Annual Reports

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  • 20-F (Jun 26, 2014)
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Sony 20-F 2011
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Table of Contents

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
     
o
  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
     
 
or
     
     
þ
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
     
    For the fiscal year ended March 31, 2011
     
 
or
     
     
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the transition period from/to
     
 
or
     
     
o
  SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    Date of event requiring this shell company report:
     
 
Commission file number 1-6439
 
Sony Kabushiki Kaisha
(Exact Name of Registrant as specified in its charter)
 
SONY CORPORATION
(Translation of Registrant’s name into English)
 
Japan
(Jurisdiction of incorporation or organization)
 
7-1, KONAN 1-CHOME, MINATO-KU,
TOKYO 108-0075 JAPAN
(Address of principal executive offices)
 
Samuel Levenson, Senior Vice President, Investor Relations
 
Sony Corporation of America
550 Madison Avenue
New York, NY 10022
(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)
 
 
     
Title of Each Class   Name of Each Exchange on Which Registered
 
American Depositary Shares*
  New York Stock Exchange
Common Stock**
  New York Stock Exchange
 
  American Depositary Shares evidenced by American Depositary Receipts.
Each American Depositary Share represents one share of Common Stock.
 
**  No par value per share.
Not for trading, but only in connection with the listing of American Depositary Shares pursuant to the requirements of the New York Stock Exchange.
 
Securities registered pursuant to Section 12(g) of the Act:
None
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
 
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report:
 
         
    Outstanding as of
    March 31, 2011
  March 31, 2011
Title of Class   (Tokyo Time)   (New York Time)
 
Common Stock
  1,004,636,664    
American Depositary Shares
      82,475,633
 
Indicate by check mark if the registrant is a well-seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ     No o
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.  Yes o     No þ
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ     No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.
 
þ Large accelerated filer o Accelerated filer o Non-accelerated filer
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
US GAAP þ International Financial Reporting Standards as issued by the International Accounting Standards Board o Other o
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 o       Item 18 o
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o       No þ
 


Table of Contents

 
 
Statements made in this annual report with respect to Sony’s current plans, estimates, strategies and beliefs and other statements that are not historical facts are forward-looking statements about the future performance of Sony. Forward-looking statements include, but are not limited to, those statements using words such as “believe,” “expect,” “plans,” “strategy,” “prospects,” “forecast,” “estimate,” “project,” “anticipate,” “aim,” “intend,” “seek,” “may,” “might,” “could” or “should,” and words of similar meaning in connection with a discussion of future operations, financial performance, events or conditions. From time to time, oral or written forward-looking statements may also be included in other materials released to the public. These statements are based on management’s assumptions and beliefs in light of the information currently available to it. Sony cautions you that a number of important risks and uncertainties could cause actual results to differ materially from those discussed in the forward-looking statements, and therefore you should not place undue reliance on them. You also should not rely on any obligation of Sony to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Sony disclaims any such obligation. Risks and uncertainties that might affect Sony include, but are not limited to (i) the global economic environment in which Sony operates and the economic conditions in Sony’s markets, particularly levels of consumer spending; (ii) exchange rates, particularly between the yen and the U.S. dollar, the euro and other currencies in which Sony makes significant sales and incurs production costs, or in which Sony’s assets and liabilities are denominated; (iii) Sony’s ability to continue to design and develop and win acceptance of, as well as achieve sufficient cost reductions for, its products and services, including LCD televisions and game platforms , which are offered in highly competitive markets characterized by continual new product and service introductions, rapid development in technology and subjective and changing consumer preferences; (iv) Sony’s ability and timing to recoup large-scale investments required for technology development and 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; (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; and (xiv) risks related to catastrophic disasters or similar events, including the Great East Japan Earthquake and its aftermath. Risks and uncertainties also include the impact of any future events with material adverse impacts.
 
Important information regarding risks and uncertainties is also set forth elsewhere in this annual report, including in “Risk Factors” included in “Item 3. Key Information,” “Item 4. Information on the Company,” “Item 5. Operating and Financial Review and Prospects,” “Legal Proceedings” included in “Item 8. Financial Information,” Sony’s consolidated financial statements referenced in “Item 8. Financial Information” and “Item 11. Quantitative and Qualitative Disclosures about Market Risk.”
 
In this document, Sony Corporation and its consolidated subsidiaries are together referred to as “Sony.” In addition, sales and operating revenue are referred to as “sales” in the narrative description except in the consolidated financial statements.
 
As of March 31, 2011, Sony Corporation had 1,277 consolidated subsidiaries (including variable interest entities). It has applied the equity accounting method with respect to its 82 affiliated companies.


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Signatures     139  
 EX-12.1 302 Certification
 EX-12.2 302 Certification
 EX-13.1 906 Certification
 EX-15.1(a) Consent of PricewaterhouseCoopers Aarata
 EX-15.1(b) Consent of PricewaterhouseCoopers AB
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT


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Item 1.  Identity of Directors, Senior Management and Advisers
 
Not Applicable
 
Item 2.  Offer Statistics and Expected Timetable
 
Not Applicable
 
Item 3.  Key Information
 
 
                                         
    Fiscal year ended March 31
    2007   2008   2009   2010   2011
        (Yen in millions, Yen per share amounts)    
 
Income statement data:
                                       
Sales and operating revenue
    8,295,695       8,871,414       7,729,993       7,213,998       7,181,273  
Equity in net income (loss) of affiliated companies
    78,654       100,817       (25,109 )     (30,235 )     14,062  
Operating income (loss)
    150,404       475,299       (227,783 )     31,772       199,821  
Income (loss) before income taxes
    180,691       567,134       (174,955 )     26,912       205,013  
Income taxes
    53,888       203,478       (72,741 )     13,958       425,339  
Net income (loss) attributable to Sony Corporation’s stockholders
    126,328       369,435       (98,938 )     (40,802 )     (259,585 )
Data per share of Common Stock:
                                       
Net income (loss) attributable to Sony Corporation’s stockholders*
                                       
— Basic
    126.15       368.33       (98.59 )     (40.66 )     (258.66 )
— Diluted
    120.29       351.10       (98.59 )     (40.66 )     (258.66 )
Cash dividends declared Interim
    12.50       12.50       30.00       12.50       12.50  
      (10.78 cents )     (11.26 cents )     (31.89 cents )     (14.38 cents )     (14.84 cents )
Cash dividends declared Fiscal year-end
    12.50       12.50       12.50       12.50       12.50  
      (10.24 cents )     (11.92 cents )     (13.01 cents )     (13.55 cents )     (15.56 cents )
Depreciation and amortization**
    400,009       428,010       405,443       371,004       325,366  
Capital expenditures (additions to fixed assets)
    414,138       335,726       332,068       192,724       204,862  
Research and development costs
    543,937       520,568       497,297       432,001       426,814  
Balance sheet data:
                                       
Net working capital (deficit)
    994,871       986,296       (190,265 )     72,947       (282,933 )
Long-term debt
    1,001,005       729,059       660,147       924,207       812,235  
Sony Corporation’s stockholders’ equity
    3,370,704       3,465,089       2,964,653       2,965,905       2,547,987  
Common stock
    626,907       630,576       630,765       630,822       630,921  
Total assets
    11,716,362       12,552,739       12,013,511       12,866,114       12,924,988  
Number of shares issued at fiscal year-end (thousands of shares of common stock)
    1,002,897       1,004,443       1,004,535       1,004,571       1,004,637  
Sony Corporation’s stockholders’ equity per share of common stock
    3,363.77       3,453.25       2,954.25       2,955.47       2,538.89  
 
* Refer to Note 22 to the notes to the consolidated financial statements.
 
** Depreciation and amortization includes amortization expenses for intangible assets and deferred insurance acquisition costs.


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    Average*   High   Low   Period-End
    (Yen)
 
Yen Exchange Rates per U.S. dollar:
                               
Fiscal year ended March 31
                               
2007
    116.92       121.81       110.07       117.56  
2008
    114.31       124.09       96.88       99.85  
2009
    100.62       110.48       87.80       99.15  
2010
    92.93       100.71       86.12       93.40  
2011
    85.71       94.68       78.74       82.76  
2011
                               
January
          83.36       81.56       81.97  
February
          83.79       81.48       81.94  
March
          82.98       78.74       82.76  
April
          85.26       81.31       81.31  
May
          82.12       80.12       81.29  
June (through June 17)
          80.98       79.87       80.10  
 
The noon buying rate for yen in New York City as certified for customs purposes by the Federal Reserve Bank of New York on June 17, 2011 was 80.10 yen = 1 U.S. dollar.
 
* The average yen exchange rates represent average noon buying rates of all the business days during the respective year.
 
Capitalization and Indebtedness
 
Not Applicable
 
Reasons for the Offer and Use of Proceeds
 
Not Applicable
 
 
Sony realigned its reportable segments from the first quarter of the fiscal year ended March 31, 2011, to reflect modifications to its 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 (“S-LCD”), 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 Networked Products & Services (“NPS”), Pictures, Music and Financial Services segments remain unchanged. The equity earnings from Sony Ericsson Mobile Communications AB (“Sony Ericsson”) continue to be presented as a separate segment. For further details, please refer to “Item 5. Operating Results.
 
Sony plans to further change its business segment classification to reflect its reorganization as of April 1, 2011. Sony expects to report its operating results in line with new business segments from the first quarter of the fiscal year ending March 31, 2012. Please note that the following Risk Factors section is based on the business segment classification that applies to the fiscal year ended March 31, 2011.
 
This section contains forward-looking statements that are subject to the Cautionary Statement appearing on page 2 of this annual report. Risks to Sony are also discussed elsewhere in this annual report, including without limitation in the other sections of this annual report referred to in the Cautionary Statement.


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The Great East Japan Earthquake and its aftermath may continue to adversely affect Sony’s operating results and financial condition.
 
The earthquake, resulting tsunami and related power outages that struck Eastern Japan on March 11, 2011 (the “Great East Japan Earthquake”) caused widespread devastation to property and infrastructure in affected regions. In addition, the earthquake and tsunami caused massive damage and equipment failure at the Fukushima Dai-ichi Nuclear Power Plant that has resulted in the release of radioactive material (the “Fukushima Nuclear Incident”). To date, the incident has not been fully resolved, and there is still uncertainty as to when the incident will be brought fully under control. In addition, the combined effects of the Great East Japan Earthquake and the Fukushima Nuclear Incident have had an adverse impact on the Japanese economy.
 
During the fiscal year ended March 31, 2011, Sony incurred restoration costs directly related to the damage caused by the disaster to buildings, machinery, equipment and inventories in manufacturing sites and warehouses, as well as charges for the disposal or impairment of fixed assets. Sony had insurance policies that are expected to offset almost all of these expenses in the fiscal year ended March 31, 2011. However, if the expenses to be incurred during the fiscal year ending March 31, 2012 and onwards exceed the remaining amount available under the insurance policies, such expenses may adversely affect Sony’s operating results and financial condition. In addition, as a result of the disaster, Sony has been and may continue to be adversely affected by disruptions of electricity and water supplies as well as supply shortages of components that may cause a reduction or suspension of production. Sony also may be adversely affected by product quality degradation caused by using replacement components, interruption of logistics services, or another major earthquake. Furthermore, the combined effects of the Great East Japan Earthquake and the Fukushima Nuclear Incident may continue to have other economic consequences, including a reduction in overall demand by consumers and businesses in Japan. This may continue to adversely affect Sony’s sales and increase costs, adversely affecting Sony’s operating results and financial condition.
 
Sony must overcome increasingly intense competition, especially in the CPD and NPS segments.
 
Sony produces consumer products that compete against products sold by competitors, including new entrants, on the basis of several factors such as price and function. In order to produce products that appeal to changing and increasingly diverse consumer preferences, and to overcome the fact that a relatively high percentage of consumers already possess products similar to those that Sony offers, Sony must develop superior technology, anticipate consumer tastes and rapidly develop attractive products with competitive selling prices. Sony faces increasingly intense pricing pressure from competitors, retailer consolidation, and shorter product cycles in a variety of consumer product categories. Sony’s operating results depend on Sony’s ability to continue to efficiently develop and offer products at competitive prices that meet changing and increasingly diverse consumer preferences. If Sony is unable to effectively anticipate and counter the ongoing price erosion that frequently affects its products, or if the average selling prices of its products decrease faster than Sony is able to reduce its manufacturing costs, Sony’s operating results and financial condition may be adversely impacted.
 
 
Due to the highly volatile and competitive nature of the consumer electronics, network services and mobile communication industries, Sony must continually introduce new products, services and technologies, enhance existing products and services, and effectively stimulate customer demand for new and upgraded products and services in both mature and developing markets. The success of new product and service introductions depends on a number of factors, such as the timely and successful completion of development efforts, market acceptance, Sony’s ability to manage the risks associated with new products and production ramp-up issues, the availability of application software for new products, the effective management of purchase commitments and inventory levels in line with anticipated product demand, the availability of products in appropriate quantities and costs to meet anticipated demand, and the risk that new products and services may have quality or other defects in the early stages of introduction. Recent examples of such new products and services include 3D televisions, other 3D-related businesses and entertainment streaming and download services. In addition, new and upgraded products and services can affect the sales and profitability of existing products and services. Accordingly, if Sony cannot properly


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manage frequent new product and service introductions and transitions, Sony’s operating results and financial condition may be adversely impacted.
 
 
Sony has several business segments in different industries with many product and service categories, which cause it to face a broad range of existing and new competitors ranging from large multinational companies to highly specialized entities that focus on only a few businesses. In addition, original equipment and design manufacturing (OEM and ODM) partners may enter and compete with Sony in markets in which they currently supply products to Sony. Furthermore, current and future competitors may have greater financial, technical, labor and marketing resources available to them than those available to the businesses of Sony and Sony may not be able to fund or invest in certain areas of its businesses to the same degree as its competitors. In addition, the businesses within Sony’s Financial Services segment may not be able to compete effectively, especially against established competitors with superior financial, marketing and other relevant resources. A failure to efficiently anticipate and respond to these established and new competitors may adversely impact Sony’s operating results.
 
 
Sony’s businesses operate in intensely competitive markets characterized by changing consumer preferences and rapid technological innovation. Due to advanced technological innovation and the relative ease of technology imitation, new products and services tend to become standardized more rapidly, leading to more intense competition and ongoing price erosion. In order to strengthen the competitiveness of its products in this environment, Sony continues to invest heavily in research and development. For example, within Sony’s game business, developing and providing products that maintain competitiveness over an extended life-cycle require large-scale investment in research and development, particularly during the development and introductory period of a new platform. However, these investments may not yield the innovation or the results expected quickly enough, or competitors may lead Sony in technological innovation, hindering Sony’s ability to commercialize, in a timely manner, new and competitive products and services that meet the needs of the market, which consequently may adversely impact Sony’s operating results as well as its reputation.
 
 
Sony continued to implement restructuring initiatives in the fiscal year ended March 31, 2011 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 67.1 billion yen in restructuring charges has been recorded in the fiscal year ended March 31, 2011. While Sony anticipates recording approximately 25 billion yen of restructuring charges for the fiscal year ending March 31, 2012, significant additional or future restructuring charges may be recorded due to reasons such as the impact of economic downturns or exiting from unprofitable businesses. 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 adversely affect Sony’s operating income (loss) and net income (loss) attributable to Sony’s stockholders. Sony plans to continue rationalizing its manufacturing operations, shifting and consolidating manufacturing to lower-cost countries, increasing the utilization of OEMs and ODMs and outsourcing its support functions and information processing operations to external partners. In addition, Sony continues to undertake business process optimization and enhance profitability through four horizontal platforms for (i) global sales and marketing, (ii) manufacturing, logistics, procurement and customer services, (iii) R&D, and (iv) common software development functions.
 
Due to internal or external factors, efficiencies and cost savings from the above-mentioned 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 market conditions worsening 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, an inability to coordinate effectively across different business groups, delays in implementing the new business processes or strategies, or an inability to effectively manage and monitor the post-transformation performance of the operation. Possible external factors may include, for example, increased burdens from regional labor regulations, labor union agreements and Japanese customary


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labor practices that may prevent Sony from executing its restructuring initiatives as planned. The inability to fully and successfully implement restructuring and transformation programs may adversely affect Sony’s operating results and financial condition. Additionally, operating cash flows may be reduced as a result of the payment for restructuring charges.
 
Sony’s acquisitions and joint ventures within strategic business areas may not be successful.
 
Sony actively engages in acquisitions, joint ventures and other strategic investments in order to acquire new technologies, efficiently develop new businesses, and enhance its business competitiveness.
 
Sony may incur significant integration expenses to incorporate acquired businesses. Additionally, Sony may not achieve strategic objectives, planned revenue improvements and cost savings, and may not retain key personnel of the acquired businesses. Sony’s operating results may also be adversely affected by the assumption of liabilities related to any acquired businesses.
 
Sony currently has investments in several joint ventures, including Sony Ericsson, S-LCD, and Sharp Display Products Corporation, a joint venture with Sharp Corporation for the production and sale of large-sized liquid crystal display (“LCD”) panels and modules. If Sony and its partners are unable to reach their common financial objectives successfully, due to changes in the competitive environment or other reasons, Sony’s operating results may be adversely affected. Sony’s operating results may also be adversely affected in the short- and medium-term during the partnership, even if Sony and its partners remain on course to achieve their common financial objectives. In addition, by participating in joint ventures or other strategic investments, Sony may encounter conflicts of interest, may not maintain sufficient control over these relationships, including over cash flow, and may be faced with an increased risk of the loss of proprietary technology or know-how. Sony’s reputation may be harmed by the actions or activities of a joint venture that uses the Sony brand. Sony may also be required to provide additional funding or debt guarantees to a joint venture, whether as a result of significant or persistent underperformance, or otherwise.
 
 
Sony continues to invest in production equipment in the CPD and NPS segments. Sony also invests in production-related joint ventures. One example is the investment Sony and Samsung Electronics Co., Ltd. (“Samsung”) made in connection with 8th generation production capacity for amorphous thin film transistor (“TFT”) LCD panel production, following investments in 7th generation production capacity at S-LCD, a joint venture of the two companies in Korea. Another example is the additional investment by Sony in image sensor fabrication facilities to meet the increasing demand for image sensors. Sony anticipates investing approximately 120 billion yen to increase its image sensor fabrication capacity for the year ending March 31, 2012. If unforeseen market changes and corresponding decline in demand result in a mismatch between sales volume and anticipated production volumes, or if unit sales prices decline due to market oversupply, Sony may not be able to recover its capital expenditures or investments, in part or in full, or the recovery of these capital expenditures or investments may take longer than expected. As a result, the carrying value of the related assets may be subject to an impairment charge, which may adversely affect Sony’s profitability.
 
 
With the increasing necessity of pursuing quick business development and high operating efficiency with limited managerial resources, Sony increasingly relies on third party suppliers and business partners for components and software. For example, Sony partners with Google Inc. for use of the Android operating system in certain Sony consumer products. Reliance on third party suppliers and business partners increases the possibility that Sony will be unable to prevent products or services from incorporating defective or inferior third party components or software. Moreover, third party components or software used in Sony products or services may underperform compared to competing component or software offerings, or may be subject to copyright or patent infringement claims. Such issues resulting from reliance on third party suppliers and business partners for components and


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software may adversely affect Sony’s operating results and its reputation. Sony has also become more reliant upon the services of OEMs and ODMs for product and component supply in the CPD and NPS segments, particularly in the television business. If Sony cannot adequately manage these outsourcing relationships, or if natural or other disasters affect Sony’s business partners, Sony’s production operations may be adversely affected. Sony may not be able to achieve target volume or quality levels, and may face a risk of the loss of proprietary technology or know-how. Sony also consigns activities including certain procurement, logistics, sales, data processing, human resources, accounting, and other services, to external business partners. Sony’s operations may be affected if the external business partners do not comply with applicable laws or regulations, or if they infringe third party intellectual property rights, or if they are subject to business or service interruption caused by accidents, natural disasters or bankruptcies.
 
 
In the CPD and NPS segments, Sony uses a large volume of parts and components, such as semiconductors and LCD panels, for its products. Fluctuations in the availability and pricing of parts, components and energy, can adversely affect Sony’s operating results. For instance, shortages of parts or components may result in sharply higher prices and an increase in the cost of goods sold. Also, shortages of critical parts or components, particularly where Sony is substantially reliant on one supplier, may result in a reduction or suspension of production at Sony’s manufacturing sites. Additionally, the prices of parts or components fluctuate with the prices of underlying basic or raw materials, such as petrochemical products, cobalt, copper, and rare earth elements, which can also affect the cost of goods sold.
 
Sony places orders for parts and components in line with production and inventory plans determined in advance based on its forecast of consumer demand, which is highly volatile and difficult to predict. Inaccurate forecasts of consumer demand or inadequate management can lead to a shortage or excess of inventory, which can disrupt production plans and result in lost sales opportunities or inventory adjustments. Sony writes down the value of its inventory when the underlying parts, components or products have become obsolete, when inventory levels exceed the amount expected to be used, or when the value of the inventory is otherwise recorded at a value higher than net realizable value. In the past, for example, Sony has experienced a shortage of certain semiconductors and LCD panels, which resulted in Sony’s inability to meet consumer demand for its PCs and audio visual products, as well as a surplus in certain semiconductors and LCD panels that resulted in inventory write-downs when the prices of these parts and components fell. More recently, Sony has been faced with shortages of certain parts and components as a result of the damage to its suppliers caused by the Great East Japan Earthquake. In addition, another major earthquake in Japan in the future could further damage the supply chain. Such lost sales opportunities, inventory adjustments, or shortages of parts and components have had and may in the future have an adverse impact on Sony’s operating results and financial condition.
 
 
Sony’s sales and profitability are sensitive to economic, employment and other trends in each of the major markets in which Sony operates. These markets may be subject to significant economic downturns, having an adverse impact on Sony’s operating results and financial condition. In the fiscal year ended March 31, 2011, 30.0 percent, 21.4 percent and 20.1 percent of Sony’s sales were attributable to Japan, Europe and the U.S., respectively. Additionally, Sony’s operating results are increasingly impacted by Sony’s ability to realize its growth goals in emerging markets such as Brazil, Russia, India and China.
 
Sony’s operating results depend on the demand from consumers and commercial customers and the performance of retailers, wholesalers and distributors. An actual or expected deterioration of economic conditions in any of Sony’s major markets may depress consumer confidence and spending, resulting in an actual decline in consumption. Commercial customers and other business partners may experience deterioration in their own businesses mainly due to cash flow shortages, difficulty in obtaining financing and reduced end-user demand, resulting in reduced demand for Sony’s products and services. Commercial customers’ difficulty in fulfilling their obligations to Sony may also have an adverse impact on Sony’s operating results and cash flows.


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Sony’s suppliers are also susceptible to similar conditions that may impact their ability to fulfill their contractual obligations and may adversely impact Sony’s operating results if products and services cannot be obtained at competitive prices.
 
Global economic conditions may also affect Sony in other ways. For example, further restructuring charges, higher pension and other post-retirement benefit costs or funding requirements, and additional asset impairment charges, among other factors, have had and may in the future have an adverse impact on Sony’s operating results, financial condition and cash flows.
 
 
Sony’s consolidated statements of income are prepared from the local currency denominated financial results of Sony Corporation’s subsidiaries around the world, which are then translated into yen at the monthly average currency exchange rate. Sony’s consolidated balance sheets are prepared using the local currency denominated assets and liabilities of Sony Corporation’s subsidiaries around the world, which are translated into yen at the market exchange rate at the end of each financial period. A large proportion of Sony’s consolidated financial results, assets and liabilities is accounted for in currencies other than the Japanese yen. For example, only 30.0 percent of Sony’s sales in the fiscal year ended March 31, 2011 were recorded in Japan. Accordingly, Sony’s consolidated financial results and the assets and liabilities in Sony’s businesses (excluding the Financial Services segment) that operate internationally may be materially affected by changes in the exchange rates of foreign currencies when translating into Japanese yen. Foreign exchange rate fluctuations have had and may in the future have an adverse impact on Sony’s operating results and financial condition, especially when the yen strengthens significantly against the U.S. dollar, the euro or other foreign currencies.
 
Foreign exchange rate fluctuations can affect Sony’s operating results due to sales and expenses in different currencies.
 
