6-K 1 sony-6k_0214.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 February 2011
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 December 31, 2010

(TRANSLATION)




Sony Corporation
 
 
 
 
 
 
 
 

 
CONTENTS
 
 
   
  
Page
 
Note for readers of this English translation
Cautionary Statement
 
1
1
 
       
I
Corporate Information
 
2
 
(1)     Selected Consolidated Financial Data
  
2
 
(2)     Business Overview
 
3
 
(3)     Changes in Subsidiaries and Affiliated Companies
 
3
 
(4)     Number of Employees
 
3
       
II
State of Business
 
4
 
(1)     Manufacturing, Orders Received and Sales
 
4
 
(2)     Risk Factors
 
4
 
(3)     Material Contracts
 
5
 
(4)     Management’s Discussion and Analysis of Financial Condition, Results of Operations and
Status of Cash Flows
 
5
       
III
Property, Plant and Equipment
 
12
 
(1)   Major Property, Plant and Equipment
 
12
 
(2)   Plans for the Purchase and Retirement of Major Property, Plant and Equipment
 
12
       
IV
Company Information
 
13
 
(1)     Information on the Company’s Shares
 
13
 
(2)     Stock Price Range
 
18
 
(3)     Directors and Corporate Executive Officers
 
18
       
V
Financial Statements
  
19
 
(1)   Consolidated Financial Statements
 
20
 
(2)   Other Information
 
41
 
 
 
 

 
 
 
 
 
Note for readers of this English translation
On February 14, 2011, Sony Corporation (the “Company” or “Sony Corporation”) filed its Japanese-language Quarterly Securities Report (Shihanki Houkokusho) for the three months ended December 31, 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 -

 
 
I    Corporate Information
(1)    Selected Consolidated Financial Data
   
Yen in millions, Yen per share amounts
 
   
Nine months ended December 31, 2009
   
Nine months ended December 31, 2010
   
Three months ended December 31, 2009
   
Three months ended December 31, 2010
   
Fiscal year ended March 31, 2010
 
Sales and operating revenue
    5,498,928       5,600,447       2,237,865       2,206,246       7,213,998  
Operating income
    87,811       273,189       146,103       137,522       31,772  
Income before income taxes
    73,895       273,155       123,865       131,535       26,912  
Net income (loss) attributable to Sony Corporation’s stockholders
    15,766       129,217       79,167       72,334       (40,802 )
Total equity
 
   
      3,307,610       3,266,792       3,285,555  
Total assets
 
   
      12,821,850       13,086,208       12,866,114  
Stockholders’ equity per share of common stock (yen)
 
   
      2,994.64       2,909.99       2,955.47  
Net income (loss) attributable to Sony Corporation’s stockholders per share of common stock, basic (yen)
    15.71       128.76       78.89       72.08       (40.66 )
Net income (loss) attributable to Sony Corporation’s stockholders per share of common stock, diluted (yen)
    15.69       128.58       78.76       71.96       (40.66 )
Ratio of stockholders’ equity to total assets (%)
 
   
      23.4       22.3       23.1  
Net cash provided by operating activities
    542,318       403,911    
   
      912,907  
Net cash used in investing activities
    (538,740 )     (582,405 )  
   
      (746,004 )
Net cash provided by (used in) financing activities
    350,276       (10,263 )  
   
      365,014  
Cash and cash equivalents at end of the period
 
   
      1,004,785       919,765       1,191,608  
Number of employees
 
   
      170,200       169,900       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.
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 -

 
 
(2) Business Overview
There was no significant change in the business of Sony during the three months ended December 31, 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 December 31, 2010, the Company had 1,297 subsidiaries and 92 affiliated companies, of which 1,266 companies are consolidated subsidiaries (including variable interest entities) of the Company.  The Company has applied the equity accounting method for 84 affiliated companies.

(3) Changes in Subsidiaries and Affiliated Companies
Significant changes in subsidiaries and affiliated companies during the three months ended December 31, 2010 are as follows:

As of October 1, 2010, Sony Benelux B.V. and Sony Europe (Belgium) N.V., both consolidated subsidiaries of Sony Corporation, were merged into Sony Europe Limited, the corporate name of which had been changed from Sony United Kingdom Limited as of April 1, 2010.

(4) Number of Employees
The following table shows the number of employees as of December 31, 2010. 

Consolidated
169,900*
Parent-alone
16,953
* Figures less than one hundred are rounded to the nearest unit.
 
