Edgar Filing: SONY CORP

FORM 20-F/A (AMENDMENT NO. 1)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 20-F/A

(Amendment No. 1)

¨	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2012

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from/to

¨	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)

J. Justin Hill, Vice President, Investor Relations

Sony Corporation of America

550 Madison Avenue

New York, NY 10022

Telephone: 212-833-6722, Facsimile: 212-833-6938

(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:


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, 2012		March 31, 2012
Title of Class	(Tokyo Time)		(New York Time)
Common Stock		1,004,638,164
American Depositary Shares				66,940,684

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨

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 ¨ 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 ¨

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 ¨

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		¨ Accelerated filer		¨ 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 ¨		Other ¨

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 ¨				Item 18 ¨

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 ¨				No þ

Explanatory Note

Sony Corporation (“Sony”) is filing this Amendment No. 1 on Form 20-F/A (the “Form 20-F/A”) to amend its annual report on Form 20-F for the fiscal year ended March 31, 2012 (the “2011 Form 20-F”) as originally filed with the Securities and Exchange Commission (the “SEC”) on June 27, 2012. The Report of Independent Registered Public Accounting Firm in the Consolidated Financial Statements (the “Report”), as submitted to the SEC by Sony on a Form 6-K on June 1, 2012, was erroneously attached to the 2011 Form 20-F under Item 8. The Report attached to the 2011 Form 20-F did not include an opinion on the financial statement schedule (the “Schedule”), presented on page F-101 in the 2011 Form 20-F. This amendment replaces that Report with the correct version of the Report referring to the above mentioned Schedule and presents Item 8 of the 2011 Form 20-F with the correct version of the Report as page F-2. This amendment does not contain any changes to data and footnotes in the Consolidated Financial Statements of Sony Corporation and its consolidated subsidiaries, presented on pages F-3 through F-101 or the data and footnotes in the Consolidated Financial Statements of Sony Mobile Communications AB on pages A-1 through A-30 of the 2011 Form 20-F.

Other than as expressly set forth above, this Form 20-F/A does not, and does not purport to, revise, update, amend or restate the information presented in any Item of the 2011 Form 20-F or reflect any events that have occurred after the filing of the 2011 Form 20-F.

Item 8.

Financial Information

A.	Consolidated Statements and Other Financial Information.

Refer to the consolidated financial statements and the notes to the consolidated financial statements.

Legal Proceedings

In May 2011, Sony Corporation’s U.S. subsidiary, Sony Electronics Inc., received a subpoena from the U.S. Department of Justice (“DOJ”) Antitrust Division seeking information about its secondary batteries business. Sony understands that the DOJ and agencies outside the United States are investigating competition in the secondary batteries market. Based on the stage of the proceedings, it is not possible to estimate the amount of loss or range of possible loss, if any, that might result from adverse judgments, settlements or other resolution of this matter.

Beginning in early 2011, the network services of PlayStation^®Network, Qriocity™, Sony Online Entertainment LLC and websites of other subsidiaries came under cyber-attack. As of June 27, 2012, Sony has not received any confirmed reports of customer identity theft issues or misuse of credit cards from such cyber-attacks. However, in connection with certain of these matters, Sony has received inquiries from authorities in a number of jurisdictions, including orders for reports issued by the Ministry of Economy, Trade and Industry of Japan as well as the Financial Services Agency of Japan, formal and/or informal requests for information from Attorneys General from a number of states in the United States and the U.S. Federal Trade Commission, various U.S. congressional inquiries and others. Additionally, Sony Corporation and/or certain of its subsidiaries have been named in a number of purported class actions in certain jurisdictions, including the United States. Based on the stage of these inquiries and proceedings, it is not possible to estimate the amount of loss or range of possible loss, if any, that might result from adverse judgments, settlements or other resolution of all of these matters.

In October 2009, Sony Corporation’s U.S. subsidiary, Sony Optiarc America Inc., received a subpoena from the DOJ seeking information about its optical disk drive business. Sony understands that the DOJ and agencies outside the United States are investigating competition in optical disk drives. Subsequently, a number of purported class action lawsuits were filed in certain jurisdictions, including the United States, in which the plaintiffs allege that Sony Corporation and certain of its subsidiaries violated antitrust laws and seek recovery of damages and other remedies. Based on the stage of these proceedings, it is not possible to estimate the amount of loss or range of possible loss, if any, that might result from adverse judgments, settlements or other resolution of these matters.

In addition, Sony Corporation and certain of its subsidiaries are defendants or otherwise involved in other pending legal and regulatory proceedings. However, based upon the information currently available, Sony believes that the outcome from such legal and regulatory proceedings would not have a material effect on Sony’s consolidated financial statements.

Dividend Policy

Sony believes that continuously increasing corporate value and providing dividends are essential to rewarding shareholders. It is Sony’s policy to utilize retained earnings, after ensuring the perpetuation of stable dividends, to carry out various investments that contribute to an increase in corporate value such as those that ensure future growth and strengthen competitiveness.

A fiscal year-end dividend of 12.5 yen per share of Common Stock of Sony Corporation was approved at the Board of Directors meeting held on May 9, 2012 and the payment of such dividend started on June 6, 2012. Sony Corporation has already paid an interim dividend for Common Stock of 12.5 yen per share to each shareholder; accordingly, the total annual dividend per share of Common Stock for the fiscal year ended March 31, 2012 is 25.0 yen.