Exchange rate fluctuations affect Sony’s operating profitability because many of Sony’s products are sold in countries other than the ones in which they were developed and/or manufactured. For example, within the CPD segment, research and development and headquarters overhead costs are incurred mainly in yen, and manufacturing costs, including material costs, are mainly incurred in the U.S. dollar and yen. Sales are dispersed and recorded in Japanese yen, the U.S. dollar, euro, and local currencies of other regions. Since the currency in which sales are recorded may not be aligned with the currency in which the expenses are incurred, foreign exchange rate fluctuations, particularly fluctuations of the euro exchange rate against the yen and the U.S. dollar, may affect Sony’s operating results. Mid- to long-term changes in exchange rate levels may interfere with Sony’s global allocation of resources and hinder Sony’s ability to engage in research and development, procurement, production, logistics, and sales activities in a manner that is profitable after the effect of such exchange rate changes.
 
Although Sony hedges most of the net short-term foreign currency exposure resulting from import and export transactions shortly before they are projected to occur, such hedging activity cannot entirely eliminate the risk of adverse short-term exchange rate fluctuations.
 
The significant volatility and disruption in the global financial markets or a ratings downgrade may adversely affect the availability and cost of Sony’s funding.
 
The global financial markets may experience significant levels of volatility and disruption, generally putting downward pressure on financial and other asset prices and impacting credit availability. Historically, Sony’s primary sources of funds are cash flows from operations, the issuance of commercial paper and other debt securities such as term debt as well as borrowings from banks and other institutional lenders. Although the commercial paper and term debt markets have continued to be available to Sony even during the period of significant volatility and disruption that began in the autumn of 2008, there can be no assurance that such sources will continue to be available at acceptable terms. If such market disruption and volatility occur, Sony may seek to repay commercial paper and term debt as it becomes due, or to meet other liquidity needs by drawing upon contractually committed lending facilities primarily provided by global banks and/or seeking other sources of funding including, potentially,


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the sale of assets. There can be no assurance that under such extreme market conditions such alternate funding sources will be available or sufficient. Further, a failure of one or more of Sony’s major lenders, or a decision by one or more of them to stop lending to Sony due to instability in the Japanese or global financial markets, may have an adverse impact on Sony’s access to funding from such sources. In turn, this could have a material adverse impact on Sony’s operating results, financial condition and liquidity.
 
Similarly, fluctuations in foreign exchange markets and the global financial markets may affect foreign currency translation adjustments and pension liability adjustments, both of which are included in the accumulated other comprehensive income, a component of equity, and the impact of deterioration in equity may have an adverse effect on the assessment of Sony’s credit ratings. A downgrade in Sony’s credit ratings may result in an increase in Sony’s cost of funding and may have an adverse impact on Sony’s ability to access commercial paper or mid- to long-term debt markets, with a corresponding adverse effect on Sony’s operating results, financial condition and liquidity.
 
 
Most of Sony’s activities are conducted outside of Japan, and these international operations bring challenges. For example, in the CPD and NPS segments, production and procurement of products and parts in Asian countries such as China are increasing, and this creates a risk that production and shipping of products and parts may be interrupted by a major disruptive event in the region, such as a natural disaster or a pandemic. In addition, production of electronics products in China and other Asian countries increases the time necessary to supply products to Europe and the U.S., which can make it more difficult to meet changing customer demand. Further, in certain countries Sony may encounter difficulty in planning and managing operations due to unfavorable political or economic factors, such as cultural and religious conflicts, non-compliance with expected business conduct, local regulations, trade policies and taxation laws, and a lack of adequate infrastructure. Moreover, changes in local regulations, trade policies, taxation laws, local content regulations, business or investment permit approval requirements, foreign exchange controls, import or export controls, or the nationalization of assets or restrictions on the repatriation of returns from foreign investments in major markets and regions may affect Sony’s operating results. For example, a labor dispute or a change of labor regulations or policies may significantly change local labor environments. Such a condition in China or another country in which Sony or a partner manufactures could cause interruption in production and shipping of Sony’s products and parts, a sharp rise in local labor costs, or a shortage of well-trained employees, which may adversely affect Sony’s operating results. If international or domestic political and military instability or natural disasters disrupt Sony’s business operations or those of its business partners, or depress consumer confidence in those regions, Sony’s operating results and financial condition may be adversely affected.
 
In addition, as emerging markets are becoming increasingly important to its operations, Sony becomes more susceptible to the above-mentioned risks, which may have an adverse impact on its operating results and financial condition.
 
Sony’s success depends on the ability to recruit and retain skilled technical employees and management professionals.
 
In order to continuously develop, design, manufacture, market, and sell successful electronics products, including networked products as well as software, including game, video and music content, in increasingly competitive markets, Sony must attract and retain key personnel, including its executive team, other management professionals, and skilled employees such as hardware and software engineers. However, there is high demand for such skilled employees, and Sony may be unable to attract or retain qualified employees to keep up with future business needs. If this should happen, it may adversely affect Sony’s operating results and financial condition.
 
 
Sony believes that utilizing broadband networks to facilitate the integration of hardware, software and content is essential for differentiating itself in the marketplace and will lead to revenue growth. However, this strategy depends on the development (both inside and outside of Sony) of certain network technologies, coordination among


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Sony’s various business units, and the standardization of technological and interface specifications across business units and within industries. Furthermore, in such a competitive business environment, which continuously changes with new entrants, it is critical for Sony to continuously introduce and maintain hardware, network connectivity and user interface technologies that are innovative and attractive to consumers, as well as rich line-ups of content and network services that match consumer needs with competitive prices and fee models. One recent example of this integration strategy is the introduction of 3D-related products and services as well as the development of network-related businesses such as Qriocitytm. If Sony is not successful in implementing this strategy, it may adversely affect Sony’s reputation, competitiveness and profitability.
 
 
Sony engages in a wide array of online activities, including entertainment network services, financial services, and sales and marketing of electronics and entertainment products, and is thus subject to a broad range of related laws and regulations including, for example, those relating to privacy, consumer protection, data retention and data protection, content regulation, defamation, age verification and other online child protections, the installation of “cookies” (software that allows website providers to target online audiences and track their performance metrics) or other software on the end-user’s computers or other devices, pricing, advertising to both children and adults, taxation, copyright and trademark, promotions, and billing. The application of such laws and regulations created to address online activities, and those passed prior to the popular use of the Internet that may be applied to online activities, varies among jurisdictions, may be unclear or unsettled in many instances, and is subject to change. Sony may incur substantial costs necessary to comply with these laws and regulations and may incur substantial penalties, other liabilities, or damage to its reputation if it fails to comply with them. Compliance with these laws and regulations also may cause Sony to change or limit its online activities in a manner that may adversely affect operating results. In addition, Sony’s failure to anticipate changes to relevant laws and regulations, changes in laws that provide protections that Sony relies on in conducting its online activities, or judicial interpretations narrowing such protections, may subject Sony to greater risk of liability, increase the costs of compliance, or limit Sony’s ability to engage in certain online activities.
 
Sony’s consumer-use products are particularly sensitive to year-end holiday season demand.
 
Sony’s game business offers a relatively small range of hardware products, including PlayStation®2, PSP® (PlayStation Portable), and PlayStation®3, and a significant portion of overall demand is weighted towards the year-end holiday season. Sony’s other consumer-use products are also dependent upon demand during the year-end holiday season. As a result, changes in the competitive environment, changes in market conditions, delays in the release of highly anticipated software titles and insufficient supply of hardware during the year-end holiday season can adversely impact Sony’s operating results.
 
The sales and profitability of Sony’s game business depend on the penetration of its gaming platforms, including network services, which is sensitive to software line-ups, including software produced by third party developers and publishers.
 
In Sony’s game business, the penetration of gaming platforms is a significant factor driving sales and profitability, which is affected by the ability to provide customers with sufficient software line-ups, including software produced by third party developers and publishers, and network services. Software line-ups and network services affect not only software sales and profitability, as in many other content businesses, but also affect the penetration of gaming platforms, which can affect hardware sales and profitability. There is no assurance that game software developers and publishers will continue to develop and release software regularly or at all, and discontinuance or delay of software development may adversely affect Sony’s operating results.


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Sony’s content businesses, including the Pictures and Music segments, game and other NPS businesses, are subject to digital theft and illegal downloading, which have become increasingly prevalent with the development of new technologies and the availability of broadband Internet connections.
 
The development and declining prices of digital technology along with the increased penetration and speed of broadband Internet connections and the availability of content in digital formats have created risks with respect to Sony’s ability to protect the copyrighted content of the Pictures and Music segments, game business and other NPS businesses from digital theft and counterfeiting. In particular, advances in software and technology that enable the duplication, transfer or downloading of digital media files from the Internet and other sources without authorization from the owners of the rights to such content have adversely impacted and continue to threaten the conventional copyright-based business model by making it easier to create, transmit, and redistribute high quality, unauthorized digital media files. The availability of unauthorized content significantly contributes to a decrease in legitimate product sales and puts pressure on the price of legitimate product, which may adversely affect Sony’s operating results. Sony has incurred and will continue to incur expenses to help protect its intellectual property, to develop new services for the authorized digital distribution of motion pictures, television programs, music, and video games, and to combat unauthorized digital distribution of its copyrighted content. These initiatives will increase Sony’s near-term expenses and may not achieve their intended result.
 
Operating results for Sony’s Pictures segment vary according to worldwide consumer acceptance and the availability of competing products and entertainment alternatives.
 
Operating results for motion picture productions, television productions and broadcast programming within the Pictures segment can fluctuate depending primarily upon worldwide consumer acceptance of such productions, which is difficult to predict. Moreover, the Pictures segment must invest substantial amounts in motion picture and television productions and broadcast programming before learning the extent to which these products will earn consumer acceptance. The commercial success of Sony’s Pictures segment’s products depends upon consumer acceptance of other competing products released at or near the same time, and the availability of alternative forms of entertainment and leisure activities, including many new online options. Underperformance of a motion picture or television production, especially an “event” or “tent-pole” film, may have an adverse effect on the segment’s operating results in the year of release or exhibition, and in future years given the high correlation between a product’s initial release or exhibition and subsequent revenue from other distribution markets, such as home entertainment and syndicated television.
 
 
The Pictures segment’s television operations, including its worldwide television networks, derive a significant portion of sales from the sale of advertising. As the advertising market is particularly sensitive to changes in the global economy, the operating results of Sony’s Pictures segment may be adversely affected by future economic downturns. The Pictures segment also recognizes sales from the licensing of its image-based software, including its motion picture and television content, to U.S. and international television networks, where a decline in the networks’ ability to generate advertising and subscription revenues may adversely impact the license fees paid by these networks to the Pictures segment. The Pictures segment also depends on third party cable, satellite and other distribution systems to distribute its worldwide television networks. The failure to renew or renewal on less favorable terms of television carriage contracts (broadcasting agreements) with these third party distributors may adversely affect the Pictures segment’s ability to generate advertising and subscription sales through its worldwide television networks.
 
 
The Pictures segment and certain of its suppliers are dependent upon highly specialized union members, including writers, directors, actors and other talent, and trade and technical employees, who are covered by union contracts and are essential to the development and production of motion pictures and television programs. A strike by one or more of these unions or the possibility of a strike, work slowdown or work stoppage caused by


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uncertainties about, or the inability to reach agreement on, a new contract could delay or halt production activities. Such a delay or halt, depending on the length of time involved, could cause a delay or interruption in the release of new motion pictures and television programs and thereby may adversely affect operating results and cash flows in the Pictures segment. An inability to reach agreement on one or more of these union contracts or renewal on less favorable terms may also increase costs within Sony’s Pictures segment and have an adverse effect on operating results.
 
Increases in the costs of producing, acquiring, or marketing entertainment content, the continuing decline in physical CD and DVD sales, rapid changes in technology, and other changes in the business environment may adversely affect operating results in Sony’s Music and Pictures segments.
 
The success of Sony’s Music segment is highly dependent on finding and establishing artists that appeal to customers over the long term. If the Music segment is unable to find and establish new talented artists, its operating results may be adversely affected. Competition with other entertainment companies to identify, sign and retain such talent is intense as is the competition to sell their music. In the Pictures segment, high demand for top talent continues to contribute to increases in the cost of producing motion picture and television products. Competition with other entertainment companies to acquire premier motion picture and television products is intense, and could result in increased acquisition-related spending. Overall increases in production and acquisition costs of the Pictures segment’s products, as well as increases in the costs to market these products, may adversely impact the segment’s operating results.
 
In addition to escalating costs to produce or acquire content, rapid changes in technology, the adoption of new technology by consumers and other changes in the business environment of the Music and Pictures segments have had and may continue to have an adverse impact on operating results of both segments. Industry-wide trends such as digital theft, increasing competition for consumer discretionary spending and leisure time, the general maturation of CD and DVD formats, and the deteriorating financial condition of some major retailers and increased competition for retailer shelf space have contributed to and may continue to contribute to an industry-wide decline in physical CD and DVD sales worldwide. While newer models for selling entertainment content have emerged, such as Blu-ray Disctm, kiosk and mail order rentals, legal digital download and streaming, and distribution of entertainment content on mobile phones and other portable electronic devices, these revenue streams have not been sufficient to offset the decline in physical CD and DVD sales that have affected and may continue to affect the operating results of Sony’s Music and Pictures segments.
 
 
Sony’s Financial Services segment operates in industries subject to comprehensive regulation and supervision, including the Japanese insurance and banking industries. Future developments or changes in laws, regulations, or policies and their effects are unpredictable and may lead to increased compliance costs or limitations on operations in the Financial Services segment. For example, Japan’s Financial Services Agency has been increasing the level of its scrutiny of non-payment of insurance claims for the last few years, as life and non-life insurance companies broaden insurance benefits coverage. Due to Sony’s common branding strategy, compliance failures in any of its businesses within Sony’s Financial Services segment may have an adverse impact on the overall business reputation of the Financial Services segment. Furthermore, additional compliance costs may adversely affect the operating results of Sony’s Financial Services segment.
 
Declines in the value of equity securities may have an adverse impact on the operating results and financial condition of Sony’s Financial Services segment.
 
In the Financial Services segment, Sony Life Insurance Co., Ltd. (“Sony Life”) holds equity securities and hybrid bond securities that are affected by changes in the value of the equity market index. Declines in equity prices may result in impairment losses and losses on the sales of the equity securities held by Sony Life. In addition, reductions in gains or increases in losses on the sales of equity securities, as well as reductions in unrealized gains or increases in unrealized losses in respect of such hybrid bond securities may adversely affect the operating results


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and financial condition of Sony’s Financial Services segment. Declines in the yield of Sony Life’s separate account assets may result in additional policy reserves being recorded and the accelerated amortization of deferred acquisition costs, since U.S. GAAP requires the review of actuarial assumptions used for the valuation of policy reserves concerning minimum death guarantees for variable life insurance and the amortization of deferred acquisition costs. Additional policy reserves and accelerated amortization of deferred acquisition costs may have an adverse impact on Sony’s operating results.
 
Changes in interest rates may significantly affect the operating results and financial condition of Sony’s Financial Services segment.
 
Sony engages in asset liability management (“ALM”) in an effort to manage the investment assets within the Financial Services segment in a manner appropriate to Sony’s liabilities, which arise from the insurance policies Sony underwrites in both its life insurance and non-life insurance businesses and the deposits, borrowings and other liabilities in its banking business. ALM considers the long-term balance between assets and liabilities in an effort to ensure stable returns. Any failure to appropriately conduct Sony’s ALM activities, or any significant changes in market conditions beyond what Sony’s ALM may reasonably address, may have an adverse effect on the financial condition and operating results of its Financial Services segment. In particular, because Sony Life’s liabilities to policyholders generally have longer durations than its investment assets, lower interest rates tend to reduce yields on Sony Life’s investment portfolio while guaranteed yields (assumptions used for calculation of policy reserve provisions) remain generally unchanged on outstanding policies. As a result, Sony Life’s profitability and long-term ability to meet policy commitments may be adversely affected.
 
 
In Sony’s Financial Services segment, generating stable investment income is important to its operations, and Sony invests in a variety of asset classes, including Japanese government and corporate bonds, foreign government and corporate bonds, Japanese stocks, loans and real estate. In addition to risks related to changes in interest rates and the value of equity securities, the Financial Services segment’s investment portfolio exposes Sony to a variety of other risks, including foreign exchange risk, credit risk and real estate investment risk, any or all of which may have an adverse effect on the operating results and financial condition of the Financial Services segment. For example, mortgage loans account for 90.8 percent of the total loan balance or 37.2 percent of the total assets of Sony Bank Inc. (“Sony Bank”) as of March 31, 2011. An increase in non-performing loans or a decline in the prices of real estate, the collateral for these mortgage loans provided by Sony Bank, may have an adverse effect on the creditworthiness of Sony Bank’s loan portfolio and increase credit-related costs for Sony Bank.
 
 
Sony’s life insurance and non-life insurance businesses establish policy reserves for future benefits and claims based on the Insurance Business Act of Japan and related regulations. These reserves are calculated based on many assumptions and estimates, including the frequency and timing of the event covered by the policy, the amount of benefits or claims to be paid and the investment returns on the assets these businesses purchase with the premiums received. These assumptions and estimates are inherently uncertain, and Sony cannot determine with precision the ultimate amounts that Sony will be required to pay for, or the timing of payment of, actual benefits and claims, or whether the assets supporting the policy liabilities will grow at the level Sony assumes prior to the payment of benefits or claims. The frequency and timing of an event covered by a policy and the amount of benefits or claims to be paid are subject to a number of risks and uncertainties, many of which are outside of Sony’s control, including:
 
•   changes in trends underlying Sony’s assumptions and estimates, such as mortality and morbidity rates;
 
•   the availability of sufficient reliable data and Sony’s ability to correctly analyze the data;
 
•   Sony’s selection and application of appropriate pricing and rating techniques; and
 
•   changes in legal standards, claim settlement practices and medical care expenses.


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If the actual experience of Sony’s insurance businesses becomes significantly less favorable than its assumptions or estimates, its policy reserves may be inadequate. Any changes in regulatory guidelines or standards with respect to the required level of policy reserves may also require that Sony establishes policy reserves based on more stringent assumptions, estimates or actuarial calculations. Such events may result in a need to increase provisions for policy reserves, which may have an adverse effect on the operating results and financial condition of the Financial Services segment. Furthermore, actual insurance claims that are higher than the estimated provision for policy reserves due to the occurrence of catastrophic events such as earthquakes or pandemic diseases in Japan may have an adverse effect on the operating results and financial condition of the Financial Services segment.
 
 
Sony’s headquarters, some of Sony’s major data centers and many of Sony’s most advanced device manufacturing facilities, including those for semiconductors, are located in Japan, where the risk of earthquakes is relatively high compared to other parts of the world. In addition, Sony’s offices and facilities, including those used for research and development, material procurement, manufacturing, motion picture and television program production, logistics, sales and services are located throughout the world and are subject to possible destruction, temporary stoppage or disruption as a result of any number of unexpected catastrophic events such as natural disasters, pandemic diseases, terrorist attacks, large-scale power outages and large-scale fires. If any of these facilities or offices was to experience a significant loss as a result of any of the above events, it may disrupt Sony’s operations, delay production, interrupt shipments and postpone the recording of sales, and result in large expenses to repair or replace these facilities or offices. In addition, if Sony’s suppliers are damaged by such catastrophic events, Sony may be exposed to supply shortages of raw materials, parts or components which may result in a reduction or suspension of production. For example, the Great East Japan Earthquake which occurred on March 11, 2011, caused damage to certain fixed assets including buildings, machinery and equipment as well as inventories at manufacturing sites and warehouses. Production at ten manufacturing sites had been suspended due to damage caused by the Great East Japan Earthquake, though all of them had resumed or partially resumed production by May 30, 2011. In addition, Sony has been and may continue to be impacted by reductions or suspensions of production caused by disruptions of electricity and water supplies as well as supply shortages of components. Sony may also be impacted by product quality degradation caused by using replacement components, interruption of logistics services, or a general decline in demand in the Japanese market. Another major earthquake in Japan, especially in Tokyo where Sony headquarters are located, the Tokai area where many of Sony’s product manufacturing sites are located, or the Kyushu area, where Sony’s semiconductor manufacturing sites are located, could cause greater damage than the Great East Japan Earthquake to Sony’s business operations, which may adversely affect Sony’s operating results and financial condition.
 
Moreover, as network and information systems have become increasingly important to Sony’s operating activities, the impact of network and information system shutdowns increases. Shutdowns may be caused by the above and other unforeseen events, such as software or hardware defects, computer viruses and computer hacking. For example, Sony’s network services, online game business and websites of certain subsidiaries have been subject to cyber-attacks during the spring of 2011 resulting in some instances in a temporary interruption in services.
 
Similar events in the future may result in the disruption of Sony’s major business operations, delays in production, shipments and recognition of sales, and large expenditures necessary to enhance, repair or replace such facilities and network and information systems. Furthermore, Sony may not be able to obtain sufficient future insurance to cover the resulting expenditures and losses, and insurance premiums may increase. These situations may have an adverse impact on Sony’s operating results and financial condition.
 
 
Sony makes extensive use of online services and centralized data processing, including through third party service providers. The secure maintenance and transmission of customer information is a critical element of Sony’s operations. Sony’s information technology and other systems that maintain and transmit customer information, or


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those of service providers or business partners, may be compromised by a malicious third party penetration of Sony’s network security, or that of a third party service provider or business partner, or impacted by advertent or inadvertent actions or inactions by Sony employees, or those of a third party service provider or business partner. As a result, Sony’s customers’ information may be lost, disclosed, accessed or taken without the customers’ consent. For example, Sony’s network services, online game business and websites of certain subsidiaries have been subject to cyber-attacks during the spring of 2011, resulting in some instances in unauthorized access to and the potential or actual theft of, customer information.
 
In addition, Sony, third party service providers and other business partners process and maintain proprietary Sony business information and data related to Sony’s business-to-business customers, suppliers and other business partners. Sony’s information technology and other systems that maintain and transmit this information, or those of service providers or business partners, may also be compromised by a malicious third party penetration of Sony’s network security or that of a third party service provider or business partner, or impacted by advertent or inadvertent actions or inactions by Sony employees or those of a third party service provider or business partner. As a result, Sony’s business information, customer, supplier, and other business partner data may be lost, disclosed, accessed or taken without their consent.
 
Any such loss, disclosure or misappropriation of, or access to, customers’ or business partners’ information or other breach of Sony’s information security can result in legal claims or legal proceedings, including regulatory investigations and actions, may have a serious impact on Sony’s reputation and may adversely affect Sony’s businesses, operating results and financial condition. Furthermore, the loss, disclosure or misappropriation of Sony’s business information may adversely affect Sony’s businesses, operating results and financial condition.
 
 
Sony faces the risk of litigation and regulatory proceedings in different countries in connection with its operations. Legal proceedings, including regulatory actions, may seek recovery of very large indeterminate amounts or to limit Sony’s operations, and the possibility that they may arise and their magnitude may remain unknown for substantial periods of time. For example, legal proceedings, including regulatory actions, may result from antitrust scrutiny of market practices for anti-competitive conduct. A substantial legal liability or adverse regulatory outcome and the substantial cost to defend the litigation or regulatory proceedings may have an adverse effect on Sony’s business, operating results, financial condition, cash flows and reputation.
 
 
Sony products, such as consumer products, non-consumer products, parts and components, semiconductors, software as well as network services are becoming increasingly sophisticated and complicated as rapid advancements in technologies occur and as demand increases for digital equipment. This trend may increase product quality and liability exposure. Sony’s efforts to manage the rapid advancements in technologies and increased demand as well as to control product quality may not be successful. As a result, Sony may incur expenses in connection with, for example, product recalls, after-sales services and lawsuits, and Sony’s brand image and reputation as a producer of high-quality products and services may suffer. These issues are not only relevant to the final Sony products that are sold directly to customers but also to the final products of other companies that are equipped with Sony’s components, such as the semiconductors mentioned above.
 
Sony’s operating results and financial condition may be adversely affected by its employee benefit obligations.
 
Sony recognizes the unfunded pension obligation as consisting of (i) the Projected Benefit Obligation (“PBO”) less (ii) the fair value of pension plan assets in accordance with the accounting guidance for defined benefit plans. Actuarial gains and losses are amortized and included in pension expenses in a systematic manner over employees’ average remaining service periods. Any decrease of the pension plan asset value due to low returns from investments or increases in the PBO due to a lower discount rate, increases in rates of compensation and changes


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in certain other actuarial assumptions may increase the unfunded pension obligations and may result in an increase in pension expenses recorded as cost of sales or as a selling, general and administrative expense.
 