 
 
- 3 -

 
 
II                      State of Business
 
(1) Manufacturing, Orders Received and Sales
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.

 
(2) Risk Factors
 
 
 
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 Securities and Exchange Commission (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, was recorded in the fiscal year ended March 31, 2010.  Sony expects to record approximately 70 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
 
 
 
- 4 -

 
 
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.

(3) Material Contracts
There were no material contracts executed during the three months ended December 31, 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
 
 
 
 
(4) Management’s Discussion and Analysis of Financial Condition, Results of Operations and Status of Cash Flows

 
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 December 31, 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 Third Quarter Ended December 31, 2010” submitted to the SEC on Form 6-K on February 3, 2011.

URL: The press release titled “Consolidated Financial Results for the Third Quarter Ended December 31, 2010”
http://www.sec.gov/Archives/edgar/data/313838/000115752311000573/a6593418.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
 
 
 
 
- 5 -

 

Status of Cash Flows

The following analysis refers to the status of cash flows during the quarter ended December 31, 2010.

Operating Activities: During the quarter ended December 31, 2010, there was a net cash inflow of 291.1 billion yen from operating activities, a decrease of 18.8 billion yen, or 6.1%, compared to the same quarter of the previous fiscal year (“year-on-year”).

For all segments excluding the Financial Services segment, there was a net cash inflow of 202.7 billion yen during the current quarter, a decrease of 31.4 billion yen, or 13.4%, year-on-year.  During the current quarter, the major cash inflow factors included a decrease in inventories, cash contributions from net income, after taking into account depreciation and amortization, and a decrease in receivables, included in other current assets, from third-party original equipment and design manufacturers, as well as increases in accrued expenses and accrued income and other taxes.  This exceeded cash outflow factors, which included an increase in notes and accounts receivable, trade.  Compared with the same quarter of the previous fiscal year, net cash generated decreased.  This was mainly due to a smaller decrease in inventories and a lower cash contribution from net income (loss), after taking into account depreciation and amortization, partially offset by a smaller increase in notes and accounts receivable, trade.

The Financial Services segment had a net cash inflow of 91.5 billion yen, an increase of 16.0 billion yen, or 21.2%, year-on-year.  During the current quarter, net cash was generated mainly due to an increase in revenue from insurance premiums reflecting an 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 increased year-on-year, mainly due to a larger increase in other current liabilities and a smaller decrease in other current assets, partially offset by the change of marketable securities for trading purpose from a decrease to an increase.

Investing Activities: During the current quarter, Sony used 161.1 billion yen of net cash in investing activities, a decrease of 47.7 billion yen, or 22.9%, year-on-year.

For all segments excluding the Financial Services segment, 53.7 billion yen of net cash was used, a decrease of 32.2 billion yen, or 37.5%, year-on-year.  During the current quarter, net cash was used mainly to purchase manufacturing equipment. Compared with the same quarter of the previous fiscal year, net cash used decreased primarily due to the change of investments and advances from payments to proceeds and a decrease in purchases of manufacturing equipment.

The Financial Services segment used 121.8 billion yen of net cash during the current quarter, an increase of 6.1 billion yen, or 5.3%, 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.  The net cash outflow was partially offset by proceeds from the deconsolidation of a lease and rental business at Sony Finance International, Inc. (“SFI”). Compared with the same quarter of the previous fiscal year, lower proceeds from the maturities of marketable securities, sales of securities investments and collections of advances exceeded lower payments to investments and advances noted above.  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 149.1 billion yen, an increase of 0.8 billion yen or 0.5%, compared with the same quarter of the previous fiscal year.

Financing Activities: During the current quarter, there was 27.4 billion yen of net cash outflow in financing activities, compared to 51.4 billion yen of net cash inflow in the same quarter of the previous fiscal year.  For all segments
 
 
 
- 6 -

 
 
excluding the Financial Services segment, there was 39.0 billion yen of net cash outflow during the current quarter, a decrease of 45.8 billion yen, or 54.0%, year-on-year.  This was mainly due to a 52.0 billion yen repayment of syndicated loans, partially offset by an increase in short-term borrowing in the current quarter.  In the Financial Services segment, financing activities generated 22.9 billion yen of net cash, a decrease of 106.3 billion yen, or 82.3%, year-on-year, mainly due to a smaller increase in deposits from customers at Sony Bank.

