Sony 2015 Annual Report Download - page 12

shortages of certain parts and components as a result of the damage to its suppliers caused by natural disasters,
and may experience such shortages due to similar circumstances again in the future. Such lost sales opportunities,
inventory adjustments, or shortages of parts and components have had and may 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 Sony’s major
markets.
Sony’s sales and profitability are sensitive to economic, employment and other trends in each of the major
markets in which Sony operates. These markets may be subject to significant economic downturns, resulting in
an adverse impact on Sony’s operating results and financial condition. In the fiscal year ended March 31, 2016,
28.6 percent, 23.2 percent and 21.4 percent of Sony’s sales were attributable to Japan, Europe and the U.S.,
respectively.
Sony’s operating results depend on the demand from consumers and commercial customers and the
performance of retailers, wholesalers and other resellers. 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.
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.
Foreign exchange rate fluctuations can affect Sony’s operating results and financial condition.
Sony’s operating results and financial condition are sensitive to foreign exchange rate fluctuations 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 Sony’s electronics businesses, research and development and headquarters’
overhead costs are incurred mainly in yen, and manufacturing costs, including material costs, costs of
procurement of parts and components, and costs of outsourced manufacturing services, are incurred mainly in the
U.S. dollar and yen. Sales are dispersed and recorded in Japanese yen, the U.S. dollar, euro, Chinese renminbi,
and local currencies of other areas, including emerging markets. Consequently, foreign exchange rate
fluctuations have had and may have an adverse impact on Sony’s operating results, especially when the yen or
the euro weaken significantly against the U.S. dollar, when the yen strengthens significantly against the euro, or
when the U.S. dollar strengthens against emerging market currencies. Sony’s operating results may also be
adversely impacted by foreign exchange rate fluctuations since Sony’s consolidated statements of income are
prepared by translating the local currency denominated operating results of its subsidiaries around the world into
yen. Furthermore, as Sony’s businesses have expanded in China and other areas, including emerging markets, the
impact of fluctuations of foreign currency exchange rates in these areas against the U.S. dollar and yen has
increased. 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 exchange rate fluctuations.
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