Sony’s operating results and financial condition may be adversely affected by the status of its Japanese and foreign pension plans. Specifically, adverse equity market conditions and volatility in the credit markets may have an unfavorable impact on the value of Sony’s pension plan assets and its future estimated pension liabilities, the majority of which relate to the Japanese plans, which have approximately 30 percent of pension plan assets invested in equity securities. As a result, Sony’s operating results or financial condition could be adversely affected.
 
Further, Sony’s operating results and financial condition could be adversely affected by future pension funding requirements pursuant to the Japanese Defined Benefit Corporate Pension Plan Act (“Act”). Under the Act, Sony is required to meet certain financial criteria including periodic actuarial revaluation and annual settlement of gains or losses of the plan. In the event that the actuarial reserve required by law exceeds the fair value of pension plan assets and that the fair value of pension assets may not be recovered within a certain moratorium period permitted by laws and/or special legislative decree, Sony may be required to make an additional contribution to the plan, which may reduce cash flows. Similarly, if Sony is required to make an additional contribution to a foreign plan to meet any funding requirements in accordance with local laws and regulations in each country, Sony’s cash flows might be adversely affected. If Sony is required to increase cash contributions to its pension plans when actuarial assumptions, such as an expected long-term rate of return of the pension plan assets, are updated for purposes of determining statutory contributions, it might become an adverse factor on Sony’s cash flow for a considerable number of years.
 
 
Sony is subject to income taxes in Japan and numerous other jurisdictions, and in the ordinary course of Sony’s business, there are many situations where the ultimate tax determination can be uncertain, sometimes for an extended period. The calculation of Sony’s tax provision and the carrying value of tax assets and liabilities requires significant judgment and the use of estimates, including estimates of future taxable income.
 
Sony currently believes that its deferred tax assets, a significant component of which are net operating loss carryforwards, are more likely than not to be realized (except where a valuation allowance has been recorded) through sufficient future taxable income coupled with prudent and feasible tax planning strategies. However, some of these deferred tax assets could expire unused or not be realizable if Sony is unable to implement tax planning strategies or generate sufficient taxable income in the appropriate jurisdiction in the future (from operations and/or tax planning strategies) to utilize them, or if Sony enters into transactions that limit its legal ability to use them. If it becomes more likely than not that Sony’s deferred tax assets will expire unused and are not available to offset future taxable income, or otherwise will not be realizable, Sony will have to recognize an additional valuation allowance. This would increase Sony’s income tax expense or result in Sony’s forgoing any associated cash tax reduction available in future periods. Therefore, Sony’s net income (loss) attributable to Sony’s stockholders and financial condition would be adversely affected in the period or periods in which an additional valuation allowance is recorded or deferred tax assets expire unused. For example, for the year ended March 31, 2011, a valuation allowance in the amount of 362.3 billion yen was established against deferred tax assets at Sony Corporation and its national tax filing group in Japan.
 
A key factor in the evaluation of the deferred tax assets and the valuation allowance is the determination of the uncertain tax positions related to the adjustments for Sony’s intercompany transfer pricing. Sony is subject to income taxes in Japan and numerous other jurisdictions, and in the ordinary course of Sony’s business there are many transactions, including intercompany charges, where the ultimate tax determination is uncertain. Sony is subject to continuous examination of its income tax returns by tax authorities and, as a result, Sony regularly assesses the likelihood of the adverse outcomes resulting from these examinations to determine the adequacy of its provision for income taxes. Significant judgment is required in making these assessments and, as additional evidence becomes available in subsequent periods, the ultimate outcomes for Sony’s uncertain tax positions and, accordingly, its valuation allowance assessments may potentially have an adverse impact on Sony’s future earnings and financial condition.


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In addition to the above, Sony’s future effective tax rates may be unfavorably affected by changes in both the statutory rates and the mix of earnings in countries with differing statutory rates or by other factors such as changes in tax laws and regulations or their interpretation, including limitations or restrictions on the use of net operating loss and income tax credit carryforwards.
 
 
Sony has a significant amount of goodwill, intangible assets and other long-lived assets. A decline in financial performance or changes in estimates and assumptions used in the impairment analysis, which in many cases require significant judgment, could result in impairment charges. Sony tests goodwill and intangible assets that are determined to have an indefinite life for impairment during the fourth quarter of each fiscal year and assesses whether factors or indicators, such as unfavorable variances from established business plans, significant changes in forecasted results or volatility inherent to external markets and industries, have become apparent that would require an interim test. The recoverability of the carrying value of long-lived assets held and used and long-lived assets to be disposed of is reviewed whenever events or changes in circumstances indicate that the carrying value of the assets or asset groups may not be recoverable. Long-lived assets to be held and used are reviewed for impairment by comparing the carrying value of the asset or asset group with their estimated undiscounted future cash flows. If the carrying value of the asset or asset group is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the asset or asset group exceeds its fair value.
 
When determining whether an impairment has occurred or calculating such impairment for goodwill, an intangible asset or other long-lived asset, fair value is determined using the present value of estimated cash flows or comparable market values. This approach uses significant estimates and assumptions including projected future cash flows, the timing of such cash flows, discount rates reflecting the risk inherent in future cash flows, perpetual growth rates, determination of appropriate comparable entities and the determination of whether a premium or discount should be applied to comparables. Changes in estimates and/or revised assumptions impacting the present value of estimated future cash flows may result in a decrease in the fair value of a reporting unit, where goodwill is tested for impairment, or a decrease in fair value of intangible assets, long-lived assets or asset groups. The decrease in fair value could result in a non-cash impairment charge. Any such charge may adversely affect Sony’s operating results and financial condition.
 
 
Sony’s products incorporate a wide variety of technologies. Claims have been and may be asserted against Sony that such technology infringes the intellectual property owned by others. Such claims might require Sony to enter into settlement or license agreements, to pay significant damage awards, and/or to face a temporary or permanent injunction prohibiting Sony from marketing or selling certain of its products, which may have an adverse effect on Sony’s business, operating results, financial condition and reputation.
 
Sony may not be able to continue to obtain necessary licenses for certain intellectual property rights of others or protect and enforce the intellectual property rights on which its business depends.
 
Many of Sony’s products are designed under the license of patents and other intellectual property rights owned by third parties. Based upon past experience and industry practice, Sony believes that it will be able to obtain or renew licenses relating to various intellectual properties useful in its business that it needs in the future; however, such licenses may not be available at all or on acceptable terms, and Sony may need to redesign or discontinue marketing or selling such products as a result. Additionally, Sony’s intellectual property rights may be challenged or invalidated, or such intellectual property rights may not be sufficient to provide Sony with competitive advantages. Such events may adversely impact Sony’s operating results and financial condition.


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Sony is subject to a wide range of regulations related to social responsibility, such as environmental, occupational health and safety, and certain human rights regulations that can increase the costs of operations, limit its activities, or affect its reputation.
 
Sony is subject to a broad range of social responsibility laws and regulations covering issues related, inter-alia, to the environment, occupational health and safety and human rights. These include laws and regulations relating to air pollution; water pollution; the management, elimination or reduction of the use of hazardous substances; energy efficiency of certain products; waste management; recycling of products, batteries and packaging materials; site remediation; worker and consumer health and safety; and human rights issues such as those related to the procurement and production processes. These laws and regulations may become more stringent, or additional laws and regulations may be adopted in the future.
 
For example, Sony is currently required to comply with a number of environmental regulations enacted by the EU, such as the Restriction of Hazardous Substances (“RoHS”) Directive, the Waste Electrical and Electronic Equipment (“WEEE”) Directive, and the Registration, Evaluation, Authorization and Restriction of Chemicals (“REACH”) regulation. Similar regulations are being formulated in other parts of the world, including China and South American countries. Sony is also required to comply with regulations or governmental policies related to climate change issues such as carbon disclosure, green house gas emission reduction, carbon taxes and energy efficiency for electronics products. Supply chain regulations addressing certain energy consumption and CO2 emissions have already been introduced in Japan, and other countries may introduce similar regulations in the near future. In addition, the “cap and trade” system on emissions (such as the Tokyo Metropolitan Government’s “Obligation to Reduce Absolute Green House Gas Emissions and Emissions Trading System”) already applies in some locations, and similar cap and trade systems may be established in other regions or countries. Similarly, the May 2011 revision of the “Global Guidelines for Responsible Business Conduct: OECD Guidelines for Multinational Enterprises” may trigger the establishment of new laws and regulations. Additionally, Sony is subject to a range of laws and regulations related specifically to purchasing activities, including raw materials procurement, in respect of the environment, human rights, labor and armed conflict. Sony may be required to comply with new laws and regulations of this kind, such as the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act, Section 1502.
 
New laws and regulations may result in an increase in Sony’s cost of compliance. Additionally, if Sony is not perceived as having responded to existing and new laws and regulations in these varied areas, it may result in fines, penalties, legal judgments or other costs or remediation obligations, and may adversely affect Sony’s operating results and financial condition. In addition, such a finding of non-compliance, or the perception that Sony has not responded appropriately to growing consumer concern for such issues, whether or not legal requirements, may adversely affect Sony’s reputation. Its operating results and financial condition may also be adversely affected if consumers therefore choose to purchase products of other companies.
 
Holders of American Depositary Shares have fewer rights than shareholders and may not be able to enforce judgments based on U.S. securities laws.
 
The rights of shareholders under Japanese law to take actions, including voting their shares, receiving dividends and distributions, bringing derivative actions, examining Sony’s accounting books and records, and exercising appraisal rights are available only to shareholders of record. Because the depositary, through its custodian agents, is the record holder of the shares underlying the American Depositary Shares (“ADSs”), only the depositary can exercise those rights in connection with the deposited shares. The depositary will make efforts to vote the shares underlying ADSs in accordance with the instructions of ADS holders and will pay the dividends and distributions collected from Sony. However, ADS holders will not be able to bring a derivative action, examine Sony’s accounting books and records, or exercise appraisal rights through the depositary.
 
Sony Corporation is incorporated in Japan with limited liability. A majority of Sony’s directors and corporate executive officers are non-U.S. residents, and a substantial portion of the assets of Sony Corporation and the assets of Sony’s directors and corporate executive officers are located outside the U.S. As a result, it may be more difficult for investors to enforce against Sony Corporation or such persons mentioned above, judgments obtained in U.S. courts predicated upon civil liability provisions of the federal and state securities laws of the U.S. or similar


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judgments obtained in other courts outside Japan. There is doubt as to the enforceability in Japanese courts, in original actions or in actions for enforcement of judgments of U.S. courts, of civil liabilities predicated solely upon the federal and state securities laws of the U.S.
 
Item 4.  Information on the Company
 
 
Sony Corporation was established in Japan in May 1946 as Tokyo Tsushin Kogyo Kabushiki Kaisha, a joint stock company (Kabushiki Kaisha) under Japanese law. In January 1958, it changed its name to Sony Kabushiki Kaisha (“Sony Corporation” in English).
 
In December 1958, Sony Corporation was listed on the Tokyo Stock Exchange (the “TSE”). In June 1961, Sony Corporation issued American Depositary Receipts (“ADRs”) in the U.S.
 
In March 1968, Sony Corporation established CBS/Sony Records Inc. in Japan, as a 50-50 joint venture company between Sony Corporation and CBS Inc. in the U.S. In January 1988, the joint venture became a wholly owned subsidiary of Sony Corporation, and in April 1991, changed its name to Sony Music Entertainment (Japan) Inc. (“SMEJ”). In November 1991, SMEJ was listed on the Second Section of the TSE.
 
In September 1970, Sony Corporation was listed on the New York Stock Exchange.
 
In August 1979, Sony Corporation established Sony Prudential Life Insurance Co., Ltd. in Japan, as a 50-50 joint venture company between Sony Corporation and The Prudential Insurance Company of America. In April 1991, the joint venture changed its name to Sony Life Insurance Co., Ltd. (“Sony Life”). In March 1996, Sony Life became a wholly owned subsidiary of Sony Corporation, and in April 2004, with the establishment of Sony Financial Holdings Inc. (“SFH”), a financial holding company, Sony Life became a wholly owned subsidiary of SFH.
 
In July 1984, Sony Magnescale Inc., a subsidiary of Sony Corporation, was listed on the Second Section of the TSE. The subsidiary changed its name to Sony Precision Technology Inc. in October 1996 and then to Sony Manufacturing Systems Corporation in April 2004.
 
In July 1987, Sony Chemicals Corporation, a subsidiary of Sony Corporation, was listed on the Second Section of the TSE. The subsidiary changed its name to Sony Chemical & Information Device Corporation in July 2006.
 
In January 1988, Sony Corporation acquired CBS Records Inc., a music business division of CBS Inc. in the U.S. The acquired company changed its name to Sony Music Entertainment Inc. in January 1991 and then to Sony Music Holdings Inc. in December 2008.
 
In November 1989, Sony Corporation acquired Columbia Pictures Entertainment, Inc. in the U.S. In August 1991, Columbia Pictures Entertainment, Inc. changed its name to Sony Pictures Entertainment Inc. (“SPE”).
 
In November 1993, Sony established Sony Computer Entertainment Inc. (“SCEI”) in Japan.
 
In January 2000, acquisition transactions by way of a share exchange were completed such that SMEJ, Sony Chemicals Corporation (currently Sony Chemical & Information Device Corporation), and Sony Precision Technology Inc. (currently Sony Manufacturing Systems Corporation) — all three subsidiaries which had been listed on the TSE became wholly owned subsidiaries of Sony Corporation.
 
In June 2001, Sony Corporation issued shares of subsidiary tracking stock in Japan, the economic value of which was intended to be linked to the economic value of Sony Communication Network Corporation. All shares of the subsidiary tracking stock were terminated and converted to shares of common stock of Sony Corporation in December 2005. The subsidiary was listed on the Mother’s market of the TSE in December 2005 (and has been traded on the First Section of the TSE since January 2008) and was renamed So-net Entertainment Corporation (“So-net”) in October 2006. Sony Corporation continues to hold a majority of the shares of So-net.
 
In October 2001, Sony Ericsson Mobile Communications AB (“Sony Ericsson”), a 50-50 joint venture company between Sony Corporation and Telefonaktiebolaget LM Ericsson (“Ericsson”) of Sweden, was established.


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In October 2002, Aiwa Co., Ltd. (“Aiwa”), then a TSE-listed subsidiary, became a wholly owned subsidiary of Sony Corporation. In December 2002, Aiwa was merged into Sony Corporation.
 
In June 2003, Sony Corporation adopted the “Company with Committees” corporate governance system in line with the revised Japanese Commercial Code then effective. (Refer to “Board Practices” in “Item 6. Directors, Senior Management and Employees.”)
 
In April 2004, Sony Corporation established SFH, a financial holding company, in Japan. Sony Life, Sony Assurance Inc. (“Sony Assurance”), and Sony Bank Inc. (“Sony Bank”) became subsidiaries of SFH.
 
In April 2004, S-LCD Corporation (“S-LCD”), a joint venture between Sony Corporation and Samsung Electronics Co., Ltd. of Korea for the manufacture of amorphous thin film transistor (“TFT”) liquid crystal display (“LCD”) panels, was established in Korea. Sony’s stake in S-LCD is 50 percent minus 1 share.
 
In August 2004, Sony combined its worldwide recorded music business, excluding its recorded music business in Japan, with the worldwide recorded music business of Bertelsmann AG (“Bertelsmann”), forming a 50-50 joint venture, SONY BMG MUSIC ENTERTAINMENT (“SONY BMG”). In October 2008, Sony acquired Bertelsmann’s 50 percent equity interest in SONY BMG. As a result of the acquisition, SONY BMG became a wholly owned subsidiary of Sony. In January 2009, SONY BMG changed its name to Sony Music Entertainment (“SME”).
 
In October 2007, SFH was listed on the First Section of the TSE in conjunction with the global initial public offering of shares of SFH by Sony Corporation and SFH.
 
In December 2009, Sharp Display Products Corporation (“SDP”), a joint venture between Sony Corporation and Sharp Corporation for the production and sale of large-sized LCD panels and modules, was established. Sony’s ownership in SDP is 7 percent.
 
Sony Corporation’s registered office is located at 7-1, Konan 1-chome, Minato-ku, Tokyo 108-0075, Japan, telephone +81-3-6748-2111.
 
The agent in the U.S. for purposes of this Item 4 is Sony Corporation of America (“SCA”), 550 Madison Avenue, New York, NY 10022 (Attn: Office of the General Counsel).
 
 
In the fiscal years ended March 31, 2009, 2010 and 2011, Sony’s capital expenditures (additions to fixed assets on the balance sheets) were 332.1 billion yen, 192.7 billion yen and 204.9 billion yen, respectively. Sony’s capital expenditures are expected to be approximately 330 billion yen during the fiscal year ending March 31, 2012. For a breakdown of principal capital expenditures and divestitures (including interests in other companies), refer to “Item 5. Operating and Financial Review and Prospects.” The funding requirements of such various capital expenditures are expected to be financed by cash provided principally by operating and financing activities or the existing balance of cash and cash equivalents.
 
Sony invested approximately 50 billion yen in the semiconductor business during the fiscal year ended March 31, 2011. Sony plans to invest approximately 160 billion yen in the semiconductor business in the fiscal year ending March 31, 2012. In September 2010, Sony announced its investment plan of approximately 40 billion yen in Sony Semiconductor Kyushu Corporation’s Kumamoto Technology Center to increase production capacity for complementary metal-oxide semiconductor (“CMOS”) image sensors. This investment started in the second half of the fiscal year ended March 31, 2011 and will be completed during the fiscal year ending March 31, 2012. In December 2010, Sony announced an additional plan to invest approximately 100 billion yen in Sony Semiconductor Kyushu Corporation’s Nagasaki Technology Center during the fiscal year ending March 31, 2012, to further increase the production capacity for CMOS image sensors. As a result of these two investment plans, Sony’s total production capacity for charged coupled devices (“CCDs”) and CMOS image sensors is expected to increase from the level of approximately 25,000 wafers per month (as of December 2010) to approximately 50,000 wafers per month by the end of March 2012.


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Sony is engaged in the development, design, manufacture, and sale of various kinds of electronic equipment, instruments, and devices for consumer, professional and industrial markets as well as game consoles and software. Sony’s primary manufacturing facilities are located in Asia including Japan. Sony also utilizes third party contract manufacturers for certain products. Sony’s products are marketed throughout the world by sales subsidiaries and unaffiliated distributors as well as direct sales via the Internet. Sony is engaged in the development, production and acquisition, manufacturing, marketing, distribution and broadcasting of image-based software, including motion picture, home entertainment and television products. Sony is also engaged in the development, production and acquisition, manufacture, and distribution of recorded music. Further, Sony is also engaged in various financial services businesses, including life and non-life insurance operations through its Japanese insurance subsidiaries and banking operations through a Japanese Internet-based banking subsidiary. In addition to the above, Sony is engaged in a network services business and an advertising agency business in Japan.
 
Sony realigned its reportable segments from the first quarter of the fiscal year ended March 31, 2011, to reflect modifications to the organizational structure as of April 1, 2010. The business overview of Sony is presented in accordance with the realigned segments: the Consumer, Professional & Devices (“CPD”), the Networked Products & Services (“NPS”), Pictures, Music, Financial Services, and Sony Ericsson. For further details, please refer to “Item 5. Operating and Financial Review and Prospects.”
 
Products and Services
 
Consumer, Professional & Devices
 
The following table sets forth Sony’s CPD segment sales to outside customers by product categories. Figures in parentheses indicate the percentage contribution of each product category to the segment total.
 
                                                 
    Fiscal year ended March 31
    2009   2010   2011
    (Yen in millions)
 
Televisions
    1,275,692       (32.5 )     1,005,773       (31.4 )     1,200,491       (35.9 )
Digital Imaging
    831,820       (21.2 )     664,502       (20.7 )     642,570       (19.2 )
Audio and Video
    531,542       (13.5 )     449,882       (14.0 )     426,594       (12.7 )
Semiconductors
    310,682       (7.9 )     299,715       (9.4 )     358,396       (10.7 )
Components
    613,013       (15.6 )     476,097       (14.8 )     410,090       (12.3 )
Professional Solutions
    346,326       (8.8 )     295,360       (9.2 )     287,394       (8.6 )
Other
    17,311       (0.5 )     16,217       (0.5 )     19,513       (0.6 )
                                                 
CPD Total
    3,926,386       (100.0 )     3,207,546       (100.0 )     3,345,048       (100.0 )
                                                 
 
Televisions:
 
“Televisions” includes LCD televisions.
 
Digital Imaging:
 
“Digital Imaging” includes home-use video cameras, compact digital cameras and interchangeable single-lens cameras.
 
Audio and Video:
 
“Audio and Video” includes Blu-ray Disctm players/recorders, DVD-Video players/recorders, home theater, home audio systems, portable audio and car audio.


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“Semiconductors” includes CCDs, CMOS image sensors, system LSIs, small- and medium-sized LCD panels and other semiconductors.
 
 
“Components” includes batteries, optical disk drives, chemical products*, audio/video/data recording media, storage media and optical pickups.
 
* Chemical products include materials and components for electronic devices such as anisotropic conductive films.
 
Professional Solutions:
 
“Professional Solutions” includes broadcast- and professional-use products, and other B2B business.
 
Networked Products & Services
 
The following table sets forth Sony’s NPS segment sales to outside customers by product categories. Figures in parentheses indicate the percentage contribution of each product category to the segment total.
 
                                                 
    Fiscal year ended March 31
    2009   2010   2011
    (Yen in millions)
 
Game
    984,855       (58.5 )     840,711       (55.6 )     798,405       (53.5 )
PC and Other Networked Businesses
    699,903       (41.5 )     670,864       (44.4 )     694,731       (46.5 )
                                                 
NPS Total
    1,684,758       (100.0 )     1,511,575       (100.0 )     1,493,136       (100.0 )
                                                 
 
 
SCEI develops, produces, markets and distributes PlayStation®3 (“PS3”), PSP® (PlayStation®Portable) (“PSP”) and PlayStation®2 (“PS2”) hardware, related package software and PlayStation®Network service. Sony Computer Entertainment America LLC (“SCEA”) and Sony Computer Entertainment Europe Ltd. (“SCEE”) market and distribute PS3, PSP and PS2 hardware, and develop, produce, market and distribute related package software and PlayStation®Network service locally in the U.S. and Europe. SCEI, SCEA and SCEE enter into licenses with third party software developers and publishers.
 
PC and Other Networked Businesses:
 
“PC and Other Networked Businesses” includes PCs and flash memory digital audio players and digital ebook readers.
 
 
Global operations in the Pictures segment encompass motion picture production, acquisition and distribution; television production, acquisition and distribution; home entertainment acquisition and distribution; worldwide television networks; digital content creation and distribution; operation of studio facilities; and development of new entertainment products, services and technologies, including 3D. SPE distributes entertainment in more than 142 countries.
 
SPE’s motion picture arm, the Columbia TriStar Motion Picture Group, includes SPE’s principal motion picture production organizations, Columbia Pictures, TriStar Pictures, Screen Gems, Sony Pictures Classics, and the International Motion Picture Production Group.
 
Sony Pictures Television (“SPT”) develops and produces television programming for broadcast, cable and first-run syndication, including scripted series, unscripted “reality” or “light entertainment,” daytime serials, game shows, animated series, made for television movies and miniseries and other programming. SPT also produces content for the Internet and mobile devices and operates Crackle, a multi-platform video entertainment network


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focusing on premium video content. Internationally, SPT produces local language programming in key markets around the world, some of which are co-produced with local partners, and sells SPE-owned formats in approximately 75 countries. SPT also owns or has investments in worldwide television networks with 120 channel feeds, which are available in more than 142 countries worldwide.
 
Sony Pictures Home Entertainment (“SPHE”) distributes SPE’s home entertainment products (DVD, Blu-ray Disc and digital) as well as products acquired or licensed from third parties. Sony Pictures Worldwide Acquisitions Group produces new product, and acquires or licenses third party product, for distribution in the home entertainment market as well as other markets. Sony Pictures Digital Production operates Sony Pictures Imageworks, a digital production studio, and Sony Pictures Animation, a developer and producer of computer graphic animated films. SPE also manages a studio facility, Sony Pictures Studios, which includes post production facilities, at SPE’s world headquarters in Culver City, California.
 