Total Cash and Cash Equivalents: Accounting for the above factors and the effect of fluctuations in foreign exchange rates, the total outstanding balance of cash and cash equivalents as of December 31, 2010 was 919.8 billion yen.  The outstanding balance of cash and cash equivalents of all segments excluding the Financial Services segment was 773.9 billion yen, an increase of 90.0 billion yen, or 13.2%, compared with the balance as of September 30, 2010.  This is an increase of 30.9 billion yen, or 4.2%, compared with the balance as of December 31, 2009.  Sony believes it continues to maintain sufficient liquidity through access to a total, translated into yen, of approximately 749.6 billion yen of unused committed lines of credit with financial institutions in addition to the cash and cash equivalents balance at December 31, 2010.  Within the Financial Services segment, the outstanding balance of cash and cash equivalents was 145.9 billion yen, a decrease of 7.5 billion yen, or 4.9%, compared with the balance as of September 30, 2010.  This is a decrease of 115.9 billion yen, or 44.3%, compared with the balance as of December 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 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 noncontrolling 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, and together with Sony’s disclosures regarding investments, available credit facilities and overall liquidity.

 
 
- 7 -

 
 
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:


 
(Billions of yen)
 
 
Three months ended December 31
 
 
2009
 
2010
 
             
Net cash provided by operating activities reported in the consolidated statements of cash flows
   ¥ 309.9      ¥ 291.1  
Net cash used in investing activities reported in the consolidated statements of cash flows
    (208.8 )     (161.1 )
      101.1       130.0  
                 
Less: Net cash provided by operating activities within the Financial Services segment
    75.5       91.5  
Less: Net cash used in investing activities within the Financial Services segment
    (115.7 )     (121.8 )
Eliminations **
    (7.0 )     11.2  
                 
Cash flow provided by operating and investing activities combined excluding the Financial Services segment’s activities
   ¥ 148.3      ¥ 149.1  

**  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.

 
 
- 8 -

 
 
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
         
 
(Millions of yen)
Financial Services
Three months ended December 31
 
2010
       
Net cash provided by operating activities
 
   ¥ 91,470  
Net cash used in investing activities
      (121,816 )
Net cash provided by financing activities
      22,882  
Net increase (decrease) in cash and cash equivalents
      (7,464 )
Cash and cash equivalents at beginning of the quarter
      153,364  
Cash and cash equivalents at the end of the quarter
 
   ¥ 145,900  
       
 
(Millions of yen)
Sony without Financial Services
Three months ended December 31
   2010
       
Net cash provided by operating activities
 
   ¥ 202,723  
Net cash used in investing activities
      (53,651 )
Net cash used in financing activities
      (38,991 )
Effect of exchange rate changes on cash and cash equivalents
      (20,064 )
Net increase in cash and cash equivalents
 
    90,017  
Cash and cash equivalents at beginning of the quarter
      683,848  
Cash and cash equivalents at the end of the quarter
 
   ¥ 773,865  
       
 
(Millions of yen)
Consolidated
Three months ended December 31
   2010
         
Net cash provided by operating activities
 
   ¥ 291,082  
Net cash used in investing activities
      (161,072 )
Net cash used in financing activities
      (27,393 )
Effect of exchange rate changes on cash and cash equivalents
      (20,064 )
Net increase in cash and cash equivalents
      82,553  
Cash and cash equivalents at beginning of the quarter
      837,212  
Cash and cash equivalents at the end of the quarter
 
   ¥ 919,765  



 
- 9 -

 
 
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 submitted to the SEC on August 11, 2010 and the Quarterly Securities Report for the three months ended September 30, 2010 on Form 6-K submitted to the SEC on November 12, 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 70 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 that 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.
 
 
 
- 10 -

 
 
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 or such information presented in the Quarterly Securities Report for the three months ended June 30, 2010 on Form 6-K submitted to the SEC on August 11, 2010 and the Quarterly Securities Report for the three months ended September 30, 2010 on Form 6-K submitted to the SEC on November 12, 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 December 31, 2010 decreased 0.7 billion yen, or 0.6%, to 106.1 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) remained 5.3%.  Expenses in the CPD segment increased 1 billion yen, or 1.4%, to 72.6 billion yen and expenses in the NPS segment decreased 2.6 billion yen, or 9.8%, to 23.6 billion yen.  In the CPD segment, approximately 73% of expenses were for the development of new product prototypes while the remaining 27% 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:
 
Excluding that 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 749.6 billion yen in committed lines of credit, none of which had been used as of December 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 2013; 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.  In October 2010, Sony extended by one year the term for the 475 billion yen committed line of credit contracted with a syndicate of Japanese banks.  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.
 
