Sony 2008 Annual Report Download - page 82

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Most pension assets and liabilities recognized on Sony’s
consolidated balance sheets relate to Japanese plans, which are
subject to the Japanese Defined Benefit Corporate Pension Plan
Act pursuant to which Sony is required to meet certain financial
criteria including periodic actuarial revaluation and annual settle-
ment of gains or losses of the plan. In the eventuality that the
actuarial reserve required by law exceeds the fair value of pension
assets, Sony may be required to make an additional contribution
to the plan, which would reduce consolidated cash flow. Similarly,
if Sony is required to make an additional contribution to each
foreign plan to meet any funding requirements in accordance with
local laws and regulations in each country, Sony’s consolidated
cash flow might be adversely affected.
Changes in Sony’s tax rates or exposure to additional
tax liabilities could adversely affect its earnings and
financial condition.
Sony is subject to income taxes in Japan and numerous other
jurisdictions. Significant judgment is required in determining its
worldwide provision for income taxes. In the ordinary course of
our business, there are many transactions, including intercom-
pany charges, and calculations where the ultimate tax determi-
nation is uncertain. Also, Sony’s future effective tax rates could
be unfavorably affected by changes in the mix of earnings in
countries with differing statutory rates.
Further, Sony is subject to continuous examination of its
income tax returns by tax authorities. As a result, Sony regularly
assesses the likelihood of adverse outcomes resulting from
these examinations to determine the adequacy of its provision
for income taxes. However, there can be no assurance that the
outcomes of these examinations will not have an adverse effect
on Sony’s operating results and financial condition.
In addition, if Sony is unable to generate sufficient future
taxable income in certain jurisdictions, or if there is a significant
change in the actual effective tax rates or the time period within
which the underlying temporary differences become taxable or
deductible, Sony could be required to reduce the amount of its
deferred tax assets or increase its valuation allowances against
its deferred tax assets, resulting in an increase in its effective tax
rate and an adverse impact on future operating results.
Sony’s business could suffer as a result of adverse outcomes
of current or future litigation and regulatory actions.
Sony faces the risk of litigation and regulatory proceedings in
connection with its operations. Lawsuits, including regulatory
actions, may seek recovery of very large indeterminate amounts
or limit Sony’s operations, and the possibility that they may arise
and their magnitude may remain unknown for substantial
periods of time. A substantial legal liability or adverse regulatory
outcome and the substantial cost to defend the litigation or
regulatory proceedings could have a material adverse effect on
Sony’s business, results of operations, financial condition, cash
flows and reputation.
Sony may be accused of infringing others’ intellectual
property rights and be liable for significant damages.
Sony’s products incorporate a wide variety of technologies.
Claims have been and could be asserted against Sony that such
technology infringes the intellectual property owned by others.
Such claims might require us 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 could
have a material adverse effect on Sony’s business, results of
operations, financial condition, and reputation.
Sony is dependent upon certain intellectual property
rights of others, and Sony may not be able to continue to
obtain necessary licenses to employ technology covered
by such rights
Many of Sony’s products are designed under the license of
patents and other intellectual property rights from third parties
who have developed technologies that are protected by such
rights. 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.
Increased reliance on external suppliers may increase
financial, reputational and other risks to Sony.
With the increasing necessity of pursuing quick business
development and high operating efficiency with limited mana-
gerial resources, Sony increasingly procures from third-party
suppliers components (including LCD panels for televisions),
and technologies (such as operating systems for PCs). Sony
has also become more reliant upon the services of third-party
original equipment and design manufacturers in the Electronics
and Game segments. In addition, Sony consigns to external
suppliers extensive activities including procurement, logistics,
sales and other services. Reliance on outside sources
increases the chance that Sony will be unable to prevent
products from incorporating defective or inferior third-party
technology or components. Products with such defects can
adversely affect Sony’s consolidated sales and its reputation
for quality products. This reliance on external suppliers may
also expose Sony to the effects of insufficient compliance with
applicable regulations or infringement of third-party intellectual
property rights by external suppliers as well as certain risks,