 
Music includes SME, SMEJ, and a 50 percent owned U.S. based joint venture in the music publishing business, Sony/ATV Music Publishing LLC (“Sony/ATV”). SME, a global entertainment company, excluding Japan, is engaged primarily in the development, production and distribution of recorded music in all commercial formats and genres; SMEJ is a Japanese domestic recorded music business that produces recorded music and music videos through contacts with many artists in all music genres; Sony/ATV is a U.S.-based music publishing business that owns and acquires rights to musical compositions, exploiting and marketing these compositions and receiving royalties or fees for their use.
 
 
In the Financial Services segment, on April 1, 2004 Sony established a wholly owned subsidiary, SFH, a holding company for Sony Life, Sony Assurance and Sony Bank, with the aim of integrating various financial services including insurance and savings and loans, and offering individual customers high value-added products and high-quality services. On October 11, 2007, in conjunction with the global initial public offering of shares of SFH, the shares of SFH were listed for trading on the First Section of the TSE. Following this global offering, SFH remains a consolidated subsidiary of Sony Corporation, which is the majority shareholder of SFH.
 
Sony conducts insurance and banking operations primarily through Sony Life, a Japanese life insurance company, Sony Assurance, a Japanese non-life insurance company, and Sony Bank, a Japanese Internet-based bank, which are all wholly owned by SFH. Aside from SFH, during the fiscal year ended March 31, 2011, Sony divested a leasing and a portion of its credit card business in Japan conducted through Sony Finance International Inc. (“SFI”), a wholly owned subsidiary of Sony Corporation. In November 2010, the leasing business was transferred to a newly established joint venture, the majority of which is held by a third party leasing company, and has been accounted for under the equity method. Of SFI’s credit card businesses, some portions were divested during the fiscal year ended March 31, 2011 and the “Sony Card” business was transferred to Sony Bank in May 2011, completing the restructuring of SFI’s credit card businesses.
 
Sony Ericsson
 
Sony Ericsson is an entity accounted for under the equity method, as it is a 50-50 joint venture company between Sony Corporation and Ericsson. Sony presents the equity earnings for Sony Ericsson as a separate segment. Sony Ericsson undertakes product research, development, design, marketing, sales, production, distribution and customer services for mobile phones, accessories, services and applications.
 
 
All Other consists of various operating activities, including Blu-ray Disc, DVD and CD disc manufacturing business, So-net (a subsidiary operating an Internet service provider business and various medical-related Internet services for healthcare professionals mainly in Japan), and a mobile phone original equipment manufacturing (“OEM”) business in Japan for wireless device customers. Sony’s products and services are generally unique to a single operating segment.


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Sales and Distribution
 
Consumer, Professional & Devices and Networked Products & Services
 
Sony’s electronics products and services, excluding those in the game business, are marketed throughout the world under the trademark “Sony,” which has been registered in approximately 200 countries and territories.
 
In most cases, sales of Sony’s electronics products are made to sales subsidiaries of Sony Corporation located in or responsible for sales in the countries and territories where Sony’s products and services are marketed. These subsidiaries then sell those products to unaffiliated local distributors and dealers or through direct sales via the Internet. In some regions, sales of certain products and services are made directly to local distributors by Sony Corporation.
 
Sales of electronics products and services are particularly seasonal and also vary significantly with the timing of new product introductions and economic conditions of each country. Sales for the third quarter ending December 31 of each fiscal year are generally higher than other quarters of the same fiscal year due to demand in the year-end holiday season.
 
 
Sony Marketing (Japan) Inc. markets consumer electronics products mainly through retailers. Sony Business Solutions Corporation markets professional electronics products and services. For electronic components, Sony sells products directly to wholesalers and manufacturers.
 
 
Sony markets its electronics products and services through Sony Electronics Inc. and other wholly owned subsidiaries in the U.S.
 
 
In Europe, Sony’s electronics products and services are marketed through sales subsidiaries including CJSC Sony Electronics in Russia, Sony Europe Limited in the United Kingdom, Sony France S.A., Sony Deutschland G.m.b.H., Sony Italia S.p.A. and Sony Espana S.A.
 
Asia-Pacific:
 
In Asia-Pacific, Sony’s electronics products and services are marketed through sales subsidiaries including Sony (China) Limited, Sony Corporation of Hong Kong Limited, Sony Taiwan Limited, Sony India Private Limited and Sony Electronics of Korea Corporation.
 
 
In overseas areas other than the U.S., Europe and Asia-Pacific, Sony’s electronics products and services are marketed through sales subsidiaries including Sony Gulf FZE in the United Arab Emirates, Sony of Canada Limited and Sony de Mexico S.A.de C.V.
 
PS3, PSP and PS2 hardware and related software are marketed and distributed by SCEI, SCEA, SCEE and subsidiaries in Asia. PlayStation®Network is mainly operated by Sony Network Entertainment International LLC as well as SCEI and its subsidiaries.
 
Hardware sales in the game business are dependent on the timing of the introduction of attractive software and a significant portion of overall demand is weighted towards the year-end holiday season.
 
 
SPE generally retains all rights relating to the worldwide distribution of its internally produced motion pictures, including rights for theatrical exhibition, home entertainment distribution, pay and free television exhibition and other markets. SPE also acquires distribution rights to motion pictures produced by other companies


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and jointly produces films with other studios or production companies. These rights may be limited to particular geographic regions, specific forms of media or periods of time. SPE uses its own distribution service business, Sony Pictures Releasing, for the U.S. theatrical release of its films and for the theatrical release of films acquired from and produced by others.
 
Outside the U.S., SPE generally distributes and markets its films through one of its Sony Pictures Releasing International subsidiaries. In certain countries, however, SPE has joint distribution arrangements with other studios or arrangements with independent local distributors.
 
The worldwide home entertainment distribution of SPE’s motion pictures and television programming (and programming acquired or licensed from others) is handled through SPHE, except in certain countries where SPE has joint distribution arrangements with other studios or arrangements with independent local distributors. Product is distributed on DVD, Blu-ray, and various digital formats.
 
The worldwide television distribution of SPE’s motion pictures and television programming (and programming acquired or licensed from others) is handled through SPT. SPE’s library of television programming and motion pictures is licensed to broadcast and cable networks, including free and pay television, first-run and off-network syndication and digital distribution throughout the world.
 
SPE’s worldwide television networks are distributed to multiple distribution platforms such as cable, satellite platforms, Internet Protocol Television (IPTV) systems, and mobile operators for delivery to viewers around the world. These networks generate advertising and subscription revenues.
 
 
SME and SMEJ produce, market, and distribute CDs, DVDs, digital formats and other audio and audio/visual configurations. SME and its affiliates conduct business in countries other than Japan under “Columbia Records,” “Epic Records,” “RCA Records,” “Jive Records,” and other labels. SMEJ conducts business in Japan under “Sony Records,” “Epic Records,” “Ki/oon Records,” “SMEJ Associated Records,” “Defstar Records,” and other labels.
 
Sony owns and acquires rights to musical compositions, exploits and markets these compositions, receives royalties or fees for their use and conducts its music publishing business through a joint venture with a third party investor in countries other than Japan primarily under the Sony/ATV name.
 
 
Sony Life conducts its life insurance business primarily in Japan. Sony Life’s core business is providing death protection and other insurance products to individuals, primarily through a consulting-based sales approach utilizing its experienced team of Lifeplanner® sales employees and Partner independent sales agents. Sony Life provides tailor-made life insurance products that are optimized for each customer. As of March 31, 2011, Sony Life employed 4,017 Lifeplanner® sales employees. As of the same date, Sony Life maintained an extensive service network including 84 Lifeplanner® retail offices, 27 regional sales offices, and 2,064 sales agents in Japan. Sony Life also has one representative office in Beijing and Taipei, which opened in October 2008 and July 2009 respectively, for the purpose of researching the financial and life insurance market in China and Taiwan respectively. In addition, Sony Life’s life insurance business also includes sales in the Philippines through Sony Life’s wholly owned subsidiary, Sony Life Insurance (Philippines) Corporation. As part of its plan to expand its sales of individual annuity products, Sony Life established a Japanese joint venture company with AEGON N.V. The 50-50 joint venture, known as AEGON Sony Life Insurance Co., Ltd. was established in August 2009, and began operations in Japan in December 2009.
 
Sony Assurance has conducted a non-life insurance business in Japan since October 1999. Sony Assurance’s core business is providing automobile insurance products and medical and cancer insurance products to individual customers, primarily through direct marketing via the Internet and the telephone. The direct marketing business model employed by Sony Assurance enables it to improve operating efficiency and lower the costs of marketing and maintaining its insurance policies, creating savings which it passes on to policyholders in the form of competitively priced premiums.


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Sony Bank has conducted banking operations in Japan since June 2001. As an Internet bank focusing on the asset management and borrowing needs of individual customers, Sony Bank offers an array of products and services including yen and foreign currency deposits, investment trusts, mortgages and other individual loans. By using Sony Bank’s transaction channel, the “MONEYKit” service website, account holders can invest and manage assets according to their life plans over the Internet. As part of its plan to respond to its customers’ diverse asset management needs, Sony Bank launched online securities brokerage services through its wholly owned subsidiary, Sony Bank Securities Inc., in October 2007. In May 2011, Sony Bank launched a credit card business in Japan by taking over the “Sony Card” business from SFI.
 
Sony Ericsson
 
Along with its global corporate functions in London, Sony Ericsson has sales and marketing operations in all major regions of the world, as well as manufacturing in China and product development sites in China, Japan, Sweden and the United States.
 
 
Sony DADC Corporation (“Sony DADC”) offers Blu-ray Disc, DVD and CD disc media replication services as well as digital and physical supply chain solutions to business customers in the entertainment, education, and information industries. So-net provides Internet broadband network services to subscribers as well as creates and distributes content through its portal services to various electronics product platforms (e.g., PCs, mobile phones). For example, it distributes a medical Internet portal service to physicians and healthcare professionals, and an online game service via PC and other platforms. The OEM business of Sony EMCS Corporation manufactures mobile phones for wireless device customers.
 
Sales to Outside Customers by Geographic Area
 
The following table shows Sony’s consolidated sales to outside customers in each of its major markets for the periods indicated. Figures in parentheses indicate the percentage contribution of each region to total worldwide sales and operating revenue.
 
                                                 
    Fiscal year ended March 31
    2009   2010   2011
    (Yen in millions)
 
Japan
    1,873,219       (24.2 )     2,099,297       (29.1 )     2,152,552       (30.0 )
United States
    1,827,812       (23.6 )     1,595,016       (22.1 )     1,443,693       (20.1 )
Europe
    1,987,692       (25.7 )     1,644,698       (22.8 )     1,539,432       (21.4 )
Asia-Pacific
    1,285,551       (16.6 )     1,193,573       (16.6 )     1,288,412       (17.9 )
Other Areas
    755,719       (9.9 )     681,414       (9.4 )     757,184       (10.6 )
                                                 
Total
    7,729,993       (100.0 )     7,213,998       (100.0 )     7,181,273       (100.0 )
                                                 
 
 
Sony pursues procurement of raw materials, parts and components to be used in the production of its products on a global basis on the most favorable terms that it can achieve. These items are purchased from various suppliers around the world. Sony still maintains its general policy of multiple suppliers for the most important parts and components and, in the fiscal year ended March 31, 2011, Sony continued activities to optimize the total number of its suppliers to achieve efficiencies.
 
When raw materials, parts and components become scarce, the cost of production rises. For example, the market price of copper has the potential to proportionately affect the cost of parts that utilize copper, such as printed circuit boards and power cables. The price of gold, which is used in applications involving a range of semiconductor products, may also fluctuate and impact the cost of those items. The price of resin may impact the cost of plastic parts, and the price of tantalum may have a similar impact on the cost of capacitors which are used in wide range of consumer electronics products. With respect to parts and components, LCD panels and memory devices, which are


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used in multiple applications, can influence Sony’s business performance when the cost of such parts and components fluctuates substantially.
 
 
In the CPD and NPS segments, Sony provides repair and servicing functions in the areas where its products are sold. Sony provides these services through its own call centers, service centers, factories, authorized independent service centers, authorized servicing dealers and subsidiaries.
 
In line with the industry practices of the electronics and game businesses, almost all of Sony’s consumer-use products that are sold in Japan carry a warranty, generally for a period of one year from the date of purchase, covering repairs, free of charge, in the case of a malfunction in the course of ordinary use of the product. In the case of broadcast- and professional-use products, Sony maintains support contracts with customers in addition to warranties. Warranties outside of Japan generally provide coverage for various periods of time depending on the product and the area in which it is marketed.
 
To further ensure customer satisfaction, Sony maintains customer information centers in its principal markets.
 
 
Sony has a number of Japanese and foreign patents relating to its products. Sony is licensed to use a number of patents owned by others, covering a wide range of products. Certain licenses are important to Sony’s business, such as those for optical disc-related and Digital TV products. With respect to optical disc-related products, Sony products that employ DVD player functions, including PS3 and PS2 hardware, are substantially dependent upon certain patents that relate to technologies specified in the DVD specification and are licensed by MPEG LA LLC, Dolby Laboratories Licensing Corporation and Nissim Corp. Sony products that employ Blu-ray Disc player functions, including PS3 hardware, and that also employ DVD player functions, are substantially dependent upon certain patents that relate to technologies specified in the Blu-ray Disc specification and are licensed by MPEG LA LLC and AT&T Inc., in addition to the patents that relate to technologies specified in the DVD specification, as described above. Sony’s Digital TV products are substantially dependent upon certain patents that relate to technologies specified in the Digital TV specification and are licensed by Thomson Licensing Inc. Sony considers its overall license position beneficial to its operations. While Sony believes that its various proprietary intellectual property rights are important to its success, it believes that neither its business as a whole nor any business segment is materially dependent on any particular patent or license, or any particular group of patents or licenses, except as set forth above.
 
 
In each of its principal product lines, Sony encounters intense competition throughout the world. Sony believes, however, that in the aggregate it competes successfully and has a major position in all of the principal product lines in which it is engaged, although the strength of its position varies with products and markets. Refer to “Risk Factors” in “Item 3. Key Information.”
 
Consumer, Professional & Devices
 
Sony believes that its product planning and product design expertise, the high quality of its products, its record of innovative product introductions and product improvements, its price competitiveness derived from reductions in manufacturing and indirect costs, and its extensive marketing and servicing efforts are important factors in maintaining its competitive position.
 
Networked Products & Services
 
Hardware products such as PCs face competition similar to consumer electronics in the CPD segment. Competition in the game business is different. The success of the game business is determined by the availability of attractive software titles and related content, the computational power and reliability of the secured systems, and the ability to create new experiences via network services, downloadable content, and peripherals.


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SPE faces intense competition from all forms of entertainment and other leisure activities to attract the attention of audiences worldwide. SPE competes with other motion picture studios and, to a lesser extent, with independent production companies. SPE must compete to obtain story rights and talent, including writers, actors, directors and producers, which are essential to the success of SPE’s products. In motion picture production and distribution, SPE faces competition to obtain exhibition and distribution outlets and optimal release dates for its products. In addition, SPE faces intense competition from other entertainment companies to acquire premier motion picture and television products from third parties. Competition in television production and distribution is also intense because available broadcast time is limited and the audience is increasingly fragmented among broadcast and cable networks, and other outlets both in the U.S. and internationally. Furthermore, broadcast networks in the U.S. continue to produce their own shows internally. This competitive environment may result in fewer opportunities to produce shows for U.S. networks and a shorter lifespan for ordered shows that do not immediately achieve favorable ratings. SPE’s worldwide television networks compete for viewers with broadcast and cable networks, Internet and other forms of entertainment. The growth in the number of networks around the world has increased the competition for advertising and subscription revenues, acquisition of programming, and distribution by cable, satellite and other distribution systems.
 
 
Success is dependent to a large extent upon the artistic and creative abilities of artists, producers and employees and is subject to the vagaries of public taste. The Music segment’s future competitive position depends on its continuing ability to attract and develop artists who can achieve a high degree of public acceptance.
 
 
In the Financial Services segment, Sony faces strong competition in the financial services markets in Japan. In recent years, the regulatory barriers between the life insurance and non-life insurance industries as well as among the insurance, banking and securities industries have been relaxed, resulting in new competitive pressures.
 
Sony Life competes not only with traditional insurance companies in Japan but also with other companies including online insurance companies, foreign-owned life insurance companies and a number of Japanese cooperative associations.
 
Sony Assurance competes against insurers that sell their policies through sales agents as well as insurers that, like Sony Assurance, primarily sell their policies through direct marketing via the telephone and the Internet. Competition in Japan’s non-life insurance industry has intensified in recent years, in part due to a number of new market entrants, including foreign-owned insurers.
 
Some of the competitors in the life insurance and non-life insurance businesses have advantages over Sony including:
 
  •  greater financial resources and financial strength ratings;
 
  •  greater brand awareness;
 
  •  more extensive marketing and sales networks, including through tie-ups with other types of financial institutions;
 
  •  more competitive pricing;
 
  •  larger customer bases; and
 
  •  a wider range of products and services.
 
Sony Bank has focused on providing retail asset management and lending services for individuals, and faces significant competition in Japan’s retail financial services market. Sony Bank competes with Japan’s traditional banking institutions, regional banks, trust banks, non-bank companies, and Japan’s full-service and online brokerage firms.


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Sony Life, Sony Assurance and Sony Bank may also compete with Japan Post Group, which provides banking and insurance services to individuals. Japan Post Group has numerous post office locations throughout Japan and has enhanced its banking and insurance services in recent years.
 
In the Financial Services segment, it is important to maintain a strong and healthy financial foundation for the business as well as to meet diversifying customer needs. Sony Life has maintained a high solvency margin ratio, relative to Japanese domestic criteria that require the maintenance of a minimum solvency margin ratio. Sony Assurance also has maintained a high solvency margin ratio relative to the above-mentioned Japanese domestic criteria. Sony Bank has maintained an adequate capital adequacy ratio relative to the Japanese domestic criteria concerning this ratio.
 
Sony Ericsson
 
Sony Ericsson faces competition with the world’s largest mobile handset manufacturers and its recent strategy is to focus on the smartphone segment using the Android operating system.
 
 
Sony DADC is facing intense price competition as well as contraction of the worldwide DVD and CD package media markets, as storage of digital content shifts from physical media to online servers. In such an environment, Sony DADC faces the challenges of expanding its digital media services to meet customers’ requirements by taking advantage of digital media innovations (e.g., Blu-ray Disc) as well as the development of digital telecommunication networks and the expansion of Internet services. So-net faces competition in the Internet service provider business from other service providers in Japan, including telecommunications companies that possess their own telecommunication lines. Rapid technological advancement has created many new opportunities but it has also increased the rate at which new and more efficient services must be brought to market to earn customer approval. Customer price elasticity is high, and users are able to change Internet service providers with increasing ease. In the medical Internet service and online-game service, competition may become more intense due to the possibility of new entrants and drastic change in the market environment. Some of So-net’s current competitors have a stronger financial position, larger customer base, and better name recognition.
 
 
Sony’s business activities are subject to various governmental regulations in the different countries in which it operates, including regulations relating to various business/investment approvals, trade affairs including customs, import and export control, competition and antitrust, anti-bribery, advertising and promotion, intellectual property, broadcasting, consumer and business taxation, foreign exchange controls, personal information protection, product safety, labor, human rights, conflict, occupational health and safety, environmental and recycling requirements.
 
In Japan, Sony’s insurance businesses are subject to the Insurance Business Act and approvals and oversight from the Financial Services Agency (“FSA”). The Insurance Business Act specifies the types of businesses insurance companies may engage in, imposes limits on the types and amounts of investments that can be made and requires insurance companies to maintain specified reserves and a minimum solvency margin ratio. Particularly, life insurance companies must maintain a premium reserve (for the portion of other than unearned premiums), an unearned premium reserve, a reserve for refunds with respect to certain insurance contracts of life insurance companies specified in such regulations, and a contingency reserve in amounts no lower than the amounts of the “standard policy reserve” as set forth by the regulatory guidelines. Non-life insurance companies are also required to provide a policy reserve. The primary purpose of the Insurance Business Act and related regulations is to protect policyholders, not shareholders. Sony Bank is also subject to regulation by the FSA under the Banking Act of Japan, including the requirement that it maintain a minimum capital adequacy ratio in accordance with capital adequacy guidelines adopted by the FSA based on the Basel II agreement, and new guidelines to be adopted based on the Basel III agreement in the near future. The FSA has broad regulatory powers over insurance and banking businesses in Japan, including the authority to grant or revoke operating licenses and to request information and conduct onsite inspections of books and records. In addition, Sony’s telecommunication businesses in Japan are subject to


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approvals and oversight from the Ministry of Internal Affairs and Communications, under the Telecommunication Business Act and other regulations related to the Internet businesses and communication methods in Japan.
 
Social Responsibility Regulations Such as Environmental and Human Rights Regulations
 
Sony monitors and evaluates new environmental requirements that may affect its operations. For example, in Europe, Sony is required to comply with a number of environmental regulations enacted by the EU such as the Restriction of Hazardous Substances (“RoHS”) Directive, the Waste Electrical and Electronic Equipment (“WEEE”) Directive and the Registration, Evaluation, Authorization and Restriction of Chemicals (“REACH”) regulation. Similar regulations are being formulated in other areas of the world, including China and South American countries.
 
Sony has taken steps to address new regulations or governmental policies related to climate change including carbon disclosure, green house gas emission reduction, carbon taxes and energy efficiency for electronics products. For example, Sony has established an internal risk management system in response to the EU directive on energy-related products and their energy efficiency (“ErP”). Moreover, Japan has already introduced a regulation for cargo owners such as Sony to exert efforts to control energy consumption and CO2 emissions from their logistics operations. Additionally, Sony recognizes that emissions trading systems are already established or being considered for legislation in various countries and regions. For example, EU-ETS (European Union) and CRC (UK) are already established, and although Sony is not subject to EU-ETS’s scope of application, Sony group companies in the UK are responding to CRC. The Waxman-Markey bill (USA) and AU-ETS (Australia) are being considered for legislation and may have an effect on Sony group companies in those regions. In Japan, the Tokyo Metropolitan Government’s cap and trade system, “Obligation to Reduce Absolute Green House Gas Emissions and Emissions Trading System,” went into force in April 2010. This regulation requires large-sized sites in the Tokyo metropolitan area to reduce their average emissions over a five-year period to below a certain quantity and establishes an emission trading scheme to allow regulated entities to meet emission quantity targets set by law. Sony Corporation and Sony Life are subject to this regulation.
 
Sony also monitors and evaluates newly adopted laws and regulations that may affect its operations applicable to purchasing activities including the procurement of raw materials, with respect to environmental, occupational health and safety, human rights, labor and armed conflict issues. For example, Sony’s business activities may be subject to the laws and regulations established by Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, when it comes into effect.
 
Also refer to “Risk Factors” in “Item 3. Key Information.


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The following table sets forth the significant subsidiaries owned, directly or indirectly, by Sony Corporation.
 
             
    Country of
  (As of March 31, 2011)
Name of company   incorporation   Percentage owned
 
Sony EMCS Corporation
  Japan     100.0  
Sony Semiconductor Kyushu Corporation
  Japan     100.0  
Sony Marketing (Japan) Inc. 
  Japan     100.0  
Sony Computer Entertainment Inc. 
  Japan     100.0  
Sony Music Entertainment (Japan) Inc. 
  Japan     100.0  
Sony Financial Holdings Inc. 
  Japan     60.0  
Sony Life Insurance Co., Ltd. 
  Japan     100.0  
Sony Americas Holding Inc. 
  U.S.A.     100.0  
Sony Corporation of America
  U.S.A.     100.0  
Sony Electronics Inc. 
  U.S.A.     100.0  
Sony Computer Entertainment America LLC
  U.S.A.     100.0  
Sony Pictures Entertainment Inc. 
  U.S.A.     100.0  
Sony Music Entertainment
  U.S.A.     100.0  
Sony Europe Limited
  U.K.     100.0  
Sony Computer Entertainment Europe Ltd. 
  U.K.     100.0  
Sony Global Treasury Services Plc
  U.K.     100.0  
Sony Electronics Asia Pacific Pte. Ltd. 
  Singapore     100.0  
 
 
Sony has a number of offices, plants and warehouses throughout the world. Most of the buildings and land in/on which such offices, plants and warehouses are located are owned by Sony.
 