 
 
- 11 -

 

III     Property, Plant and Equipment
 
(1)  Major Property, Plant and Equipment
There was no significant change during the three months ended December 31, 2010.

(2)  Plans for the Purchase and Retirement of Major Property, Plant and Equipment
During the three months ended December 31, 2010, there was no significant change in the purchase and retirement of property, plant and equipment from the plan at September 30, 2010.  During the three months ended December 31, 2010, Sony decided to invest approximately 100 billion yen in Sony Semiconductor Kyushu Corporation’s Nagasaki Technology Center in the fiscal year ending March 31, 2012, to increase the production capacity for CMOS image sensors.
 
 
 
- 12 -

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

2)  Number of Shares Issued
Class
Number of shares issued
Name of Securities Exchanges where the shares are listed or authorized Financial Instruments Firms Association where the shares are registered
Description
As of the end of the
third quarterly period
(December 31, 2010)
As of the filing date of
the Quarterly
Securities Report
(February 14, 2011)
Common
stock
1,004,614,564
1,004,622,864
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
1,004,614,564
1,004,622,864
 
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 February 2011, 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 the outstanding balance of convertible bonds, as provided in the schedules below.
URL: The list of documents previously filed or submitted by the Company
http://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000313838&owner=include&count=40
 
 
 

 
- 13 -

 
 
 
Stock acquisition rights (Outstanding as of December 31, 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)
    10,409       1,040,900  
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)
    16,395       1,639,500  
The eighteenth series of Common Stock Acquisition Rights
(June 19, 2009)
    7,881       788,100  
The nineteenth series of Common Stock Acquisition Rights
(June 19, 2009)
    15,245       1,524,500  
The twentieth series of Common Stock Acquisition Rights
(June 18, 2010)
    8,026       802,600  
The twenty-first series of Common Stock Acquisition Rights
(June 18, 2010)
    15,320       1,532,000  
 

 
 
- 14 -

 
Convertible bonds (Outstanding as of December 31, 2010)
Name (Date of issuance)
 
Outstanding balance
(U.S. dollars in Thousands)
 
U.S. Dollar denominated convertible bonds due 2011 (April 16, 2001)
    41,810  
U.S. Dollar denominated convertible bonds due 2012 (April 15, 2002)
    28,731  

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

iv) Description of Rights Plan
Not applicable.

v) Changes in the Total Number of Shares Issued and the Amount of Common Stock, etc.
Period
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
(Thousands)
(Thousands)
(Yen in Millions)
(Yen in Millions)
(Yen in Millions)
(Yen in Millions)
From October 1 to December 31, 2010
30
1,004,615
45
630,888
45
837,575
 
Notes:
1.       The increase is due to the exercise of SARs.
2.
Upon the exercise of SARs during the period from January 1, 2011 to January 31, 2011, the total number of shares issued increased by 8,000 shares, the amount of common stock and the additional paid-in capital increased by 12 million yen, respectively.

 
 
 
- 15 -

 
 
vi) Status of Major Shareholders
(As of December 31, 2010)
Name
Address
 
Number of
shares held
(Thousands)
   
Percentage
of shares held to 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)
    84,641       8.43  
Japan Trustee Services Bank, Ltd. (Trust account) *2
1-8-11, Harumi, Chuo-ku, Tokyo
    64,739       6.44  
The Master Trust Bank of Japan, Ltd.
(Trust account) *2
2-11-3, Hamamatsu-cho, Minato-ku,
Tokyo
    46,792       4.66  
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)
    20,812       2.07  
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)
    17,976       1.79  
JPMorgan Chase Bank 380055 *3
(Local Custodian: Mizuho Corporate Bank, Ltd.)
New York, U.S.A.
(4-16-13, Tsukishima, Chuo-ku,
Tokyo)
    17,155       1.71  
Japan Trustee Services Bank, Ltd.
(Trust account 9) *2
1-8-11, Harumi, Chuo-ku, Tokyo
    13,992       1.39  
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)
    11,264       1.12  
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)
    10,858       1.08  
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)
    9,622       0.96  
Total
    297,852       29.65  
 
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 December 31, 2010.
 
