                                 
Available-for-sale:
                                               
Debt securities:
                                               
Japanese national
government bonds
    1,060,320       55,309       (2,107 )     1,113,522       1,264,725       29,496       (3,397 )     1,290,824  
                                                                 
Japanese local
government bonds
    23,627       287       (1 )     23,913       27,750       1,097       (5 )     28,842  
                                                                 
Japanese corporate
bonds
    348,456       2,677       (27 )     351,106       360,554       3,773       (106 )     364,221  
                                                                 
Foreign corporate bonds
    310,121       3,897       (11,586 )     302,432       281,003       4,818       (6,492 )     279,329  
                                                                 
Other
    6,313       203       -       6,516       11,141       83       (123 )     11,101  
      1,748,837       62,373       (13,721 )     1,797,489       1,945,173       39,267       (10,123 )     1,974,317  
                                                                 
Equity securities
    98,827       66,408       (3,855 )     161,380       99,753       74,430       (3,437 )     170,746  
                                                                 
Held-to-maturity
                                                               
securities:
                                                               
Japanese national
  government bonds
    2,799,070       215,865       (290 )     3,014,645       2,248,230       3,318       (30,740 )     2,220,808  
                                                                 
  Japanese local
  government bonds
    23,161       424       -       23,585       23,617       346       -       23,963  
                                                                 
Japanese corporate bonds
    32,785       2,033       -       34,818       32,041       150       (321 )     31,870  
                                                                 
Foreign corporate bonds
    49,226       17       -       49,243       50,831       18       (7 )     50,842  
 
    2,904,242       218,339       (290 )     3,122,291       2,354,719       3,832       (31,068 )     2,327,483  
 
                                                               
Total
    4,751,906       347,120       (17,866 )     5,081,160       4,399,645       117,529       (44,628 )     4,472,546  




 
27

 

4. Fair value measurements

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

   
Yen in millions
 
   
At September 30, 2010
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
                         
Assets:
                       
Trading securities
    172,707       172,604       -       345,311  
Available-for-sale securities
                               
   Debt securities
                               
     Japanese national government bonds
    -       1,113,522       -       1,113,522  
     Japanese local government bonds
    -       23,913       -       23,913  
     Japanese corporate bonds
    -       346,970       4,136       351,106  
     Foreign corporate bonds
    -       282,741       19,691       302,432  
     Other
    -       6,516       -       6,516  
   Equity securities
    152,816       4,630       3,934       161,380  
Other investments
    4,915       51       68,979       73,945  
Derivative assets *
    -       25,297       -       25,297  
Total assets
    330,438       1,976,244       96,740       2,403,422  
Liabilities:
                               
Derivative liabilities *
    -       45,584       -       45,584  
Total liabilities
    -       45,584       -       45,584  

   
Yen in millions
 
   
At March 31, 2010
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
                         
Assets:
                       
Trading securities
    180,414       172,939       -       353,353  
Available-for-sale securities
                               
   Debt securities
                               
     Japanese national government bonds
    -       1,290,824       -       1,290,824  
     Japanese local government bonds
    -       28,842       -       28,842  
     Japanese corporate bonds
    4,937       358,187       1,097       364,221  
     Foreign corporate bonds
    -       261,896       17,433       279,329  
     Other
    365       10,736       -       11,101  
   Equity securities
    160,128       6,682       3,936       170,746  
Other investments
    5,377       38       69,672       75,087  
Derivative assets *
    -       23,796       -       23,796  
Total assets
    351,221       2,153,940       92,138       2,597,299  
Liabilities:
                               
Derivative liabilities *
    -       48,599       -       48,599  
Total liabilities
    -       48,599       -       48,599  

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




 
28

 

5. Supplemental equity and comprehensive income information
 
A reconciliation of the beginning and ending carrying amounts of Sony Corporation’s stockholders’ equity, noncontrolling interests and the total equity for the six months ended September 30, 2009 is as follows:

         
Yen in millions
       
   
Sony Corporation’s
stockholders’ equity
   
Noncontrolling
interests
   
Total equity
 
Balance at March 31, 2009
    2,964,653       2251,949       3,216,602  
Stock-based compensation
    1,134       -       1,134  
Comprehensive income:
                       
Net income (loss)
    (63,401 )     27,318       (36,083 )
Other comprehensive income, net of tax ―
                       
Unrealized gains on securities
    21,788       10,382       32,170  
Unrealized gains on derivative instruments
    568       -       568  
Pension liability adjustment
    1,262       -       1,262  
Foreign currency translation adjustments
    (31,144 )     (497 )     (31,641 )
Total comprehensive income
    (70,927 )     37,203       (33,724 )
Dividends
    (12,544 )     (4,546 )     (17,090 )
Purchase of treasury stock
    (52 )     -       (52 )
Reissuance of treasury stock
    45       -       45  
Transactions with noncontrolling interests
shareholders and other
    291       1,172       1,463  
Balance at September 30, 2009
    2,882,600       285,778