The following table sets forth information as of March 31, 2011 with respect to plants used for the production of products mainly for electronics products and services with floor space of more than 500,000 square feet:
 
             
    Approximate
     
Location   floor space     Principal products produced
    (square feet)      
 
In Japan:
           
             
Nagasaki
(Sony Semiconductor Kyushu Corporation
— Nagasaki TEC)
    2,266,000     CMOS image sensors and other semiconductors
             
Kumamoto
(Sony Semiconductor Kyushu Corporation
— Kumamoto TEC)
    2,119,000     CCDs, CMOS image sensors, LCDs and other semiconductors
             
Kagoshima
(Sony Semiconductor Kyushu Corporation
— Kagoshima TEC)
    1,763,000     CCDs, CMOS image sensors, LCDs and other semiconductors
             
Tottori
(Sony Mobile Display Corporation
— Tottori Plant)
    1,316,000     LCDs


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    Approximate
     
Location   floor space     Principal products produced
    (square feet)      
 
Higashiura, Aichi
(Sony Mobile Display Corporation
— Higashiura Plant)
    1,281,000     LCDs
             
Kohda, Aichi
(Sony EMCS Corporation — Tokai TEC — Kohda Site)
    878,000     Home-use video cameras, compact digital cameras and Memory Sticks
             
Inazawa, Aichi
(Sony EMCS Corporation — Tokai TEC — Inazawa Site)
    842,000     LCD televisions
             
Shimotsuke, Tochigi
(Sony Energy Devices Corporation
— Tochigi Plant)
    803,000     Magneto-optical disc and batteries
             
Kanuma, Tochigi
(Sony Chemicals & Information Device Corporation — Kanuma Plant)
    793,000     Magnetic tapes, adhesives and electronic components
             
Koriyama, Fukushima
(Sony Energy Devices Corporation
— Koriyama Plant)
    589,000     Batteries
             
Kosai, Shizuoka
(Sony EMCS Corporation — Tokai TEC —
Kosai Site)
    548,000     Broadcast- and professional-use video equipment
             
Kisarazu, Chiba
(Sony EMCS Corporation — Kisarazu TEC)
    541,000     Blu-ray Disc players/recorders, audio equipment and video conference systems
             
Minokamo, Gifu
(Sony EMCS Corporation — Tokai TEC — Minokamo Site)
    539,000     Home-use video cameras, compact digital cameras, digital SLR cameras, mobile phones and video conference systems
             
Outside of Japan:            
             
Terre Haute, Indiana, U.S.A.
(Sony DADC US Inc.)
    2,428,000     Blu-ray Disc-ROMs, CDs, DVDs and UMDs (Universal Media Disc)
             
Wuxi, China
(Sony Electronics (Wuxi) Co., Ltd., Sony Digital Products (Wuxi) Co., Ltd. and Sony (China) Ltd.)
    1,380,000     Batteries and compact digital cameras
             
Huizhou, China
(Sony Precision Devices (Huizhou) Co., Ltd.)
    1,354,000     Optical pickups and LCDs
             
Penang, Malaysia
(Sony EMCS (Malaysia) Sdn. Bhd. — PG TEC)
    988,000     Optical disc drives, batteries and audio equipment

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    Approximate
     
Location   floor space     Principal products produced
    (square feet)      
 
Bangi, Malaysia
(Sony EMCS (Malaysia) Sdn. Bhd. — KL TEC)
    797,000     LCD televisions, TV components, Blu-ray Disc players/Recorders and DVD-players/recorders
             
Tuas, Singapore
(Sony Electronics (Singapore) Pte. Ltd.)
    776,000     Batteries
             
Guangzhou, China
(Sony Electronics Huanan Co., Ltd.)
    707,000     Optical pickups
             
Bangkadi, Thailand
(Sony Device Technology (Thailand) Co., Ltd.
— Bangkadi Technology Centre)
    502,000     CCDs, CMOS image sensors and other semiconductors
 
In addition to the above facilities, Sony has a number of other plants for electronic products throughout the world. Sony owns research and development facilities, and employee housing and recreation facilities, as well as Sony Corporation’s headquarters main building, with a total floor space of approximately 1,753,000 square feet, in Tokyo, Japan, where administrative functions and product development activities are carried out. SCEI has its corporate headquarters in Sony Corporation’s headquarters main building and leases its corporate buildings located in Tokyo, where administrative functions, product development, and software development are carried out. SCEA and SCEE lease their offices in the U.S. and Europe, respectively.
 
SPE’s corporate offices and motion picture and television production facilities are headquartered in Culver City, California, where it owns and operates a studio facility, Sony Pictures Studios, with aggregate floor space of approximately 1,546,000 square feet. SPE also leases office space and motion picture and television support facilities from affiliates of Sony Corporation and other third parties in various worldwide locations. SPE’s film and videotape storage operations are located in various leased locations in the U.S. and Europe.
 
SME’s corporate offices are headquartered in New York, NY where it leases office space from SCA. SME also leases office space from third parties in various locations worldwide.
 
Most of SMEJ’s offices, including leased premises, are located in Tokyo, Japan.
 
In December 2008, SCA renewed its option under a lease with a variable interest entity which is consolidated by Sony, for its corporate headquarters. Sony has the option to purchase the building at any time during the lease term, which expires in December 2015. The aggregate floor space of this building is approximately 723,000 square feet.
 
During the fiscal year ended March 31, 2011, Sony ceased manufacturing at a total of six manufacturing sites, one in Japan and five outside of Japan. In addition, Epson Imaging Devices Corporation’s Tottori Plant was transferred to Sony in April 2010. The Sony Dothan Alabama plant, the Sony Slovakia, spol. s.r.o.-Nitra plant, and the Sony Espana S.A., Barcelona Technology Center have been removed from the table above. The Sony Dothan Alabama plant ceased manufacturing in September 2010. Sony sold 90.1 percent of its shares in the Sony Slovakia, spol. s.r.o.-Nitra plant to the Hon Hai Group in September 2010. In January 2011, Sony Espana S.A., Barcelona Technology Center was transferred to Ficosa International, S.A. and COMSA EMTE SL, both of which are headquartered in Spain.
 
As a result of the Great East Japan Earthquake, operations at ten Sony group sites and facilities, including Sony Chemicals & Information Device Corporation’s Kanuma Plant and Sony Energy Devices Corporation’s Tochigi and Koriyama Plants were suspended in March 2011. These ten damaged sites had resumed or partially resumed their operations by May 30, 2011.

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Item 4A.   Unresolved Staff Comments
 
Not applicable
 
Item 5.   Operating and Financial Review and Prospects
 
 
 
For the fiscal year ended March 31, 2011, consolidated operating income was significantly higher, 6.3 times the previous fiscal year’s amount, despite the large unfavorable impact of foreign exchange rates. The increase in consolidated operating income was driven primarily by improved results in the Networked Products & Services (“NPS”) segment due principally to the contribution of the game business. Improved results in the Consumer, Professional & Devices segment also contributed to the increase in consolidated operating income. A net loss attributable to Sony Corporation’s stockholders was recorded, mainly due to a non-cash charge to establish a valuation allowance against certain deferred tax assets in Japan.
 
Sony realigned its reportable segments from the first quarter of the fiscal year ended 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 (“S-LCD”), a joint venture with Samsung Electronics Co., Ltd. (“Samsung”), 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 (“Sony Ericsson”) continue to be presented as a separate segment.
 
In connection with this realignment, both the sales and operating income (loss) of each segment in the fiscal year ended March 31, 2010 have been revised to conform to the presentation for the fiscal year ended March 31, 2011.
 
Operating Performance
 
                         
    Fiscal year ended
   
    March 31    
    2010   2011   Percent change
    (Yen in billions)    
 
Sales and operating revenue
    7,214.0       7,181.3       – 0.5 %
Equity in net income (loss) of affiliated companies
    (30.2 )     14.1        
Operating income
    31.8       199.8       +528.9  
Income before income taxes
    26.9       205.0       +661.8  
Net loss attributable to Sony Corporation’s stockholders
    (40.8 )     (259.6 )      
 
 
Sales and operating revenue (“sales”) for the fiscal year ended March 31, 2011 were 7,181.3 billion yen, a decrease of 0.5 percent compared to the previous fiscal year (“year-on-year”), primarily due to a decrease in sales in all segments except the CPD and NPS segments. Unfavorable foreign exchange rates significantly affected sales in all segments except the Financial Services segment. A further breakdown of sales figures is presented under “Operating Performance by Business Segment” below.


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During the fiscal year ended March 31, 2011, the average rates of the yen were 84.7 yen against the U.S. dollar and 111.6 yen against the euro, which were 8.4 percent and 16.2 percent higher, respectively, than the previous fiscal year.
 
“Sales” in the analysis of the ratio of “cost of sales” to sales, the ratio of “research and development costs” to sales, and the ratio of “selling, general and administrative expenses (“SGA expenses”)” to sales refers only to the “net sales” and “other operating revenue” portions of consolidated sales (which excludes financial services revenue). This is because “financial services expenses” are recorded separately from cost of sales and SGA expenses in the consolidated financial statements. The calculations of all ratios below that pertain to business segments include intersegment transactions.
 
 
Cost of sales for the fiscal year ended March 31, 2011 decreased by 61.2 billion yen, or 1.3 percent year-on-year, to 4,831.4 billion yen, and improved from 76.7 percent to 75.7 percent as a percentage of sales.
 
Research and development costs (all research and development costs are included within cost of sales) decreased by 5.2 billion yen, or 1.2 percent year-on-year, to 426.8 billion yen. The ratio of research and development costs to sales was 6.7 percent compared to 6.8 percent in the previous fiscal year.
 
SGA expenses decreased by 43.1 billion yen, or 2.8 percent year-on-year, to 1,501.8 billion yen, mainly due to the impact of the appreciation of the yen and a decrease in personnel related costs, partially offset by an increase in advertising and publicity expenses. The ratio of SGA expenses to sales improved year-on-year from 24.2 percent to 23.5 percent.
 
Gain on sale, disposal or impairment of assets and other (net) was 13.5 billion yen, compared with a loss of 43.0 billion yen in the previous fiscal year. This improvement was mainly due to a 27.0 billion yen gain recognized as a result of Sony acquiring an additional 5 percent equity interest and a controlling interest including certain management rights in Game Show Network, LLC (“GSN”), which operates a U.S. cable network and online business. As a result, Sony remeasured its previously owned 35 percent equity interest in GSN which resulted in the recognition of the gain. Additionally, the previous fiscal year included impairment charges such as a 27.1 billion yen charge related to the impairment of LCD television assets* and a 7.8 billion yen charge related to the impairment of the small- and medium-sized amorphous thin film transistor (“TFT”) LCD fixed assets, which were partially offset by a 30.3 billion yen gain recognized from the sales of equity interests in certain television businesses in the Pictures segment. Refer to Notes 19, 24 and 25 to the notes to the consolidated financial statements.
 
* The loss of 27.1 billion yen on impairment, a non-cash charge recorded within operating income, primarily reflects a decrease in the estimated fair value of “property, plant and equipment” and certain intangible assets. Management’s strategic plans updated in the fourth quarter of the fiscal year ended March 31, 2010 resulted in decreases in the assets’ estimated service periods and corresponding estimated future cash flows leading to the impairment charge. Sony has excluded the loss on impairment from restructuring charges as it is not directly related to Sony’s ongoing restructuring initiatives. Sony defines restructuring initiatives as activities initiated by Sony, such as exiting a business or product category or implementing a headcount reduction program, which are designed to generate a positive impact on future profitability.
 
 
Equity in net income of affiliated companies, recorded within operating income, was 14.1 billion yen compared to equity in net loss of 30.2 billion yen in the previous fiscal year. Sony recorded equity in net income for Sony Ericsson of 4.2 billion yen compared to equity in net loss of 34.5 billion yen in the previous fiscal year. Equity in net income for S-LCD increased 6.8 billion yen to 7.2 billion yen.
 
 
Operating income increased 168.0 billion yen year-on-year to 199.8 billion yen despite the large unfavorable impact of foreign exchange rates. The significant increase in operating income was mainly due to an improvement


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in operating results in the NPS and CPD segments. For a further breakdown of operating income (loss) for each segment, please refer to “Operating Performance by Business Segment” below.
 
During the fiscal year ended March 31, 2011, Sony recorded charges of 11.9 billion yen, consisting principally of idle facility costs at manufacturing sites and an incremental provision for life insurance policy reserves, caused by the earthquake, resulting tsunami and related power outages that struck Eastern Japan on March 11, 2011 (the “Great East Japan Earthquake”). Furthermore, Sony incurred incremental expenses, including restoration costs (e.g., repair, removal and cleaning costs) directly related to the damages caused by the disaster to certain fixed assets including buildings, machinery and equipment as well as inventories at manufacturing sites and warehouses, in addition to charges for the disposal or impairment of fixed assets and inventories. These expenses amounted to 10.9 billion yen; however, Sony has insurance policies that cover certain damages to fixed assets and inventories as well as the associated restoration costs, which are expected to offset almost all of these losses and expenses in the fiscal year ended March 31, 2011, as the recoveries from insurance claims are deemed probable.
 
 
For the fiscal year ended March 31, 2011, other income increased by 1.1 billion yen, or 2.6 percent, to 45.0 billion yen, while other expenses decreased by 8.9 billion yen, or 18.3 percent year-on-year, to 39.8 billion yen. The net amount of other income and other expenses was income of 5.2 billion yen, an improvement of 10.1 billion yen year-on-year, primarily due to a net foreign exchange gain of 9.3 billion yen for the fiscal year ended March 31, 2011, as compared to a net foreign exchange loss of 10.9 billion yen for the previous fiscal year. A net foreign exchange gain was recorded mainly due to gains related to the period end valuation on derivative contracts entered into by Sony for the purpose of effective global cash management.
 
Interest and dividends in other income of 11.8 billion yen was recorded in the fiscal year ended March 31, 2011, a decrease of 1.4 billion yen, or 10.7 percent year-on-year. On the other hand, interest recorded in other expenses totaled 23.9 billion yen, an increase of 1.4 billion yen, or 6.2 percent year-on-year.
 
Income (Loss) before Income Taxes
 
For the fiscal year ended March 31, 2011, income before income taxes increased 178.1 billion yen year-on-year to 205.0 billion yen, mainly as a result of the above-mentioned increase in operating income.
 
 
For the fiscal year ended March 31, 2011, Sony recorded 425.3 billion yen of income taxes, primarily resulting from recording a non-cash charge to establish a valuation allowance of 362.3 billion yen against deferred tax assets at Sony Corporation and its national tax filing group in Japan. Carrying amounts of deferred tax assets are evaluated on a tax jurisdiction basis and require a reduction by a valuation allowance if, based on the available positive and negative evidence, it is more likely than not that such assets will not be realized. In Japan, Sony Corporation files a standalone tax filing for local tax purposes and a consolidated national tax filing with its wholly owned Japanese subsidiaries for national tax purposes. Sony Corporation and its national tax filing group in Japan are in a three year cumulative loss position in the fiscal year ended March 31, 2011. Under generally accepted accounting principles in the U.S. (“U.S. GAAP”), a three year cumulative loss position is considered significant negative evidence in assessing the realizability of deferred tax assets, which is difficult to overcome, particularly given the relatively short tax loss carryforward period of seven years in Japan and the anticipated impact of the Great East Japan Earthquake on the near-term forecast for entities in Japan. Accordingly, Sony determined in the fourth quarter of the fiscal year ended March 31, 2011 that it was required under U.S. GAAP to establish a valuation allowance against certain deferred tax assets in Japan. Refer to Note 21 to the notes to consolidated financial statements.
 
The non-cash charge to establish a valuation allowance does not have any impact on Sony’s consolidated operating income or cash flow, nor does such an allowance preclude Sony from using the loss carryforwards or other deferred tax assets in the future. It is also important to note that the establishment of this valuation allowance does not reflect a change in Sony’s view of its long-term corporate strategy.


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Net Income (loss) attributable to Sony Corporation’s stockholders
 
For the fiscal year ended March 31, 2011, net loss attributable to Sony Corporation’s stockholders, which excludes net income attributable to noncontrolling interests, was 259.6 billion yen, a deterioration of 218.8 billion yen year-on-year.
 
Net income attributable to noncontrolling interest of 39.3 billion yen was recorded, a decrease of 14.5 billion yen year-on-year. This was mainly due to the income recorded at Sony Financial Holdings, Inc. (“SFH”), for which there is a noncontrolling interest of 40 percent. For details of operating results in the Financial Services segment, refer to “Operating Performance by Business Segment” below.
 
Basic and diluted net losses per share attributable to Sony Corporation’s stockholders were both 258.66 yen compared with basic and diluted net losses per share of 40.66 yen in the previous fiscal year. Refer to Note 22 to the notes to the consolidated financial statements.
 
 
The following discussion is based on segment information. Sales and operating revenue in each business segment include intersegment transactions. Refer to Note 28 to the notes to the consolidated financial statements.
 
Business Segment Information
 
                         
    Fiscal year ended March 31    
    2010   2011   Percent change
    (Yen in billions)    
 
Sales and operating revenue
                       
Consumer, Professional & Devices
    3,518.1       3,572.7       +1.6 %
Networked Products & Services
    1,572.6       1,579.3       +0.4  
Pictures
    705.2       600.0       −14.9  
Music
    522.6       470.7       −9.9  
Financial Services
    851.4       806.5       −5.3  
All Other
    460.8       447.8       −2.8  
Corporate and Elimination
    (416.8 )     (295.9 )      
                         
Consolidated
    7,214.0       7,181.3       −0.5  
                         
 
                         
    Fiscal year ended March 31    
    2010   2011   Percent change
    (Yen in billions)    
 
Operating income (loss)
                       
Consumer, Professional & Devices
    (53.2 )     2.9       %
Networked Products & Services
    (83.3 )     35.6        
Pictures
    42.8       38.7       −9.7  
Music
    36.5       38.9       +6.6  
Financial Services
    162.5       118.8       −26.9  
Equity in net income (loss) of Sony Ericsson
    (34.5 )     4.2        
All Other
    (5.0 )     8.6        
                         
Sub-Total
    65.9       247.6       +275.8  
Corporate and Elimination
    (34.1 )     (47.8 )      
                         
Consolidated
    31.8       199.8       +528.9  
                         


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Consumer, Professional & Devices
 
Sales for the fiscal year ended March 31, 2011 increased 1.6 percent year-on-year to 3,572.7 billion yen. Sales to outside customers increased 4.3 percent year-on-year. This was primarily due to higher LCD television sales resulting from a significant increase in unit sales that came mostly from the Asia-Pacific, Other Areas, and Japan and higher semiconductor sales resulting from strong performances of small- and medium-sized LCD panels and image sensors. The sales increase was partially offset by unfavorable foreign currency exchange rates, lower components sales resulting from a decrease in sales of storage media affected by market contraction and a decrease in sales of optical disc drives driven by price competition. LCD television sales in Japan increased primarily due to both a program which provided consumers with a subsidy from the Japanese government and enhanced demand resulting from the transition from analog to digital television broadcasting in Japan which is scheduled to be completed by July 2011. The subsidy program ended on March 31, 2011.
 
Operating income of 2.9 billion yen was recorded, compared to a loss of 53.2 billion yen in the previous fiscal year. This improvement was driven primarily by an increase in gross profit due to higher sales, a decrease in loss on sale, disposal or impairment of assets and other (net), and a decrease in restructuring charges. These factors were partially offset by unfavorable foreign exchange rates and an increase in selling, general and administrative expenses primarily associated with higher marketing expenses. In the previous fiscal year, a 27.1 billion yen non-cash charge related to the impairment of LCD television assets, which were not included in restructuring charges, was recorded. (Refer to Note 19 to the notes to the consolidated financial statements.) Restructuring charges were 41.6 billion yen in the current fiscal year, compared with 75.9 billion yen recorded in the previous fiscal year. The current fiscal year’s restructuring charges included expenses of 11.6 billion yen related to the transfer to third parties of the Barcelona factory in Europe (executed in January 2011) and the impairment of related assets.
 
Categories that favorably impacted the change in segment operating results (excluding restructuring charges and the above-mentioned LCD television asset impairment) include semiconductors, reflecting an increase in sales of image sensors, and professional solutions, reflecting an increase in sales of products such as digital cinema projectors. A category that unfavorably impacted the change in segment operating results (excluding restructuring charges) was LCD televisions, reflecting a decline in unit selling prices and unfavorable foreign exchange rates, despite rising unit sales.
 
Below are the sales to outside customers by product category and unit sales of major product categories:
 
Sales to outside customers by product category
 
Figures in parentheses indicate the percentage contribution of each product category to the segment total.
 
                                         
    Fiscal year ended March 31    
    2010   2011   Percent change
        (Yen in millions)        
 
Televisions
    1,005,773       (31.4 )     1,200,491       (35.9 )     +19.4 %
Digital Imaging
    664,502       (20.7 )     642,570       (19.2 )     −3.3  
Audio and Video
    449,882       (14.0 )     426,594       (12.7 )     −5.2  
Semiconductors
    299,715       (9.4 )     358,396       (10.7 )     +19.6  
Components
    476,097       (14.8 )     410,090       (12.3 )     −13.9  
Professional Solutions
    295,360       (9.2 )     287,394       (8.6 )     −2.7  
Other
    16,217       (0.5 )     19,513       (0.6 )     +20.3  
                                         
CPD Total
    3,207,546       (100.0 )     3,345,048       (100.0 )     +4.3  
                                         


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Unit sales of major product categories
 
                                 
    Fiscal year ended March 31        
    2010   2011   Unit change   Percent change
    (Units in millions)        
 
LCD televisions within Televisions
    15.6       22.4       +6.8       +43.6 %
Home-use video cameras within Digital Imaging
    5.3       5.2       −0.1       −1.9  
Compact digital cameras within Digital Imaging
    21.0       24.0       +3.0       +14.3  
Blu-ray Disc recorders within Audio and Video
    0.7       1.0       +0.3       +42.9  
Blu-ray Disc players within Audio and Video
    3.3       4.6       +1.3       +39.4  
DVD players within Audio and Video
    11.5       10.0       −1.5       −13.0  
 
Networked Products & Services
 
Sales for the fiscal year ended March 31, 2011 increased 0.4 percent year-on-year, to 1,579.3 billion yen. Sales to outside customers decreased 1.2 percent year-on-year. Unfavorable foreign exchange rates offset increased sales mainly in PCs, which saw increased unit sales and an expanding market share in all regions, resulting in segment sales that were almost flat year-on-year.
 
Operating income of 35.6 billion yen was recorded, compared to a loss of 83.3 billion yen in the previous fiscal year. This improvement was mainly due to a significant improvement in the cost of sales ratio coupled with an increase in gross profit from higher sales, partially offset by unfavorable foreign exchange rates. A category that favorably impacted the change in segment operating results (excluding restructuring charges) was the game business, reflecting significant cost reductions of PlayStation®3 (“PS3”) hardware and higher unit sales of PS3 software.
 
Below are the sales to outside customers by product category, unit sales of each platform within the Game category, and unit sales of major products within the PC and Other Networked Businesses category:
 
Sales to outside customers by product category
 
Figures in parentheses indicate the percentage contribution of each product category to the segment total.
 
                                         
    Fiscal year ended March 31    
    2010   2011   Percent change
        (Yen in millions)        
 
Game
    840,711       (55.6 )     798,405       (53.5 )     −5.0 %
PC and Other Networked Businesses
    670,864       (44.4 )     694,731       (46.5 )     +3.6  
                                         
NPS Total
    1,511,575       (100.0 )     1,493,136       (100.0 )     −1.2  
                                         
 
Unit sales of each platform within the Game category
 
                                 
    Fiscal year ended March 31        
    2010   2011   Unit change   Percent change
    (Units in millions)        
 
Hardware
                               
PlayStation®3
    13.0       14.3       +1.3       +10.0 %
PSP® (PlayStation®Portable)
    9.9       8.0       −1.9       −19.2  
PlayStation®2
    7.3       6.4       −0.9       −12.3  
Software*
                               
PlayStation®3
    115.6       147.9       +32.3       +27.9  
PSP® (PlayStation®Portable)
    44.4       46.6       −2.2       +5.0  
PlayStation®2
    35.7       16.4       −19.3       −54.1  
 
* Network downloaded software is not included within unit software sales in the table above.