 
 
 
- 16 -

 

 
Name
Number of shares held
(Thousands)
Percentage of shares held to total shares issued
(%)
Dodge & Cox
51,320
5.11

vii) Status of Voting Rights
1) Shares Issued
(As of December 31, 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.)
    1,043,700              
Shares with full voting rights
(Others)
    1,000,973,100       10,009,731        
Shares constituting less than one full unit
    2,597,764          
Shares constituting less than
one full unit
(100 shares)
 
Total number of shares issued
    1,004,614,564              
Total voting rights held by all shareholders
          10,009,731        
 
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.
 
2) Treasury Stock, Etc.
 
(As of December 31, 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
   
Percentage of shares held to total shares issued
(%)
 
Sony Corporation
(Treasury stock)
 
1-7-1, Konan, Minato-ku, Tokyo
      1,043,700             1,043,700       0.10  
Total
          1,043,700             1,043,700       0.10  
 
Note:
In addition to the 1,043,700 shares listed above, there are 300 shares of common stock held in the name of the Company in the register of shareholders that the Company does not beneficially own.  These shares are included in “Shares with full voting rights (Others)” in table 1 “Shares Issued” above.

 
 
- 17 -

 

 
(2)      Stock Price Range
 
Highest and lowest prices during the nine months ended December 31, 2010
 
Month of 2010
 
April
   
May
   
June
   
July
   
August
   
September
   
October
   
November
   
December
 
Highest (Yen)
    3,620       3,225       2,810       2,745       2,803       2,694       2,804       2,993       3,090  
Lowest (Yen)
    3,230       2,691       2,350       2,258       2,353       2,338       2,520       2,606       2,910  
Note:  As quoted on the First Section of the Tokyo Stock Exchange.

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

 
 
- 18 -

 
 
V           Financial Statements
 
Page
(1) Consolidated Financial Statements
20
 
(i)
Consolidated Balance Sheets
20
 
(ii)
Consolidated Statements of Income
22
 
(iii)
Consolidated Statements of Cash Flows
24
(2) Other Information
41

 
 
 
- 19 -

 
 
(1) Consolidated Financial Statements

 (i)  Consolidated Balance Sheets (Unaudited)

Sony Corporation and Consolidated Subsidiaries
 
             
   
Yen in millions
 
   
At December 31, 2010
   
At March 31, 2010
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
    919,765       1,191,608  
Marketable securities
    647,268       579,493  
Notes and accounts receivable, trade
    1,142,307       996,100  
Allowance for doubtful accounts and sales returns
    (99,404 )     (104,475 )
Inventories
    731,860       645,455  
Deferred income taxes
    231,594       197,598  
Prepaid expenses and other current assets
    662,172       627,093  
     Total current assets
    4,235,562       4,132,872  
                 
Film costs
    276,461       310,065  
                 
Investments and advances:
               
Affiliated companies
    222,047       229,051  
Securities investments and other
    5,505,515       5,070,342  
      5,727,562       5,299,393  
                 
Property, plant and equipment:
               
Land
    145,907       153,067  
Buildings
    824,997       897,054  
Machinery and equipment
    2,013,192       2,235,032  
Construction in progress
    74,997       71,242  
      3,059,093       3,356,395  
Less – Accumulated depreciation
    2,148,831       2,348,444  
      910,262       1,007,951  
                 
Other assets:
               
Intangibles, net
    343,930       378,917  
Goodwill
    413,885       438,869  
Deferred insurance acquisition costs
    425,162       418,525  
Deferred income taxes
    332,131       403,537  
Other
    421,253       475,985  
      1,936,361       2,115,833  
                 
Total assets
    13,086,208       12,866,114  
(Continued on following page.)
 
 
 
- 20 -

 
 
Consolidated Balance Sheets (Unaudited)

 
             
   
Yen in millions
 
   
At December 31, 2010
   
At March 31, 2010
 
LIABILITIES
           
Current liabilities:
           
Short-term borrowings
    74,964       48,785  
Current portion of long-term debt
    137,495       235,822  
Notes and accounts payable, trade
    884,564       817,118  
Accounts payable, other and accrued expenses
    996,397       1,003,197  
Accrued income and other taxes
    105,902       69,175  
Deposits from customers in the banking business
    1,608,837       1,509,488  
Other
    384,275       376,340  
     Total current liabilities
    4,192,434       4,059,925  
                 
Long-term debt
    819,332       924,207  
Accrued pension and severance costs
    265,265       295,526  
Deferred income taxes
    239,804       236,521  
Future insurance policy benefits and other
    4,118,705       3,876,292  
Other
    183,876       188,088  
Total liabilities
    9,819,416       9,580,559  
Commitments and contingent liabilities
               
                 
EQUITY
Sony Corporation’s stockholders’ equity:
Common stock, no par value –
At December 31, 2010–Shares authorized: 3,600,000,000, shares issued: 1,004,614,564
At March 31, 2010–Shares authorized: 3,600,000,000, shares issued: 1,004,571,464
   
 
 
 
    630,888
            630,822  
Additional paid-in capital
    1,159,269       1,157,812  
Retained earnings
    1,967,670       1,851,004  
Accumulated other comprehensive income –
               
   Unrealized gains on securities, net
    61,044       62,337  
 Unrealized losses on derivative instruments, net
    (368 )     (36 )
   Pension liability adjustment
    (140,687 )     (148,989 )
   Foreign currency translation adjustments
    (752,792 )     (582,370 )
      (832,803 )     (669,058 )
Treasury stock, at cost
               
Common stock
At December 31, 2010–1,043,795 shares
    (4,648 )        
At March 31, 2010–1,039,656 shares             (4,675  )
      2,920,376       2,965,905  
Noncontrolling interests
    346,416       319,650  
Total equity
    3,266,792       3,285,555  
                 
Total liabilities and equity
    13,086,208       12,866,114  

The accompanying notes are an integral part of these statements.
 
 
 
- 21 -

 
 
(ii)  Consolidated Statements of Income (Unaudited)

Sony Corporation and Consolidated Subsidiaries
   
Yen in millions
 
   
Nine months ended December 31
 
   
2009
   
2010
 
Sales and operating revenue:
           
Net sales
    4,811,827       4,948,628  
Financial service revenue
    625,238       593,104  
Other operating revenue
    61,863       58,715  
      5,498,928       5,600,447  
Costs and expenses:
               
Cost of sales
    3,707,085       3,729,306  
Selling, general and administrative
    1,150,745       1,126,212  
Financial service expenses
    507,269       485,631  
(Gain) loss on sale, disposal or impairment of assets and other, net
    12,686       432  
      5,377,785       5,341,581  
Equity in net income (loss) of affiliated companies
    (33,332 )     14,323  
Operating income
    87,811       273,189  
Other income:
               
Interest and dividends
    10,141       8,265  
Foreign exchange gain, net
 
      12,203  
Other
    18,544       9,488  
      28,685       29,956  
Other expenses:
               
Interest
    17,883       16,518  
Loss on devaluation of securities investments
    1,140       7,059  
Foreign exchange loss, net
    13,312    
 
Other
    10,266       6,413  
      42,601       29,990  
Income before income taxes
    73,895       273,155  
Income taxes
    19,357       112,009  
Net income
    54,538       161,146  
Less - Net income attributable to noncontrolling interests
    38,772       31,929  
Net income attributable to Sony Corporation's stockholders
    15,766       129,217  


   
Yen
 
   
Nine months ended December 31
 
   
2009
   
2010
 
Per share data:
          -  
Net income attributable to Sony Corporation's stockholders
             
Basic
    15.71       128.76  
Diluted
    15.69       128.58  

The accompanying notes are an integral part of these statements.
 
 
 
- 22 -

 
 
Consolidated Statements of Income (Unaudited)

Sony Corporation and Consolidated Subsidiaries

   
Yen in millions
 
   
Three months ended December 31
 
   
2009
   
2010
 
Sales and operating revenue:
           
Net sales
    2,014,145       1,980,721  
Financial service revenue
    202,580       207,030  
Other operating revenue
    21,140       18,495  
      2,237,865       2,206,246  
Costs and expenses:
               
Cost of sales
    1,510,841       1,492,388  
Selling, general and administrative
    402,440       403,047  
Financial service expenses
    167,201       173,780  
(Gain) loss on sale, disposal or impairment of assets and other, net
    5,353       2,099  
      2,085,835       2,071,314  
Equity in net income (loss) of affiliated companies
    (5,927 )     2,590  
Operating income
    146,103       137,522  
Other income:
               
Interest and dividends
    2,060       2,585  
Gain on sale of securities investments, net
    2,271       888  
Other
    3,391       2,716  
      7,722       6,189  
Other expenses:
               
Interest
    5,717       4,556  
Foreign exchange loss, net
    19,947       5,528  
Other
    4,296       2,092  
      29,960       12,176  
Income before income taxes
    123,865       131,535  
Income taxes
    33,244       47,590  
Net income
    90,621       83,945  
Less - Net income attributable to noncontrolling interests
    11,454       11,611  
Net income attributable to Sony Corporation's stockholders
    79,167       72,334  


 
Yen
 
Three months ended December 31
 
2009
2010
Per share data:
 
 
Net income attributable to Sony Corporation's stockholders
   
Basic
78.89
72.08
Diluted
78.76
71.96

The accompanying notes are an integral part of these statements.
 