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Unit sales of major products within the PC and Other Networked Businesses category
 
                                 
    Fiscal year ended March 31        
    2010   2011   Unit change   Percent change
    (Units in millions)        
 
PCs
    6.8       8.7       +1.9       +27.9 %
Flash memory digital audio players
    8.0       8.4       +0.4       +5.0  
 
Total for the CPD and NPS Segments
 
 
Total inventory for the CPD and NPS segments, as of March 31, 2011, was 608.0 billion yen, which represents a 49.3 billion yen, or 8.8 percent increase compared with the level as of March 31, 2010.
 
Sales to Outside Customers by Geographic Area
 
Regarding sales to outside customers by geographic area for the CPD and NPS segments, combined sales decreased year-on-year by 8 percent in the U.S. and by 1 percent in Europe, and increased year-on-year by 8 percent in Japan, by 8 percent in non-Japan Asia-Pacific areas (“Asia-Pacific”), and by 13 percent in other geographic areas (“Other Areas”). Total combined sales in all areas increased year-on-year by 2 percent.
 
In the U.S., sales of products such as small- and medium-sized LCD panels and digital cinema projectors increased while sales of products such as LCD televisions, storage media and digital ebook readers decreased. In Europe, sales of products such as LCD televisions and PCs increased while sales in the game business and sales of products such as home-use video cameras decreased. In Japan, sales of products such as LCD televisions, interchangeable single lens cameras, and small- and medium-sized LCD panels increased, while sales of products such as storage media decreased. In Asia-Pacific, sales of products such as LCD televisions, small- and medium-sized LCD panels and PCs increased. In Other Areas, sales of products such as LCD televisions increased.
 
Sony’s LCD television sales in Japan increased approximately 42 percent in the fiscal year ended March 31, 2011. The increase was primarily as a result of both a program that provided consumers with a subsidy directly from the Japanese government after the purchase of qualifying products and enhanced demand resulting from the transition from analog to digital television broadcasting in Japan, which was scheduled to be completed by July 2011. The contribution of these factors to the growth in television sales was partially offset by continued price competition. The government subsidy program expired on March 31, 2011. Due to the relative size of the sales in Japan and outside of Japan, Sony anticipates that the impact of the expected contraction of the Japanese LCD television market after the end of the government subsidy program will be limited on a consolidated basis.
 
 
Approximately 55 percent of the CPD and NPS segments’ combined total annual production during the fiscal year ended March 31, 2011 was in-house production and approximately 45 percent was outsourced production.
 
Approximately 50 percent of the annual in-house production took place in Japan, including the production of compact digital cameras, home-use video cameras, LCD televisions, PCs, semiconductors and components such as batteries and storage media. Approximately 60 percent of the annual in-house production in Japan was destined for other countries. Production in Asia, excluding Japan and China, accounted for approximately 25 percent of the annual in-house production, with approximately 60 percent destined for Japan, the Americas, Europe and China. Production in China accounted for approximately 15 percent of the annual in-house production, approximately 50 percent of which was destined for other countries. Production in the Americas and Europe together accounted for approximately 10 percent of the annual in-house production, most of which was destined for local distribution and sale.


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Pictures segment results presented below are a yen-translation of the results of Sony Pictures Entertainment (“SPE”), a U.S.-based operation that aggregates the results of its worldwide subsidiaries on a U.S. dollar basis. Management analyzes the results of SPE in U.S. dollars, so discussion of certain portions of its results is specified as being on “a U.S. dollar basis.”
 
Sales for the fiscal year ended March 31, 2011 decreased 14.9 percent year-on-year, to 600.0 billion yen, primarily due to lower motion picture revenues and the appreciation of the yen against the U.S. dollar. On a U.S. dollar basis, sales for the fiscal year ended March 31, 2011 decreased approximately 8 percent. Motion picture revenues, also on a U.S. dollar basis, decreased approximately 13 percent year-on-year. While the current year benefitted from the strong performances of The Karate Kid, Grown Ups and Salt, international theatrical and worldwide home entertainment revenues declined significantly in comparison to the previous fiscal year which included 2012, Angels & Demons and Michael Jackson’s This Is It. Television revenues, on a U.S. dollar basis, increased approximately 8 percent year-on-year, primarily due to higher subscription and advertising revenues from a number of international channels and higher U.S. revenues from cable and syndication programming.
 
Operating income decreased 4.1 billion yen year-on-year, to 38.7 billion yen primarily due to the appreciation of the yen against the U.S. dollar. Operating income decreased by less than 1 percent on a U.S. dollar basis. This decrease was due to lower home entertainment revenues from motion picture catalog product and the theatrical underperformance of How Do You Know, substantially offset by the higher television revenues mentioned above.
 
In March 2011, SPE acquired an additional 5 percent equity interest and a controlling interest, including certain management rights, in GSN, which operates a U.S. cable network and online business. As a result, SPE’s total equity interest in GSN increased to 40 percent. In accordance with the accounting guidance for business combinations achieved in stages, Sony remeasured the 35 percent equity interest in GSN that it owned prior to the acquisition at the fair value of such interest at the time control was obtained. This resulted in the recognition of a gain of 27.0 billion yen, which is included in the current fiscal year’s operating income. The current fiscal year’s operating income also includes a gain on the sale of SPE’s remaining equity interest in a Latin American premium pay television business (HBO Latin America). The total gain recognized from these two transactions was 30.3 billion yen. Refer to Notes 24 and 25 to the notes to the consolidated financial statements.
 
In the previous fiscal year, there were gains recognized from the sale of a portion of SPE’s equity interest in both HBO Latin America and GSN, as well as from the sale of all of its equity interest in a Central European premium pay television business (HBO Central Europe). The total gain recognized from these sales was 30.3 billion yen.
 
As of March 31, 2011, unrecognized license fee revenue at SPE was approximately 1.5 billion U.S. dollars. SPE expects to record this amount in the future, having entered into contracts with television broadcasters to provide those broadcasters with completed motion picture and television products. The license fee revenue will be recognized in the fiscal year in which the product is made available for broadcast.
 
 
Music segment results presented below include the yen-translated results of Sony Music Entertainment (“SME”), a U.S.-based operation which aggregates the results of its worldwide subsidiaries on a U.S. dollar basis, the results of Sony Music Entertainment (Japan) Inc. (“SMEJ”), a Japan-based music company which aggregates its results in yen, and the yen-translated consolidated results of Sony/ATV Music Publishing LLC (“Sony/ATV”), a 50 percent owned U.S.-based consolidated joint venture in the music publishing business which aggregates the results of its worldwide subsidiaries on a U.S. dollar basis.
 
Sales for the fiscal year ended March 31, 2011 decreased 9.9 percent year-on-year to 470.7 billion yen. This decrease was primarily due to the negative impact of the appreciation of the yen against the U.S. dollar, the especially strong performance of Michael Jackson product in the previous fiscal year and the continued contraction of the physical music market. Best selling titles during the current year included ikimono-gakari’s IKIMONO BAKARI: MEMBERS’ BEST SELECTION, Susan Boyle’s The Gift, P!nk’s Greatest Hits ... So Far!!!, Michael Jackson’s Michael and music from the cast of the hit television show Glee.


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Operating income increased 2.4 billion yen year-on-year to 38.9 billion yen. Despite the decrease in sales, operating income increased due to decreases in marketing, restructuring and overhead costs.
 
 
The results of Sony Life Insurance Co., Ltd. (“Sony Life”) discussed below on the basis of U.S. GAAP differ from the results that SFH and Sony Life disclose separately on a Japanese statutory basis.
 
Financial services revenue for the fiscal year ended March 31, 2011 decreased 5.3 percent year-on-year to 806.5 billion yen, primarily due to a decrease in revenue at Sony Life. Revenue at Sony Life decreased 5.9 percent year-on-year to 696.7 billion yen, primarily due to a decrease in investment income. The decrease in revenue at Sony Life was partially offset by an increase in revenue from insurance premiums, reflecting a steady increase in policy amount in force.
 
Operating income decreased 43.7 billion yen year-on-year to 118.8 billion yen, primarily due to a decrease in operating income at Sony Life. Operating income at Sony Life decreased 48.9 billion yen year-on-year to 117.7 billion yen. The decrease was mainly due to recording of net valuation gains from investments in convertible bonds in the general account in the fiscal year ended March 31, 2010 resulting from a significant rise in the Japanese stock market, and an increase in the provision of policy reserves for variable insurance in the separate account in the fiscal year ended March 31, 2011, driven primarily by a decline in the Japanese stock market.
 
Information of Operations Separating Out the Financial Services Segment
 
The following charts show Sony’s information of operations for the Financial Services segment alone and for all segments excluding the Financial Services segment. These separate condensed presentations are not required or prepared under U.S. GAAP, which is used in Sony’s consolidated financial statements. However, because the Financial Services segment is different in nature from Sony’s other segments, Sony utilizes this information to analyze its results without the Financial Services segment and believes that these presentations may be useful in understanding and analyzing Sony’s consolidated financial statements. Transactions between the Financial Services segment and Sony without the Financial Services segment, including noncontrolling interests, are included in those respective presentations, then eliminated in the consolidated figures shown below.
 
                 
    Fiscal year ended March 31
  Financial Services segment   2010   2011
    (Yen in millions)
 
Financial services revenue
    851,396       806,526  
Financial services expenses
    687,559       685,747  
Equity in net loss of affiliated companies
    (1,345 )     (1,961 )
                 
Operating income
    162,492       118,818  
Other income (expenses), net
    (966 )     868  
                 
Income before income taxes
    161,526       119,686  
Income taxes and other
    54,721       48,570  
                 
Net income of Financial Services
    106,805       71,116  
                 
 


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    Fiscal year ended March 31
  Sony without the Financial Services segment   2010   2011
    (Yen in millions)
 
Net sales and operating revenue
    6,381,094       6,388,759  
Costs and expenses
    6,484,642       6,326,233  
Equity in net income (loss) of affiliated companies
    (28,890 )     16,023  
                 
Operating income (loss)
    (132,438 )     78,549  
Other income, net
    1,836       10,790  
                 
Income (loss) before income taxes
    (130,602 )     89,339  
Income taxes and other
    (34,081 )     387,375  
                 
Net loss of Sony without Financial Services
    (96,521 )     (298,036 )
                 
 
                 
    Fiscal year ended March 31
  Consolidated   2010   2011
    (Yen in millions)
 
Financial services revenue
    838,300       798,495  
Net sales and operating revenue
    6,375,698       6,382,778  
                 
      7,213,998       7,181,273  
Costs and expenses
    7,151,991       6,995,514  
Equity in net income (loss) of affiliated companies
    (30,235 )     14,062  
                 
Operating income
    31,772       199,821  
Other income (expenses), net
    (4,860 )     5,192  
                 
Income before income taxes
    26,912       205,013  
Income taxes and other
    67,714       464,598  
                 
Net loss attributable to Sony Corporation’s Stockholders
    (40,802 )     (259,585 )
                 
 
Sony Ericsson
 
Sony Ericsson’s operating results are accounted for under the equity method and are not consolidated in Sony’s consolidated financial statements, as Sony Corporation’s ownership percentage of Sony Ericsson is 50 percent. Sony Ericsson aggregates the results of its worldwide subsidiaries on a euro basis. However, Sony believes that the following disclosure provides additional useful analytical information to investors regarding Sony’s operating performance. Pursuant to Rule 3-09 of Regulation S-X under the Securities Exchange Act of 1934, as amended, Sony Ericsson’s financial statements are included in this Annual Report on Form 20-F on pages A-1 to A-28.
 
Sales for the year ended March 31, 2011 decreased 6.5 percent year-on-year to 6,034 million euro. This decrease was due to a decline in unit shipments as a result of a focus on high-end smartphones and a reduction in the size of the product portfolio. Income before taxes of 133 million euro was recorded for the current year, compared to a loss before taxes of 654 million euro in the previous year. This improvement was mainly due to the positive impact of a rise in the average selling price, a favorable product mix and improved cost structure. In addition, there was a benefit relating to the reversal of warranty reserves.
 
As a result, Sony recorded equity in net income of Sony Ericsson of 4.2 billion yen for the current fiscal year, compared to equity in net loss of 34.5 billion yen in the previous fiscal year.

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Sales for the fiscal year ended March 31, 2011 decreased 2.8 percent year-on-year, to 447.8 billion yen. The decrease in sales is mainly due to unfavorable foreign exchange rates and lower sales in the disc manufacturing business.
 
Operating income of 8.6 billion yen was recorded for the fiscal year ended March 31, 2011, compared to a loss of 5.0 billion yen in the previous fiscal year. This improvement was mainly due to the fact that there were charges related to the withdrawal from the property management operation of an entertainment complex in Japan and the termination payments of the property lease contract in the previous fiscal year. In addition, losses from an unprofitable measuring systems business that were incurred in the previous fiscal year were not incurred in the fiscal year ended March 31, 2011 due to the sale of that business, which also contributed to the segment results improvement. The sale was completed at the end of March 2010.
 
 
As the global economy experienced a sharp downturn following the autumn of 2008, Sony announced major restructuring initiatives in January 2009. Sony continued to implement its restructuring initiatives during the fiscal year ended March 31, 2011. These initiatives included a review of Sony group’s investment plan, the realignment of its manufacturing sites, the reallocation of its workforce, and headcount reductions, in order to reform Sony’s operational structure and achieve improvements in competitiveness and profitability.
 
In the fiscal year ended March 31, 2011, Sony recorded restructuring charges of 67.1 billion yen, which includes 4.8 billion yen of non-cash charges related to depreciation associated with restructured assets, compared to 124.3 billion yen of restructuring charges recorded in the previous fiscal year. There were 7.9 billion yen of non-cash charges related to depreciation associated with restructured assets in the previous fiscal year. Restructuring charges decreased by 57.3 billion yen or 46.1 percent year-on-year, as Sony implemented the major part of its fixed cost and total asset reduction plan in the previous fiscal year. Of the total 67.1 billion yen incurred in the fiscal year ended March 31, 2011, 38.3 billion yen were personnel related costs, primarily included in SGA expenses in the consolidated statements of income. These personnel related costs decreased 41.3 percent, compared to the previous fiscal year. Sony’s total manufacturing sites were reduced from 57 sites as of December 31, 2008 to 46 sites as of March 31, 2010, and then to 41 sites as of March 31, 2011. As a result, Sony has been consolidating its manufacturing operations and increasingly utilizing the services of third party original equipment manufacturing (“OEMs”) and third party original design manufacturing (“ODMs”).
 
Restructuring charges for the fiscal year ended March 31, 2011 were recorded mainly in the CPD segment. In the CPD segment, restructuring charges amounted to 41.6 billion yen, which include 3.6 billion yen of non-cash charges related to depreciation associated with restructured assets for the fiscal year ended March 31, 2011, compared to 75.9 billion yen of restructuring charges recorded in the previous fiscal year. Charges in the previous fiscal year included 7.3 billion yen of non-cash charges related to depreciation associated with restructured assets. In the fiscal year ended March 31, 2011, the CPD segment recorded 25.3 billion yen of restructuring charges related to personnel costs, comprising 66.2 percent of the total 38.3 billion yen personnel costs recorded on a consolidated basis. The CPD segment’s restructuring charges included expenses of 11.6 billion yen related to the transfer to third parties of the Barcelona factory in Europe and the impairment of related assets (executed in January 2011). With respect to television operations, Sony ceased manufacturing operations during the previous fiscal year at its Sony EMCS Corporation’s Ichinomiya TEC and at its Sony Baja California, S.A. de C.V.’s Mexicali factory and completed the transfer to the Hon Hai Group of 90.0 percent of Sony’s equity interest in Sony Baja California and certain manufacturing assets related to LCD televisions at Sony Baja California’s Tijuana Factory in Mexico, which mainly manufactures LCD televisions for the Americas region. The Tijuana Factory remains a key manufacturing site of Sony LCD televisions for the Americas region. In the fiscal year ended March 31, 2011, Sony completed the transfer to the Hon Hai Group of 90.1 percent of Sony’s equity interest in the Nitra Factory in Slovakia and the transfer to Ficosa International, S.A. and COMSA EMTE SL of Sony Espana S.A.’s Barcelona Technology Center. The Nitra plant remains a key manufacturing site of LCD televisions for the European region.
 
In all segments, excluding the CPD segment, restructuring charges were recorded mainly due to headcount reductions through early retirement programs.


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Restructuring charges discussed in Item 5, which include non-cash charges related to depreciation associated with restructured assets, are described in Note 19 to the notes to the consolidated financial statements.
 
 
During the fiscal year ended March 31, 2011, the average rates of the yen were 84.7 yen against the U.S. dollar and 111.6 yen against the euro, which was 8.4 percent and 16.2 percent higher, respectively, than the previous fiscal year.
 
Sony’s consolidated results are subject to foreign currency rate fluctuations largely because the currency used in the countries where manufacturing takes place may be different from those where such products are sold. In order to reduce the risk caused by such fluctuations, Sony employs derivatives, including foreign exchange forward contracts and foreign currency option contracts, in accordance with a consistent risk management strategy. Such derivatives are used primarily to mitigate the effect of foreign currency exchange rate fluctuations on cash flows generated or anticipated by Sony Corporation and by its subsidiaries’ transactions and accounts receivable and payable denominated in foreign currencies.
 
Sony Global Treasury Services Plc (“SGTS”) in London provides integrated treasury services for Sony Corporation, its subsidiaries, and affiliated companies. Sony’s policy is that Sony Corporation and all subsidiaries with foreign exchange exposures should enter into commitments with SGTS to hedge their exposures. Sony Corporation and most of its subsidiaries utilize SGTS for this purpose. The concentration of foreign exchange exposures at SGTS means that, in effect, SGTS hedges most of the net foreign exchange exposure of Sony Corporation, its subsidiaries and affiliated companies. SGTS in turn enters into foreign exchange transactions with creditworthy third party financial institutions. Most of these transactions are entered into against projected exposures before the actual export and import transactions take place. In general, SGTS hedges the projected exposures on average three months before the actual transactions take place. However, in certain cases SGTS partially hedges the projected exposures one month before the actual transactions take place when business requirements such as shorter production-sales cycles for certain products arise. Sony enters into foreign exchange transactions with financial institutions primarily for hedging purposes. Sony does not use these derivative financial instruments for trading or speculative purposes except for certain derivatives in the Financial Services segment. In the Financial Services segment, Sony uses derivatives primarily for Asset Liability Management (“ALM”).
 
To minimize the effects of foreign exchange fluctuations on its financial results, particularly in the CPD and NPS segments, Sony seeks, when appropriate, to localize material and parts procurement, design and manufacturing operations in areas outside of Japan.
 
Changes in the fair value of derivatives designated as cash flow hedges are initially recorded in accumulated other comprehensive income and reclassified into earnings when the hedged transaction affects earnings. Foreign exchange forward contracts, foreign currency option contracts and other derivatives that do not qualify as hedges are marked-to-market with changes in value recognized in other income and expenses. The notional amount and the net fair value of all the foreign exchange derivative contracts as of March 31, 2011 were 1,533.5 billion yen and a liability of 5.1 billion yen, respectively.
 
 
Sony realigned its segments from the first quarter of the fiscal year ended March 31, 2011 to reflect the company’s reorganization as of April 1, 2010. In connection with this realignment, both the sales and operating income (loss) of each segment in the fiscal year ended March 31, 2010 and in the fiscal year ended March 31, 2009 have been revised to conform to the presentation for the fiscal year ended March 31, 2011.


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Operating Performance
 
                         
    Fiscal year ended March 31    
    2009   2010   Percent change
    (Yen in billions)    
 
Sales and operating revenue
    7,730.0       7,214.0       −6.7 %
Equity in net income (loss) of affiliated companies
    (25.1 )     (30.2 )      
Operating income (loss)
    (227.8 )     31.8        
Income (loss) before income taxes
    (175.0 )     26.9        
Net income (loss) attributable to Sony Corporation’s stockholders
    (98.9 )     (40.8 )      
 
 
Sales for the fiscal year ended March 31, 2010 decreased 6.7 percent year-on-year, to 7,214.0 billion yen, primarily due to unfavorable foreign currency exchange rates and a decrease in sales in the CPD segment, partially offset by an increase in revenue in the Financial Services segment. A further breakdown of sales figures is presented under “Operating Performance by Business Segment” below.
 
During the fiscal year ended March 31, 2010, the average rates of the yen were 91.8 yen against the U.S. dollar and 129.7 yen against the euro, which were 8.4 percent and 9.5 percent higher, respectively, year-on-year.
 
“Sales” in the analysis of the ratio of “cost of sales” to sales, the ratio of “research and development costs” to sales, and the ratio of “SGA expenses” to sales refers only to the “net sales” and “other operating revenue” portions of consolidated sales (which excludes financial services revenue). This is because “financial services expenses” are recorded separately from cost of sales and SGA expenses in the consolidated financial statements. The calculations of all ratios below that pertain to business segments include intersegment transactions.
 
 
Cost of sales for the fiscal year ended March 31, 2010 decreased by 767.9 billion yen, or 13.6 percent year-on-year, to 4,892.6 billion yen, and improved from 78.5 percent to 76.7 percent as a percentage of sales.
 
Research and development costs (all research and development costs are included within cost of sales) decreased by 65.3 billion yen, or 13.1 percent year-on-year to 432.0 billion yen. The ratio of research and development costs to sales was 6.8 percent compared to 6.9 percent in the previous fiscal year.
 
SGA expenses decreased by 141.1 billion yen, or 8.4 percent year-on-year, to 1,544.9 billion yen, mainly due to the impact of the appreciation of the yen and a decrease in advertising and publicity expenses. The ratio of SGA expenses to sales increased year-on-year from 23.4 percent to 24.2 percent.
 
Loss on sale, disposal or impairment of assets and other (net) was 43.0 billion yen, compared with a loss of 38.3 billion yen in the previous fiscal year. This loss was primarily due to impairment charges including a 27.1 billion yen charge related to the impairment of LCD television assets*, a 7.8 billion yen charge related to the impairment of the small- and medium-sized amorphous TFT LCD fixed assets and other less significant losses on the sale, disposal or impairment of assets and other (net). These charges were partially offset by gains on the sales of assets including a 22.0 billion yen gain recognized from the sales of equity interests in HBO Latin America and HBO Central Europe. The loss recorded in the previous fiscal year was primarily the result of impairment charges including long-lived asset impairments mainly due to the downsizing and withdrawal from certain businesses as well as goodwill impairment charges. Refer to Notes 19, 24 and 25 to the notes to the consolidated financial statements.
 
* The 27.1 billion yen loss on impairment, a non-cash charge recorded within operating income, primarily reflects a decrease in the estimated fair value of property, plant and equipment and certain intangible assets. Management’s strategic plans updated in the fourth quarter of the fiscal year ended March 31, 2010 resulted in decreases in the assets’ estimated service periods and corresponding estimated future cash flows leading to the impairment charge. Sony has excluded the loss on impairment from restructuring charges as it is not directly related to Sony’s ongoing


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restructuring initiatives. Sony defines restructuring initiatives as activities initiated by Sony, such as exiting a business or product category or implementing a headcount reduction program, which are designed to generate a positive impact on future profitability.
 
 
Equity in net loss of affiliated companies, recorded within operating income, was 30.2 billion yen, an increased loss of 5.1 billion yen year-on-year. Sony recorded equity in net loss for Sony Ericsson of 34.5 billion yen compared to equity in net loss of 30.3 billion yen in the previous fiscal year. Equity in net income for S-LCD, a joint venture with Samsung, decreased by 6.5 billion yen year-on-year to 0.4 billion yen.
 
 
Operating income for the fiscal year ended March 31, 2010 was 31.8 billion yen, an improvement of 259.6 billion yen year-on-year. Operating results improved significantly primarily due to an improvement in operating results in the Financial Services segment, as well as an improvement in the cost of sales ratio and a reduction in SGA expenses mainly in the CPD segment. For a further breakdown of operating income (loss) for each segment, please refer to “Operating Performance by Business Segment” below.
 
 
For the fiscal year ended March 31, 2010, other income decreased by 55.0 billion yen, or 55.6 percent, to 43.8 billion yen, while other expenses increased by 2.7 billion yen, or 5.9 percent year-on-year, to 48.7 billion yen. The net amount of other income and other expenses was an expense of 4.9 billion yen, a deterioration of 57.7 billion yen year-on-year, primarily due to a net foreign exchange loss of 10.9 billion yen that was recorded for the fiscal year ended March 31, 2010, as compared to a net foreign exchange gain of 48.6 billion yen that was recorded in the previous fiscal year. A net foreign exchange loss was recorded mainly due to losses related to the period end valuation on derivative contracts entered into by Sony for the purpose of effective global cash management.
 