 
 
- 23 -

 
 
 (iii)  Consolidated Statements of Cash Flows (Unaudited)

Sony Corporation and Consolidated Subsidiaries
   
Yen in millions
 
   
Nine months ended December 31
 
   
2009
   
2010
 
Cash flows from operating activities:
           
 Net income
    54,538       161,146  
 Adjustments to reconcile net income to net cash
               
provided by operating activities –
               
Depreciation and amortization, including amortization 
of deferred insurance acquisition costs
    276,065       245,637  
Amortization of film costs
    199,534       170,386  
  Stock-based compensation expense
    1,611       1,436  
    Accrual for pension and severance costs, less payments
    (21,526 )     (18,979 )
    (Gain) loss on sale, disposal or impairment of assets and other, net
    12,686       432  
    Loss on devaluation of securities investments
    1,140       7,059  
(Gain) loss on revaluation of marketable securities held in the
financial service business for trading purpose, net
    (40,273 )     15,032  
(Gain) loss on revaluation or impairment of securities investments
held in the financial service business, net
    (53,450 )     2,345  
    Deferred income taxes
    (29,566 )     (5,738 )
Equity in net (income) losses of affiliated companies, net of dividends
    34,958       (13,409 )
    Changes in assets and liabilities:
               
     Increase in notes and accounts receivable, trade
    (330,197 )     (223,114 )
     (Increase) decrease in inventories
    158,058       (161,059 )
     Increase in film costs
    (235,838 )     (175,574 )
     Increase in notes and accounts payable, trade
    181,701       83,727  
     Increase in accrued income and other taxes
    81,993       38,312  
     Increase in future insurance policy benefits and other
    221,764       190,550  
     Increase in deferred insurance acquisition costs
    (51,923 )     (51,898 )
     Increase in marketable securities held in the
financial service business for trading purpose
    (1,999 )     (26,778 )
     Increase in other current assets
    (38,075 )     (96,887 )
     Increase in other current liabilities
    24,109       125,478  
    Other
    97,008       135,807  
          Net cash provided by operating activities
    542,318       403,911  
(Continued on following page.)
 
 
 
- 24 -

 
 
Consolidated Statements of Cash Flows (Unaudited)


             
   
Yen in millions
 
   
Nine months ended December 31
 
   
2009
   
2010
 
Cash flows from investing activities:
           
Payments for purchases of fixed assets
    (278,894 )     (208,803 )
Proceeds from sales of fixed assets
    9,203       12,628  
Payments for investments and advances by financial service business
    (1,103,707 )     (1,201,350 )
Payments for investments and advances (other than financial service business)
    (30,849 )     (14,772 )
Proceeds from maturities of marketable securities, sales of securities
investments and collections of advances by financial service business
    849,609       731,765  
Proceeds from maturities of marketable securities, sales of
securities investments and collections of advances
(other than financial service business)
    13,188       12,259  
Proceeds from sales of businesses
    5,628       86,311  
Other
    (2,918 )     (443 )
          Net cash used in investing activities
    (538,740 )     (582,405 )
Cash flows from financing activities:
               
Proceeds from issuance of long-term debt
    509,874       1,341  
Payments of long-term debt
    (92,383 )     (173,978 )
Increase (decrease) in short-term borrowings, net
    (241,181 )     18,221  
Increase in deposits from customers in the financial service business, net
    182,452       164,601  
Increase in call money and bills sold in the banking business, net
    21,400       10,000  
Dividends paid
    (25,116 )     (25,112 )
Other
    (4,770 )     (5,336 )
          Net cash provided by (used in) financing activities
    350,276       (10,263 )
Effect of exchange rate changes on cash and cash equivalents
    (9,858 )     (83,086 )
Net increase (decrease) in cash and cash equivalents
    343,996       (271,843 )
Cash and cash equivalents at beginning of the fiscal year
    660,789       1,191,608  
Cash and cash equivalents at end of the period
    1,004,785       919,765  
                 
The accompanying notes are an integral part of these statements.

 
 
- 25 -

 

 
Index to Notes to Consolidated Financial Statements

Sony Corporation and Consolidated Subsidiaries

 
Notes to Consolidated Financial Statements
 
Page
 
1.
Summary of significant accounting policies
27
 
2.
Transfer of financial assets
28
 
3.
Marketable securities and securities investments
29
 
4.
Fair value measurements
30
 
5.
Supplemental equity and comprehensive income information
31
 
6.
Reconciliation of the differences between basic and diluted EPS
32
 
7.
Commitments and contingent liabilities
33
 
8.
Business segment information
34


 
- 26 -

 
 
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 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 are 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 the interim period income tax provision based on the year-to-date income tax provision computed by applying the ETR to the year-to-date net income before taxes at the end of each interim period.  The income tax provision based on the ETR reflects anticipated income tax credits and net operating loss carryforwards; however, it excludes the income tax provision related to significant unusual or extraordinary transactions.  Such income tax provision is separately reported from the provision based on the ETR in the interim period in which they occur.
 
 
 
- 27 -

 
 
(3)  Reclassifications:
 
Certain reclassifications of the financial statements for the nine months or three months ended December 31, 2009 have been made to conform to the presentation for the interim period ended December 31, 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 nine months ended December 31, 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.  Total trade accounts receivable sold under the program during the nine months and the three months ended December 31, 2010 were 299,869 million yen (3,673 million U.S. dollars) and 230,084 million yen (2,818 million U.S. dollars), respectively, of which 39,425 million yen (484 million U.S. dollars) was held back and deferred and remained in other current assets at December 31, 2010.


 
- 28 -

 

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
 
   
December 31, 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
    1,099,837       37,358       (3,147 )     1,134,048       1,264,725       29,496       (3,397 )     1,290,824  
                                                                 
Japanese local
government bonds
    23,087       212       (71 )     23,228       27,750       1,097       (5 )     28,842  
                                                                 
Japanese corporate
bonds
    319,554       2,029       (151 )     321,432       360,554       3,773       (106 )     364,221  
                                                                 
Foreign corporate bonds
    325,171       4,213       (12,858 )     316,526       281,003       4,818       (6,492 )     279,329  
                                                                 
Other
    7,801       163       (92 )     7,872       11,141       83       (123 )     11,101  
      1,775,450       43,975       (16,319 )     1,803,106       1,945,173       39,267       (10,123 )     1,974,317  
                                                                 
Equity securities
    98,302       73,337       (1,629 )     170,010       99,753       74,430       (3,437 )     170,746  
                                                                 
Held-to-maturity
                                                               
securities:
                                                               
Japanese national  
government bonds
    2,851,752       114,441       (4,631 )     2,961,562       2,248,230       3,318       (30,740 )     2,220,808  
                                                                 
Japanese local  
government bonds
    22,047       316       -       22,363       23,617       346       -       23,963  
                                                                 
Japanese corporate
bonds
    32,306       1,183       (1 )     33,488       32,041       150       (321 )     31,870  
                                                                 
Foreign corporate bonds
    50,140       13       (4 )     50,149       50,831       18       (7 )     50,842  
 
    2,956,245       115,953       (4,636 )     3,067,562       2,354,719       3,832       (31,068 )     2,327,483  
 
                                                               
Total
    4,829,997       233,265       (22,584 )     5,040,678       4,399,645       117,529       (44,628 )     4,472,546  


 
 
- 29 -

 

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 December 31, 2010
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
                         
Assets:
                       
Trading securities
    182,806       182,787       -       365,593  
Available-for-sale securities
                               
Debt securities
                               
Japanese national government bonds
    -       1,134,048       -       1,134,048  
Japanese local government bonds
    -       23,228       -       23,228  
Japanese corporate bonds
    -       316,804       4,628       321,432  
Foreign corporate bonds
    -       299,063       17,463       316,526  
Other
    -       7,872       -       7,872  
Equity securities
    161,263       4,787       3,960       170,010  
Other investments
    5,067       51       70,264       75,382  
Derivative assets *
    -       29,231       -       29,231  
Total assets
    349,136       1,997,871       96,315       2,443,322  
Liabilities:
                               
Derivative liabilities *
    -       31,523       -       31,523  
Total liabilities
    -       31,523       -       31,523  

   
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