Interest and dividends in other income of 13.2 billion yen was recorded in the fiscal year ended March 31, 2010, a decrease of 9.1 billion yen, or 40.9 percent year-on-year. This decrease was mainly due to a decrease in interest received resulting from a lower rate of return on investments in Japan and the U.S. For the fiscal year ended March 31, 2010, interest recorded in other expenses totaled 22.5 billion yen, a decrease of 1.9 billion yen, or 7.7 percent year-on-year.
 
Income (Loss) before Income Taxes
 
For the fiscal year ended March 31, 2010, income before income taxes of 26.9 billion yen was recorded, an improvement of 201.9 billion yen year-on-year, mainly as a result of the above-mentioned improvement in operating results.
 
 
During the fiscal year ended March 31, 2010, Sony recorded 14.0 billion yen of income taxes resulting in an effective tax rate of 51.9 percent. This effective tax rate was higher than the Japanese statutory tax rate primarily due to the impact of equity investments reported net of income taxes, partially offset by lower effective tax rates on profits in the insurance business of the Financial Services segment.
 
In the previous fiscal year, Sony recorded 72.7 billion yen of income tax benefit resulting in an effective tax rate of 41.6 percent. This income tax benefit was mainly due to a loss before income taxes and the partial reversal of certain deferred tax liabilities for the undistributed earnings of foreign subsidiaries and affiliates, due to a change in the tax regulations in Japan to treat 95 percent of the dividends from overseas subsidiaries as non-taxable income, partially offset by the impact of equity in net loss reported net of income taxes, the reversal of certain deferred tax assets, and an increase in valuation allowance.


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Net Income (loss) attributable to Sony Corporation’s stockholders
 
For the fiscal year ended March 31, 2010, net loss attributable to Sony Corporation’s stockholders, which excludes net income attributable to noncontrolling interests, was 40.8 billion yen, a 58.1 billion yen improvement year-on-year.
 
Net income attributable to noncontrolling interest of 53.8 billion yen was recorded, as compared to net loss of 3.3 billion yen in the previous fiscal year. This was mainly due to the income recorded at SFH, for which there is a noncontrolling interest of 40 percent, primarily as a result of the improvement in net valuation gains from investments in convertible bonds in the general account at Sony Life due to the improved situation in the Japanese stock market.
 
Basic and diluted net losses per share attributable to Sony Corporation’s stockholders were both 40.66 yen compared with net loss per share of 98.59 yen in the previous fiscal year. Refer to Note 22 to the notes to the consolidated financial statements.
 
 
The following discussion is based on segment information. Sales and operating revenue in each business segment include intersegment transactions. Refer to Note 28 to the notes to the consolidated financial statements.
 
Business Segment Information
 
                         
    Fiscal year ended March 31        
    2009     2010     Percent change  
    (Yen in billions)        
 
Sales and operating revenue
                       
Consumer, Professional & Devices
    4,357.7       3,518.1       −19.3 %
Networked Products & Services
    1,755.6       1,572.6       −10.4  
Pictures
    717.5       705.2       −1.7  
Music
    387.1       522.6       +35.0  
Financial Services
    538.2       851.4       +58.2  
All Other
    530.1       460.8       −13.1  
Corporate and Elimination
    (556.3 )     (416.8 )      
                         
Consolidated
    7,730.0       7,214.0       −6.7  
                         
 
                         
    Fiscal year ended March 31        
    2009     2010     Percent change  
    (Yen in billions)        
 
Operating income (loss)
                       
Consumer, Professional & Devices
    (115.6 )     (53.2 )     %
Networked Products & Services
    (87.4 )     (83.3 )      
Pictures
    29.9       42.8       +43.1  
Music
    27.8       36.5       +31.1  
Financial Services
    (31.2 )     162.5        
Equity in net loss of Sony Ericsson
    (30.3 )     (34.5 )      
All Other
    3.1       (5.0 )      
                         
Sub-Total
    (203.5 )     65.9        
Corporate and Elimination
    (24.2 )     (34.1 )      
                         
Consolidated
    (227.8 )     31.8        
                         


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Consumer, Professional & Devices
 
Sales for the fiscal year ended March 31, 2010 decreased 19.3 percent year-on-year, to 3,518.1 billion yen. Sales to outside customers decreased 18.3 percent compared with the previous fiscal year. This decrease was primarily as a result of unfavorable foreign currency exchange rates, a decrease in sales of LCD televisions due to a decline in unit selling prices and a decrease in sales of home-use video cameras and compact digital cameras due to the contraction of these markets.
 
An operating loss of 53.2 billion yen was recorded, an improvement of 62.4 billion yen year-on-year. This was driven by a reduction in selling, general and administrative expenses, and an improvement in the cost of sales ratio, mainly of LCD televisions, partially offset by a decrease in gross profit due to lower sales and unfavorable foreign currency exchange rates. Restructuring charges were 75.9 billion yen for the fiscal year ended March 31, 2010, which includes 7.3 billion yen of non-cash charges related to depreciation associated with restructured assets, compared with 53.7 billion yen of restructuring charges recorded in the previous fiscal year. Depreciation associated with restructured assets refers to the increase in depreciation expense caused by shortening the useful life or updating the salvage value of depreciable fixed assets to coincide with the end of production under an approved restructuring plan. In the fiscal year ended March 31, 2010, a 27.1 billion yen non-cash charge related to the impairment of LCD television assets, which was not included in restructuring charges, was also recorded. (Refer to Note 19 to the notes to the consolidated financial statements.)
 
Products contributing to the improvement in operating results (excluding restructuring charges) include LCD televisions and compact digital cameras, reflecting the benefits of cost reduction activities that exceeded the impact of the decrease in sales, and images sensors, that saw an increase in sales. This was partially offset by lower operating results for the content creation systems which were affected by the deterioration in the business environment brought on by the slowing global economy and for system LSIs for the game business which were affected by lower sales resulting from price reductions driven by cost saving efforts.
 
No additional provision or reversal of expenses relating to voluntary notebook computer battery pack recalls and the subsequent global replacement program, and free repair expenses relating to Sony products and the products of other companies containing Sony-made charged coupled devices was recorded in the fiscal year ended March 31, 2010, and the remaining balance of the provision as of March 31, 2010 was not significant.
 
Below are the sales to outside customers by product category and unit sales of major product categories:
 
Sales to outside customers by product category
 
Figures in parentheses indicate the percentage contribution of each product category to the segment total.
 
                                         
    Fiscal year ended March 31    
    2009   2010   Percent change
        (Yen in millions)        
 
Televisions
    1,275,692       (32.5 )     1,005,773       (31.4 )     −21.2 %
Digital Imaging
    831,820       (21.2 )     664,502       (20.7 )     −20.1  
Audio and Video
    531,542       (13.5 )     449,882       (14.0 )     −15.4  
Semiconductors
    310,682       (7.9 )     299,715       (9.4 )     −3.5  
Components
    613,013       (15.6 )     476,097       (14.8 )     −22.3  
Professional Solutions
    346,326       (8.8 )     295,360       (9.2 )     −14.7  
Other
    17,311       (0.5 )     16,217       (0.5 )     −6.3  
                                         
CPD Total
    3,926,386       (100.0 )     3,207,546       (100.0 )     −18.3  
                                         


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Unit sales of major product categories
 
                                 
    Fiscal year ended
       
    March 31        
    2009   2010   Unit change   Percent change
    (Units in millions)        
 
LCD televisions within Televisions
    15.2       15.6       +0.4       +2.6 %
Home-use video cameras within Digital Imaging
    6.2       5.3       −0.9       −14.5  
Compact digital cameras within Digital Imaging
    22.0       21.0       −1.0       −4.5  
Blu-ray Disc recorders within Audio and Video
    0.5       0.7       +0.2       +40.0  
Blu-ray Disc players within Audio and Video
    2.2       3.3       +1.1       +50.0  
DVD players within Audio and Video
    9.7       11.5       +1.8       +18.6  
 
Networked Products & Services
 
Sales for the fiscal year ended March 31, 2010 decreased 10.4 percent year-on-year, to 1,572.6 billion yen, primarily due to a decrease in sales in the game business and sales of PCs. Sales in the game business decreased year-on-year mainly due to unfavorable foreign currency exchange rates, decreases in unit sales of PSP®(PlayStation®Portable) (“PSP”) hardware and PlayStation®2 (“PS2”) software. These decreases were partially offset by increased unit sales of PS3 software, driven by the expanded PS3 platform as a result of the launch of a new model.
 
An operating loss of 83.3 billion yen was recorded, an improvement of 4.2 billion yen year-on-year. This was driven by an improvement in the cost of sales ratio, mainly of PS3 hardware, and a reduction in selling, general and administrative expenses, partially offset by unfavorable foreign currency exchange rates and a decrease in gross profit due to lower sales. Products contributing to the improvement in operating results (excluding restructuring charges) include flash memory digital audio players. On the other hand, operating results in the game business deteriorated mainly due to lower unit sales of PS2 software and of PSP hardware, partially offset by cost reductions in PS3 hardware and increased unit sales of PS3 software.
 
Below are the sales to outside customers by product category, unit sales of each platform within the Game category, and unit sales of major products within the PC and Other Networked Businesses category:
 
Sales to outside customers by product category
 
Figures in parentheses indicate the percentage contribution of each product category to the segment total.
 
                                         
    Fiscal year ended March 31    
    2009   2010   Percent change
        (Yen in millions)        
 
Game
    984,855       (58.5 )     840,711       (55.6 )     −14.6 %
PC and Other Networked Businesses
    699,903       (41.5 )     670,864       (44.4 )     −4.1  
                                         
NPS Total
    1,684,758       (100.0 )     1,511,575       (100.0 )     −10.3  
                                         


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Unit sales of each platform within the Game category
 
                                 
    Fiscal year ended March 31        
    2009   2010   Unit change   Percent change
    (Units in millions)        
 
Hardware
                               
PlayStation®3
    10.1       13.0       +2.9       +28.7 %
PSP (PlayStation®Portable)
    14.1       9.9       −4.2       −29.8  
PlayStation®2
    7.9       7.3       −0.6       −7.6  
Software*
                               
PlayStation®3
    103.7       115.6       +11.9       +11.5  
PSP®(PlayStation®Portable)
    50.3       44.4       −5.9       −11.7  
PlayStation®2
    83.5       35.7       −47.8       −57.2  
 
* Network downloaded software is not included within unit software sales in the table above.
 
Unit sales of major products within the PC and Other Networked Businesses category
 
                                 
    Fiscal year ended March 31        
    2009   2010   Unit change   Percent change
    (Units in millions)        
 
PCs
    5.8       6.8       +1.0       +17.2 %
Flash memory digital audio players
    7.0       8.0       +1.0       +14.3  
 
Total for the CPD and NPS Segments
 
 
Total Inventory for the CPD and NPS segments, as of March 31, 2010, was 558.7 billion yen.
 
Sales to Outside Customers by Geographic Area
 
Regarding sales to outside customers by geographic area for the CPD and NPS segments, combined sales for the fiscal year ended March 31, 2010 decreased by 6 percent in Japan, 18 percent in the U.S., 25 percent in Europe, 8 percent in non-Japan Asia-Pacific*, and 15 percent in Other Areas. Total combined sales decreased year-on-year by 16 percent.
 
* Major areas in Asia-Pacific are China, Taiwan, India, South Korea and Oceania.
 
In Japan, sales of products such as LCD televisions and digital music players increased while sales in the game business and sales of products such as system LSI, storage media, chemical products*, broadcast- and professional-use products, and compact digital cameras decreased. In the U.S., sales of products such as digital book readers increased while sales of LCD televisions, sales in the game business and sales of products such as PCs, storage media, home-use video cameras, and compact digital cameras decreased. In Europe, sales of LCD televisions, sales in the game business and sales of products such as home-use video cameras, PCs, compact digital cameras, storage media, and broadcast- and professional-use products decreased. In Asia-Pacific, sales of products such as PCs increased while sales in the game business and sales of products such as LCD televisions, compact digital cameras, optical pickups, storage media, and home-use video cameras decreased. In Other Areas, sales of products such as LCD televisions, home audio, compact digital cameras, car audio, home-use video cameras, and storage media decreased.
 
* Chemical products include materials and components for electronic devices such as circuit boards and adhesives.


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Approximately 65 percent of the CPD and NPS segments’ combined total annual production during the fiscal year ended March 31, 2010 was in-house production and approximately 35 percent was outsourced production.
 
Approximately 50 percent of the annual in-house production took place in Japan, including the production of compact digital cameras, home-use video cameras, LCD televisions, PCs, semiconductors and components such as batteries and storage media. Approximately 60 percent of the annual in-house production in Japan was destined for other countries. Production in Asia, excluding Japan and China, accounted for approximately 15 percent of the annual in-house production, with approximately 55 percent destined for Japan, the Americas, Europe and China. Production in China accounted for approximately 15 percent of the annual in-house production, approximately 55 percent of which was destined for other countries. Production in the Americas and Europe together accounted for approximately 20 percent of the annual in-house production, most of which was destined for local distribution and sale.
 
 
Pictures segment results presented below are a yen-translation of the results of SPE, a U.S.-based operation that aggregates the results of its worldwide subsidiaries on a U.S. dollar basis. Management analyzes the results of SPE in U.S. dollars, so discussion of certain portions of its results is specified as being on “a U.S. dollar basis.”
 
Sales for the fiscal year ended March 31, 2010 decreased 1.7 percent year-on-year, to 705.2 billion yen primarily due to the appreciation of the yen against the U.S. dollar. On a U.S. dollar basis, sales for the fiscal year ended March 31, 2010 increased by approximately 7 percent. Motion picture revenues, also on a U.S. dollar basis, increased by approximately 5 percent year-on-year, primarily due to higher worldwide theatrical and home entertainment revenues from the current fiscal year’s film slate which included strong performances from 2012, Angels & Demons and Michael Jackson’s This Is It. This increase was partially offset by a decrease in home entertainment revenues from the previous fiscal year’s films. Television revenues, on a U.S. dollar basis, increased by approximately 9 percent year-on-year, primarily due to higher advertising revenues from several international channels, including a significant increase in India from the broadcasting of the Indian Premier League cricket competition.
 
Operating income increased by 12.9 billion yen year-on-year, to 42.8 billion yen. Operating income increased by approximately 53 percent on a U.S. dollar basis. This increase was primarily from the sale of a portion of SPE’s equity interest in a Latin American premium pay television business (HBO Latin America) and a U.S. cable network (Game Show Network), as well as the sale of all of its equity interest in a Central European premium pay television business (HBO Central Europe). The total gain recognized from these sales was 30.3 billion yen. The benefit from these gains was partially offset by the decrease in home entertainment revenues noted above and the write-off of certain development costs.
 
As of March 31, 2010, unrecognized license fee revenue at SPE was approximately 1.3 billion U.S. dollars. SPE expects to record this amount in the future, having entered into contracts with television broadcasters to provide those broadcasters with completed motion picture and television products. The license fee revenue will be recognized in the fiscal year in which the product is made available for broadcast.
 
 
Music segment results presented below include the yen-translated results of SME, a U.S.-based operation which aggregates the results of its worldwide subsidiaries on a U.S. dollar basis, the results of SMEJ, a Japan-based music company which aggregates its results in yen, and the yen-translated consolidated results of Sony/ATV, a 50 percent owned U.S.-based consolidated joint venture in the music publishing business which aggregates the results of its worldwide subsidiaries on a U.S. dollar basis.
 
Sales for the fiscal year ended March 31, 2010 increased 35.0 percent year-on-year, to 522.6 billion yen. The increase was mainly due to the fact that results for the fiscal year ended March 31, 2010 included the full year results of SME, which was consolidated as a wholly owned subsidiary beginning October 1, 2008 upon Sony’s acquisition of Bertelsmann AG’s 50 percent interest. On a pro forma basis, had SME been fully consolidated for the previous


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fiscal year, sales in the Music segment for the previous fiscal year would have been 549.1 billion yen. Compared with these pro forma sales, Music segment sales decreased 5 percent year-on-year, primarily due to the appreciation of the yen against the U.S. dollar.
 
On a U.S. dollar basis, when comparing the full year results for SME to the full year results for the previous fiscal year on a pro forma basis, sales for SME increased by 2 percent. The increase in sales primarily reflects the favorable impact of new releases and strong sales of Michael Jackson catalog product, partially offset by the continued decline of the physical music market. In addition to Michael Jackson’s catalog albums, best-selling new releases during the fiscal year included Susan Boyle’s I Dreamed a Dream, the Michael Jackson’s This Is It soundtrack, Alicia Keys’ The Element of Freedom and Glee the Music Vol.1 & 2, music collections from the hit U.S. television show, Glee.
 
Sales at SMEJ included contributions from Michael Jackson’s catalog albums and ikimono-gakari’s HAJIMARI NO UTA.
 
Operating income increased by 8.7 billion yen year-on-year, to 36.5 billion yen. Operating income for the previous fiscal year included equity in net loss of 6.0 billion yen for SONY BMG MUSIC ENTERTAINMENT (“SONY BMG”) through October 1, 2008. On a pro forma basis, had SME been fully consolidated for the previous fiscal year, operating income for the Music segment would have been 21.3 billion yen. Compared to this pro forma operating income, Music segment operating income increased 72 percent year-on-year. The increase in the pro-forma segment results is primarily due to improved results from SME and SMEJ.
 
On a U.S. dollar basis, when comparing the full year results for SME to the full year results for the previous fiscal year on a pro forma basis, operating income for SME increased by 487 percent, primarily due to the contribution from hit releases, Michael Jackson catalog product sales, growth in new music related businesses as well as a year-on-year decrease in overhead and restructuring costs.
 
SMEJ’s contribution to operating income increased mainly due to the contribution from hit releases as well as year-on-year decreases in advertisement expenses and restructuring charges.
 
 
The results of Sony Life discussed below on the basis of U.S. GAAP differ from the results that SFH and Sony Life disclose separately on a Japanese statutory basis.
 
Financial services revenue for the fiscal year ended March 31, 2010 increased 58.2 percent year-on-year to 851.4 billion yen mainly due to an increase in revenue at Sony Life. Revenue at Sony Life was 740.4 billion yen, a 309.9 billion yen or 72.0 percent increase year-on-year. Revenue increased significantly year-on-year mainly due to an improvement in net gains from investments in the separate account, an improvement in net valuation gains from investments in convertible bonds in the general account and a significant decrease in impairment losses on equity securities in the general account, all as a result of the significant rise in the Japanese stock market in the fiscal year ended March 31, 2010, as compared with a significant decline following the global financial crisis in the previous fiscal year. Revenue from insurance premiums at Sony Life increased, reflecting a steady increase in policy amount in force.
 
Operating income of 162.5 billion yen was recorded, compared to an operating loss of 31.2 billion yen in the previous fiscal year mainly as a result of a significant improvement in operating results at Sony Life. Operating income in the fiscal year ended March 31, 2010 at Sony Life was 166.6 billion yen, as compared to an operating loss of 29.8 billion in the previous fiscal year, mainly due to the improvement in net valuation gains from investments in convertible bonds in the general account, a decrease in the provision of policy reserves because of the revision of the future investment yield of variable life insurance products in the separate account and the significant decrease in impairment losses on equity securities in the general account, all as a result of the improved situation in the Japanese stock market mentioned above.


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Information of Operations Separating Out the Financial Services Segment
 
The following charts show Sony’s information of operations for the Financial Services segment alone and for all segments excluding the Financial Services segment. These separate condensed presentations are not required or prepared under U.S. GAAP, which is used in Sony’s consolidated financial statements. However, because the Financial Services segment is different in nature from Sony’s other segments, Sony utilizes this information to analyze its results without the Financial Services segment and believes that these presentations may be useful in understanding and analyzing Sony’s consolidated financial statements. Transactions between the Financial Services segment and Sony without the Financial Services segment, including noncontrolling interests, are included in those respective presentations, and then eliminated in the consolidated figures shown below.
 
                 
    Fiscal year ended March 31
  Financial Services segment   2009   2010
    (Yen in millions)
 
Financial services revenue
    538,206       851,396  
Financial services expenses
    567,567       687,559  
Equity in net loss of affiliated companies
    (1,796 )     (1,345 )
                 
Operating income (loss)
    (31,157 )     162,492  
Other income (expenses), net
    28       (966 )
                 
Income (loss) before income taxes
    (31,129 )     161,526  
Income taxes and other
    (6,922 )     54,721  
                 
Net income (loss) of Financial Services
    (24,207 )     106,805  
                 
 
                 
    Fiscal year ended March 31
  Sony without the Financial Services segment   2009   2010
    (Yen in millions)
 
Net sales and operating revenue
    7,212,492       6,381,094  
Costs and expenses
    7,387,236       6,484,642  
Equity in net loss of affiliated companies
    (23,313 )     (28,890 )
                 
Operating loss
    (198,057 )     (132,438 )
Other income (expenses), net
    58,254       1,836  
                 
Loss before income taxes
    (139,803 )     (130,602 )
Income taxes and other
    (61,219 )     (34,081 )
                 
Net loss of Sony without the Financial Services
    (78,584 )     (96,521 )
                 
 


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    Fiscal year ended March 31
  Consolidated   2009   2010
    (Yen in millions)
 
Financial services revenue
    523,307       838,300  
Net sales and operating revenue
    7,206,686       6,375,698  
                 
      7,729,993       7,213,998  
Costs and expenses
    7,932,667       7,151,991  
Equity in net loss of affiliated companies
    (25,109 )     (30,235 )
                 
Operating income (loss)
    (227,783 )     31,772  
Other income (expenses), net
    52,828       (4,860 )
                 
Income (loss) before income taxes
    (174,955 )     26,912  
Income taxes and other
    (76,017 )     67,714  
                 
Net loss attributable to Sony Corporation’s Stockholders
    (98,938 )     (40,802 )
                 
 
Sony Ericsson
 
Sony Ericsson’s operating results are accounted for under the equity method and are not consolidated in Sony’s consolidated financial statements, as Sony Corporation’s ownership percentage of Sony Ericsson is 50 percent. Sony Ericsson aggregates the results of its worldwide subsidiaries on a euro basis. However, Sony believes that the following disclosure provides additional useful analytical information to investors regarding Sony’s operating performance. Pursuant to Rule 3-09 of Regulation S-X under the Securities Exchange Act of 1934, as amended, Sony Ericsson’s financial statements are included in this Annual Report on Form 20-F on pages A-1 to A-28 .
 
Sales for the year ended March 31, 2010 decreased 37.2 percent year-on-year, to 6,457 million euro, mainly driven by significantly lower unit shipments as a result of continued challenging market conditions in all regions. A total of 53.0 million units were shipped for the year ended March 31, 2010, compared to 88.8 million units for the previous fiscal year. Despite the significantly lower sales, the loss before taxes increased only slightly by 21 million euro year-on-year to 654 million euro, primarily due to a reduction in research and development expenses as well as selling and administrative expenses. As a result, Sony recorded equity in the net loss of Sony Ericsson of 34.5 billion yen for the fiscal year ended March 31, 2010, compared to a loss of 30.3 billion yen in the previous fiscal year.
 
 
Sales for the fiscal year ended March 31, 2010 decreased 13.1 percent year-on-year, to 460.8 billion yen. The decrease in sales was mainly due to a significant decrease in sales at a mobile phone OEM business in Japan and a decrease in sales at a measuring systems business. This decrease was partially offset by an increase in sales at So-net Entertainment Corporation (“So-net”).
 
An operating loss of 5.0 billion yen was recorded compared to an income of 3.1 billion yen for the fiscal year ended March 31, 2009. This deterioration was mainly due to charges related to the withdrawal from the property management operation of an entertainment complex in Japan and the termination payments of the property lease contract.
 
 
As the global economy experienced a sharp downturn following the autumn of 2008, the operating environment for Sony became severe, with decreased demand, intensified pressure on pricing, and fluctuations in foreign exchange rates. In an attempt to cope with this environment, for the fiscal year ended March 31, 2010, Sony continued to implement restructuring initiatives to reform its operational structure with a priority on profitability and speed.

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In the fiscal year ended March 31, 2010, Sony recorded restructuring charges of 124.3 billion yen, which included 7.9 billion yen of non-cash charges related to depreciation associated with restructured assets, compared to 75.4 billion yen of restructuring charges recorded in the previous fiscal year. There were no non-cash charges related to depreciation associated with restructured assets in the previous fiscal year. Of the total 124.3 billion yen incurred in the fiscal year ended March 31, 2010, 65.1 billion yen were personnel related costs, included in SGA expenses in the consolidated statements of income. Additionally, Sony either consolidated or sold five manufacturing sites in Japan and five manufacturing sites outside of Japan during the fiscal year ended March 31, 2010.
 
Restructuring charges were recorded mainly in the CPD segment, and All Other and Corporate. In the CPD segment, restructuring charges amounted to 75.9 billion yen, which includes 7.3 billion yen of non-cash charges related to depreciation associated with restructured assets for the fiscal year ended March 31, 2010, compared to 53.7 billion yen of restructuring charges recorded in the previous fiscal year. In the fiscal year ended March 31, 2010, restructuring activities included headcount reduction programs, initiatives to advance the rationalization of manufacturing operations, shifting and consolidating manufacturing to lower-cost countries and utilizing the services of OEMs and third party ODMs. In the CPD segment, most of the 39.8 billion yen of restructuring charges incurred within SGA expenses were personnel related costs. With respect to television operations, Sony ceased manufacturing operations at its Sony EMCS Corporation Ichinomiya TEC in June 2009, and at Sony Baja California, S.A. de C.V.’s Mexicali factory in September, 2009. In January 2010, Sony completed the sale to the Hon Hai Group of 90.0 percent of Sony’s equity interest in Sony Baja California and certain manufacturing assets related to LCD televisions at Sony Baja California’s Tijuana Factory in Mexico, which mainly manufactures LCD televisions for the Americas region. The Tijuana Factory remains a key manufacturing facility of Sony LCD televisions for the Americas region.
 
In all segments, excluding the CPD segment, and All Other and Corporate, restructuring charges were recorded mainly due to headcount reductions through early retirement programs.
 
Restructuring charges discussed in Item 5, which include non-cash charges related to depreciation associated with restructured assets, are described in Note 19 to the notes to the consolidated financial statements.
 
 
During the fiscal year ended March 31, 2010, the average rates of the yen were 91.8 yen against the U.S. dollar, and 129.7 yen against the euro, which were 8.4 percent and 9.5 percent higher, respectively, year-on-year.
 
Sony’s consolidated results are subject to foreign currency rate fluctuations largely because the currency used in the countries where manufacturing takes place may be different from those where such products are sold. In order to reduce the risk caused by such fluctuations, Sony employs derivatives, including foreign exchange forward contracts and foreign currency option contracts, in accordance with a consistent risk management strategy. Such derivatives are used primarily to mitigate the effect of foreign currency exchange rate fluctuations on cash flows generated or anticipated by Sony Corporation and by its subsidiaries’ transactions and accounts receivable and payable denominated in foreign currencies.
 
SGTS in London provides integrated treasury services for Sony Corporation, its subsidiaries, and affiliated companies. Sony’s policy is that Sony Corporation and all subsidiaries with foreign exchange exposures should enter into commitments with SGTS for hedging their exposures. Sony Corporation and most of its subsidiaries utilize SGTS for this purpose. The concentration of foreign exchange exposures at SGTS means that, in effect, SGTS hedges most of the net foreign exchange exposure of Sony Corporation, its subsidiaries and affiliated companies. SGTS in turn enters into foreign exchange transactions with creditworthy third party financial institutions. Most of these transactions are entered into against projected exposures before the actual export and import transactions take place. In general, SGTS hedges the projected exposures on average three months before the actual transactions take place. However, in certain cases SGTS partially hedges the projected exposures one month before the actual transactions take place when business requirements such as shorter production-sales cycles for certain products arise. Sony enters into foreign exchange transactions with financial institutions primarily for hedging purposes. Sony does not use these derivative financial instruments for trading or speculative purposes except for certain derivatives in the Financial Services segment. In the Financial Services segment, Sony uses derivatives for ALM and trading.


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To minimize the effects of foreign exchange fluctuations on its financial results, particularly in the CPD and NPS segments, Sony seeks, when appropriate, to localize material and parts procurement, design and manufacturing operations in areas outside of Japan.
 
Changes in the fair value of derivatives designated as cash flow hedges are initially recorded in accumulated other comprehensive income and reclassified into earnings when the hedged transaction affects earnings. Foreign exchange forward contracts, foreign currency option contracts and other derivatives that do not qualify as hedges are marked-to-market with changes in value recognized in other income and expenses. The notional amount and the net fair value of all the foreign exchange derivative contracts as of March 31, 2010 were 2,026.4 billion yen and a liability of 13.2 billion yen, respectively.
 
Assets, Liabilities and Stockholders’ Equity
 
 
Total assets as of March 31, 2011 increased by 58.9 billion yen, or 0.5 percent year-on-year, to 12,925.0 billion yen. Total assets as of March 31, 2011 in all segments, excluding the Financial Services segment, decreased by 457.6 billion yen, or 7.0 percent year-on-year, to 6,065.2 billion yen. Total assets as of March 31, 2011 in the Financial Services segment increased by 485.3 billion yen, or 7.4 percent year-on-year, to 7,062.4 billion yen.
 
 
Current assets as of March 31, 2011 decreased by 288.8 billion yen, or 7.0 percent year-on-year, to 3,844.0 billion yen. Current assets as of March 31, 2011 in all segments, excluding the Financial Services segment, decreased by 212.2 billion yen, or 6.8 percent, year-on-year to 2,907.1 billion yen.
 
Cash and cash equivalents as of March 31, 2011 in all segments, excluding the Financial Services segment, decreased 137.5 billion yen, or 14.0 percent year-on-year, to 847.4 billion yen. This was primarily due to lower net cash inflow in operating activities as a result of a decrease of notes and accounts payable, trade and an increase of inventories, and to net cash outflow in financing activities as a result of repayment of debts in the fiscal year ended March 31, 2011. Refer to “Cash Flows” below.
 
Notes and accounts receivable, trade (net of allowances for doubtful accounts and sales returns) as of March 31, 2011, excluding the Financial Services segment, decreased 145.4 billion yen, or 16.4 percent year-on-year, to 742.3 billion yen, mainly due to foreign exchange rates and sales of accounts receivables under a securitization program in the United States. Refer to Note 6 to the notes to the consolidated financial statements.
 
Other current assets as of March 31, 2011 in all segments, excluding the Financial Services segment, increased 71.1 billion yen, or 5.7 percent year-on-year, to 1,314.4 billion yen, mainly due to an increase in inventories.
 
Inventories as of March 31, 2011 increased by 58.6 billion yen, or 9.1 percent year-on-year, to 704.0 billion yen. This increase was primarily due to an increase in CPD segment inventory resulting from an expansion of the LCD television business. Sony considers the inventory level as of March 31, 2011 to have been slightly higher than appropriate.
 
The inventory to cost of sales turnover ratio (based on the average of inventories at the end of each fiscal year and the previous fiscal year) was 1.68 months compared to 1.79 months at the end of the previous fiscal year.
 
Current assets as of March 31, 2011 in the Financial Services segment decreased by 91.6 billion yen, or 8.7 percent year-on-year, to 956.7 billion yen primarily due to the decrease of credit card and credit receivables resulting from the sale of a portion of the credit card business at Sony Financial International Inc. (“SFI”).
 
 
Investments and advances as of March 31, 2011 increased by 593.3 billion yen, or 11.2 percent year-on-year, to 5,892.7 billion yen.


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Investments and advances as of March 31, 2011 in all segments, excluding the Financial Services segment, decreased by 31.0 billion yen, or 8.2 percent year-on-year, to 345.7 billion yen primarily due to impairment and valuation losses from securities and investments, and the collection of advances.
 
Investments and advances as of March 31, 2011 in the Financial Services segment increased by 613.3 billion yen, or 12.3 percent year-on-year, to 5,580.4 billion yen. This increase was primarily due to business growth at both Sony Life and Sony Bank, resulting in increases in investments made by Sony Life mainly in Japanese fixed income securities, and increases in mortgage loans provided by Sony Bank. Refer to “Investments” below.
 
 
Property, plant and equipment as of March 31, 2011 decreased by 83.1 billion yen, or 8.2 percent year-on-year, to 924.9 billion yen.
 
Property, plant and equipment as of March 31, 2011 in all segments, excluding the Financial Services segment, decreased by 78.4 billion yen, or 8.1 percent year-on-year, to 894.8 billion yen. Factors contributing to the decrease in property, plant and equipment included the sale or disposal of assets due to the sale of certain factories and impairment charges recorded for related assets. The disposal or impairment of fixed assets damaged by the Great East Japan Earthquake was 7.7 billion yen.
 
Capital expenditures (additions to property, plant and equipment) for the fiscal year ended March 31, 2011 increased by 12.1 billion yen, or 6.3 percent year-on-year, to 204.9 billion yen.
 
Property, plant and equipment as of March 31, 2011 in the Financial Services segment decreased by 4.7 billion yen, or 13.5 percent year-on-year, to 30.0 billion yen mainly due to the sale of the lease business at SFI.
 
 
Other assets as of March 31, 2011 decreased by 127.8 billion yen, or 6.0 percent year-on-year, to 1,988.0 billion yen primarily due to a decrease in deferred tax assets.
 
 
Total current and long-term liabilities as of March 31, 2011 increased by 388.5 billion yen, or 4.1 percent year-on-year, to 9,969.1 billion yen. Total current and long-term liabilities as of March 31, 2011 in all segments, excluding the Financial Services segment, decreased by 79.4 billion yen, or 2.1 percent year-on-year, to 3,723.7 billion yen. Total current and long-term liabilities in the Financial Services segment as of March 31, 2011 increased by 438.7 billion yen, or 7.4 percent year-on-year, to 6,333.2 billion yen.
 
 
Current liabilities as of March 31, 2011 increased by 67.1 billion yen, or 1.7 percent year-on-year, to 4,127.0 billion yen.
 
Current liabilities as of March 31, 2011 in all segments, excluding the Financial Services segment, decreased by 61.5 billion yen, or 2.6 percent year-on-year, to 2,265.0 billion yen.
 
Short-term borrowings and the current portion of long-term debt as of March 31, 2011 in all segments, excluding the Financial Services segment, decreased by 78.0 billion yen, or 33.8 percent year-on-year, to 152.7 billion yen primarily due to the redemption of a 104.9 billion yen tranche of straight bonds. This decrease was partially offset by a transfer to current liabilities from long-term liabilities of the current portion of straight bonds that will mature during the fiscal year ending March 31, 2012.
 
Notes and accounts payable, trade as of March 31, 2011 in all segments, excluding the Financial Services segment, decreased by 12.8 billion yen, or 1.6 percent year-on-year, to 791.6 billion yen primarily due to the impact of foreign exchange rates.
 
Current liabilities as of March 31, 2011 in the Financial Services segment increased by 108.0 billion yen, or 6.1 percent year-on-year, to 1,881.8 billion yen mainly due to an increase in deposits from customers at Sony Bank.


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Long-term liabilities as of March 31, 2011 increased by 321.5 billion yen, or 5.8 percent year-on-year, to 5,842.1 billion yen.
 
Long-term liabilities as of March 31, 2011 in all segments, excluding the Financial Services segment, decreased by 17.9 billion yen, or 1.2 percent year-on-year, to 1,458.7 billion yen. Long-term debt as of March 31, 2011 in all segments, excluding the Financial Services segment, decreased by 94.0 billion yen, or 10.5 percent year-on-year, to 799.4 billion yen. This was primarily due to the above-mentioned transfer of the current portion of straight bonds to current liabilities.
 
Long-term liabilities as of March 31, 2011 in the Financial Services segment increased by 330.7 billion yen, or 8.0 percent year-on-year, to 4,451.3 billion yen. This was primarily due to an increase in the policy amount in force at Sony Life.
 
 
Total interest-bearing debt inclusive of long-term debt and short-term borrowings as of March 31, 2011 decreased by 233.2 billion yen, or 19.3 percent year-on-year, to 975.6 billion yen. Total interest-bearing debt as of March 31, 2011 in all segments, excluding the Financial Services segment, decreased by 172.0 billion yen, or 15.3 percent year-on-year, to 952.1 billion yen.
 
Redeemable Noncontrolling Interest
 
In March 2011, Sony acquired an additional 5 percent equity interest in GSN, resulting in Sony owning a 40 percent equity interest. As part of the acquisition, Sony obtained a controlling interest in GSN and as a result, consolidated GSN. Sony granted a put right to the other investor in GSN for an additional 18 percent interest in GSN. The put right is exercisable during three windows starting on April 1 of each of 2012, 2013 and 2014 and lasting for 60 business days. The exercise price of the put is calculated using a formula based on an agreed upon multiple of the earnings of GSN with a minimum price of 234 million U.S. dollars and a maximum price of 288 million U.S. dollars. The portion of the noncontrolling interest that can be put to Sony is accounted for as mandatorily redeemable securities because redemption is outside of Sony’s control and is reported in the mezzanine equity section in the consolidated balance sheet at March 31, 2011. Refer to Notes 24 and 27 to the notes to the consolidated financial statements.
 
Sony Corporation’s Stockholders’ Equity
 
Sony Corporation’s stockholders’ equity as of March 31, 2011 decreased by 417.9 billion yen, or 14.1 percent year-on-year, to 2,548.0 billion yen. Retained earnings decreased by 284.7 billion yen, or 15.4 percent year-on-year, to 1,566.3 billion yen as a result of the recording of 259.6 billion yen in net loss attributable to Sony Corporation’s stockholders. Accumulated other comprehensive income deteriorated by 135.1 billion yen, or 20.2 percent year-on-year, to a loss of 804.2 billion yen primarily due to the recording of 118.4 billion yen of foreign currency translation adjustments. The ratio of Sony Corporation’s stockholders’ equity to total assets decreased 3.3 percentage points year-on-year, from 23.1 percent to 19.7 percent.
 
 
The following charts show Sony’s unaudited information of financial position for the Financial Services segment alone, and for all segments excluding the Financial Services segment. These separate condensed presentations are not required or prepared under U.S. GAAP, which is used in Sony’s consolidated financial statements. However, because the Financial Services segment is different in nature from Sony’s other segments, Sony utilizes this information to analyze its results without the Financial Services segment and believes that these presentations may be useful in understanding and analyzing Sony’s consolidated financial statements. Transactions between the Financial Services segment and Sony without the Financial Services segment, including noncontrolling interests, are included in those respective presentations, and then eliminated in the consolidated figures shown below.


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    March 31
    2010   2011
    (Yen in millions)
 
ASSETS
               
Current assets:
               
Cash and cash equivalents
    206,742       167,009  
Marketable securities
    576,129       643,171  
Notes and accounts receivable, trade
    10,099       5,933  
Other
    255,366       140,633  
                 
      1,048,336       956,746  
Investments and advances
    4,967,125       5,580,418  
Property, plant and equipment
    34,725       30,034  
Other assets:
               
Deferred insurance acquisition costs
    418,525       428,262  
Other
    108,421       66,944  
                 
      526,946       495,206  
                 
      6,577,132       7,062,404  
                 
                 
LIABILITIES AND EQUITY                
Current liabilities:
               
Short-term borrowings
    86,102       23,191  
Notes and accounts payable, trade
    13,709       1,705  
Deposits from customers in the banking business
    1,509,488       1,647,752  
Other
    164,545       209,168  
                 
      1,773,844       1,881,816  
Long-term liabilities:
               
Long-term debt
    42,536       16,936  
Accrued pension and severance costs
    12,144       13,925  
Future insurance policy benefits and other
    3,876,292       4,225,373  
Other
    189,681       195,115  
                 
      4,120,653       4,451,349  
Stockholders’ equity of Financial Services
    681,500       727,955  
Noncontrolling interests
    1,135       1,284  
                 
      6,577,132       7,062,404  
                 


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    March 31
    2010   2011
    (Yen in millions)
 
ASSETS
               
Current assets:
               
Cash and cash equivalents
    984,866       847,403  
Marketable securities
    3,364       3,000  
Notes and accounts receivable, trade
    887,694       742,297  
Other
    1,243,345       1,314,419  
                 
      3,119,269       2,907,119  
Film costs
    310,065       275,389  
Investments and advances
    376,669       345,660  
Investments in Financial Services, at cost
    116,843       115,806  
Property, plant and equipment
    973,226       894,834  
Other assets
    1,626,764       1,526,389  
                 
      6,522,836       6,065,197  
                 
                 
LIABILITIES AND EQUITY                
Current liabilities:
               
Short-term borrowings
    230,631       152,664  
Notes and accounts payable, trade
    804,336       791,570  
Other
    1,291,481       1,320,741  
                 
      2,326,448       2,264,975  
Long-term liabilities:
               
Long-term debt
    893,418       799,389  
Accrued pension and severance costs
    283,382       257,395  
Other
    299,808       401,938  
                 
      1,476,608       1,458,722  
Redeemable noncontrolling interest
          19,323  
Stockholders’ equity of Sony without Financial Services
    2,662,712       2,217,106  
Noncontrolling interests
    57,068       105,071  
                 
      6,522,836       6,065,197  
                 


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    March 31
    2010   2011
    (Yen in millions)
 
ASSETS
               
Current assets:
               
Cash and cash equivalents
    1,191,608       1,014,412  
Marketable securities
    579,493       646,171  
Notes and accounts receivable, trade
    891,625       743,690  
Other
    1,470,146       1,439,773  
                 
      4,132,872       3,844,046  
Film costs
    310,065       275,389  
Investments and advances
    5,299,393       5,892,655  
Property, plant and equipment
    1,007,951       924,868  
Other assets:
               
Deferred insurance acquisition costs
    418,525       428,262  
Other
    1,697,308       1,559,768  
                 
      2,115,833       1,988,030  
                 
      12,866,114       12,924,988  
                 
                 
LIABILITIES AND EQUITY                
Current liabilities:
               
Short-term borrowings
    284,607       163,351  
Notes and accounts payable, trade
    817,118       793,275  
Deposits from customers in the banking business
    1,509,488       1,647,752  
Other
    1,448,712       1,522,601  
                 
      4,059,925       4,126,979  
Long-term liabilities:
               
Long-term debt
    924,207       812,235  
Accrued pension and severance costs
    295,526       271,320  
Future insurance policy benefits and other
    3,876,292       4,225,373  
Other
    424,609       533,179  
                 
      5,520,634       5,842,107  
Redeemable noncontrolling interest
          19,323  
Sony Corporation’s stockholders’ equity
    2,965,905       2,547,987  
Noncontrolling interests
    319,650       388,592  
                 
      12,866,114       12,924,988  
                 


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The following table contains available-for-sale and held-to-maturity securities, including the breakdown of unrealized gains and losses by investment category.
 
                                 
    March 31, 2011
                Fair
        Unrealized
  Unrealized
  market
    Cost   gain   loss   value
        (Yen in millions)    
 
Financial Services Business:
                               
Available-for-sale
                               
Debt securities
                               
Sony Life
    886,303       23,017       (3,296 )     906,024  
Sony Bank
    917,144       7,462       (13,604 )     911,002  
Other
    10,896       36       (14 )     10,918  
Equity securities
                               
Sony Life
    47,926       12,577       (2,152 )     58,351  
Sony Bank
    7,848       706             8,554  
Other
    138       2,148             2,286  
Held-to-maturity
                               
Debt securities
                               
Sony Life
    2,918,524       21,668       (48,011 )     2,892,181  
Sony Bank
    15,566       614             16,180  
Other
    66,842       528       (210 )     67,160  
 
 
Total Financial Services
    4,871,187       68,756       (67,287 )     4,872,656  
 
 
Non-Financial Services:
                               
Available-for-sale securities
    34,835       53,835       (1,341 )     87,329  
Held-to-maturity securities
    1       (1 )            
 
 
Total Non-Financial Services
    34,836       53,834       (1,341 )     87,329  
 
 
Consolidated
    4,906,023       122,590       (68,628 )     4,959,985  
 
 
 
At March 31, 2011, Sony Life had debt and equity securities which had gross unrealized losses of 51.3 billion yen and 2.2 billion yen, respectively. Of the unrealized loss, no security was in an unrealized loss position for a period greater than 12 months at March 31, 2011. Sony Life principally invests in debt securities in various industries. Almost all of the debt securities in which Sony Life invested were rated “BBB” or higher by Standard & Poor’s Rating Services (“S&P”), Moody’s Investors Service, Inc. (“Moody’s”) or other rating agencies.
 
At March 31, 2011, Sony Bank had debt securities which had gross unrealized losses of 13.6 billion yen. Of the unrealized loss, approximately 43.5 percent related to securities in an unrealized loss position for periods greater than 12 months at March 31, 2011. Sony Bank principally invests in Japanese government bonds, Japanese corporate bonds and foreign bonds. Almost all of these securities were rated “BBB” or higher by S&P, Moody’s or other rating agencies.
 
These unrealized losses related to numerous investments, with no single investment being in a material unrealized loss position for greater than 12 months. In addition, there was no individual security with unrealized losses that met the test for impairment as the declines in value were observed to be small both in amounts and percentage, and therefore, the decline in value for those investments was still determined to be temporary in nature.


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For fixed maturity securities with unrecognized losses held by Sony Life as of March 31, 2011 (51.3 billion yen), maturity dates vary as follows:
 
         
• Within 1 year:
     
• 1 to 5 years:
    0.1 percent  
• 5 to 10 years:
    0.1 percent  
• above 10 years:
    99.8 percent  
 
For fixed maturity securities with unrecognized losses held by Sony Bank as of March 31, 2011 (13.6 billion yen), maturity dates vary as follows:
 
         
• Within 1 year:
    41.2 percent  
• 1 to 5 years:
    43.8 percent  
• 5 to 10 years:
    14.7 percent  
• above 10 years:
    0.3 percent  
 
In the ordinary course of business, Sony maintains long-term investment securities, included in securities investments and other issued by a number of non-public companies. The aggregate carrying amount of the investments in non-public companies at March 31, 2011 was 67.4 billion yen. A non-public equity investment is primarily valued at cost if fair value is not readily determinable. If the value is estimated to have declined and such decline is judged to be other-than-temporary, the impairment of the investment is recognized immediately and the carrying value is reduced to its fair value.
 
For the fiscal years ended March 31, 2009, 2010 and 2011, total realized impairment losses were 45.6 billion yen, 5.5 billion yen and 9.8 billion yen, respectively, of which 41.2 billion yen, 2.6 billion yen and 2.1 billion yen, respectively, were recorded in financial services revenue by the subsidiaries in the Financial Services segment. Realized impairment losses recorded other than by subsidiaries in the Financial Services segment in each of the three fiscal years were reflected in non-operating expenses and primarily relate to certain strategic investments in non-financial services businesses. These investments primarily relate to certain strategic investments in Japan and the U.S. with which Sony has strategic relationships for the purposes of developing and marketing new technologies. Impairment losses were recorded for each of the three fiscal years as certain companies failed to successfully develop and market such technology, resulting in the operating performance of these companies being more unfavorable than previously expected. As a result the decline in the fair value of these companies was judged as other-than-temporary. None of these impairment losses were individually material to Sony.
 
Upon determination that the value of an investment is impaired, the value of the investment is written down to its fair value. For an investment where the quoted price is available in an active market, fair value is determined based on unadjusted quoted prices as of the date on which the impairment determination is made. For investments where the quoted price is not available in an active market, fair value is usually determined based on quoted prices of securities with similar characteristics or measured through the use of various methodologies such as pricing models, discounted cash flow techniques, or similar techniques that require significant management judgment or estimation of assumptions that market participants would use in pricing the investments. The impairment losses that were recorded in each of the three fiscal years related to the unique facts and circumstances of each individual investment and did not significantly impact other investments.
 
Sony Life and Sony Bank’s investments constitute the majority of the investments in the Financial Services segment. Sony Life and Sony Bank account for approximately 79 percent and 19 percent of the investments in the Financial Services segment, respectively.


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Contractual obligations, commitments, and contingent liabilities
 
The following table summarizes Sony’s contractual obligations and commitments as of March 31, 2011. The references to the notes below refer to the corresponding notes within the notes to the consolidated financial statements.
                                         
        Less than
  1 to 3
  3 to 5
  More than
    Total   1 year   years