B.	Significant Changes

No significant change has occurred since the date of the annual financial statements included in this annual report.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES


	Page
Report of Independent Registered Public Accounting Firm		F-2

Consolidated Balance Sheet at March 31, 2011 and 2012		F-4

Consolidated Statements of Income for the fiscal years ended March 31, 2010, 2011 and 2012		F-6

Consolidated Statements of Cash Flows for the fiscal years ended March 31, 2010, 2011 and 2012		F-8

Consolidated Statements of Changes in Stockholders’ Equity for the fiscal years ended March 31, 2010, 2011 and 2012		F-10

Index to Notes to Consolidated Financial Statements		F-13

Notes to Consolidated Financial Statements		F-14

Financial Statement Schedule II for the fiscal years ended March 31, 2010, 2011 and 2012 — Valuation and Qualifying Accounts		F-101

************************************************************************


Consolidated Financial Statements of Sony Mobile Communications AB			A-1

Report of Independent Auditors			A-30

Consolidated Financial Statements of Sony Mobile Communications AB are provided pursuant to Regulation S-X Rule 3-09.

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Sony

Corporation (Sony Kabushiki Kaisha)

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Sony Corporation and its subsidiaries (the “Company”) at March 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2012, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 15(b). Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As described in Management’s Annual Report on Internal Control over Financial Reporting, management has excluded Sony Mobile Communications AB from its assessment of internal control over financial reporting as of March 31, 2012, because it was acquired by the Company in a purchase business combination during the year ended March 31, 2012. We have also excluded Sony Mobile Communications AB from our audit of internal control over financial reporting. Sony Mobile Communications AB is a wholly-owned subsidiary whose total assets and total sales and operating revenue represent 347.0 billion yen and 77.7 billion yen, respectively, of the related consolidated financial statement amounts as of and for the year ended March 31, 2012.

/s/ PricewaterhouseCoopers Aarata

Tokyo, Japan

May 31, 2012

F-2

[THIS PAGE IS INTENTIONALLY LEFT BLANK]

F-3

SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

Consolidated Balance Sheets

March 31


	Yen in millions
	2011			2012
*ASSETS*
Current assets:
Cash and cash equivalents		1,014,412			894,576
Marketable securities		646,171			680,913
Notes and accounts receivable, trade		834,221			840,924
Allowance for doubtful accounts and sales returns		(90,531	)		(71,009	)
Inventories		704,043			707,052
Other receivables		215,181			202,044
Deferred income taxes		133,059			36,769
Prepaid expenses and other current assets		387,490			463,693
Total current assets		3,844,046			3,754,962
Film costs		275,389			270,048
Investments and advances:
Affiliated companies		221,993			36,800
Securities investments and other		5,670,662			6,282,676
		5,892,655			6,319,476
Property, plant and equipment:
Land		145,968			139,413
Buildings		868,615			817,730
Machinery and equipment		2,016,956			1,957,134
Construction in progress		53,219			35,648
		3,084,758			2,949,925
Less — Accumulated depreciation		2,159,890			2,018,927
		924,868			930,998
Other assets:
Intangibles, net		391,122			503,699
Goodwill		469,005			576,758
Deferred insurance acquisition costs		428,262			441,236
Deferred income taxes		300,702			100,460
Other		385,073			398,030
		1,974,164			2,020,183
Total assets		12,911,122			13,295,667

(Continued on following page.)

F-4

SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

Consolidated Balance Sheets (Continued)


	Yen in millions
	2011			2012
*LIABILITIES*
Current liabilities:
Short-term borrowings		53,737			99,878
Current portion of long-term debt		109,614			310,483
Notes and accounts payable, trade		793,275			758,680
Accounts payable, other and accrued expenses		1,013,037			1,073,241
Accrued income and other taxes		87,396			63,396
Deposits from customers in the banking business		1,647,752			1,761,137
Other		430,488			463,166
Total current liabilities		4,135,299			4,529,981
Long-term debt		812,235			762,226
Accrued pension and severance costs		271,320			309,375
Deferred income taxes		306,227			284,499
Future insurance policy benefits and other		2,924,121			3,208,843
Policyholders’ account in the life insurance business		1,301,252			1,449,644
Other		204,766			240,978
Total liabilities		9,955,220			10,785,546
Redeemable noncontrolling interest		19,323			20,014
Commitments and contingent liabilities
*EQUITY*
Sony Corporation’s stockholders’ equity:
Common stock, no par value —
2011 — Shares authorized: 3,600,000,000, shares issued: 1,004,636,664		630,921
2012 — Shares authorized: 3,600,000,000, shares issued: 1,004,638,164					630,923
Additional paid-in capital		1,159,666			1,160,236
Retained earnings		1,566,274			1,084,462
Accumulated other comprehensive income —
Unrealized gains on securities, net		50,336			64,882
Unrealized losses on derivative instruments, net		(1,589	)		(1,050	)
Pension liability adjustment		(152,165	)		(186,833	)
Foreign currency translation adjustments		(700,786	)		(719,092	)
		(804,204	)		(842,093	)
Treasury stock, at cost
Common stock
2011 — 1,051,588 shares		(4,670	)
2012 — 1,061,803 shares					(4,637	)
		2,547,987			2,028,891
Noncontrolling interests		388,592			461,216
Total equity		2,936,579			2,490,107
Total liabilities and equity		12,911,122			13,295,667

The accompanying notes are an integral part of these statements.

F-5

SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Income

Fiscal year ended March 31


	Yen in millions
	2010			2011			2012
Sales and operating revenue:
Net sales		6,293,005			6,304,401			5,526,611
Financial services revenue		838,300			798,495			868,971
Other operating revenue		82,693			78,377			97,630
		7,213,998			7,181,273			6,493,212
Costs and expenses:
Cost of sales		4,892,563			4,831,363			4,386,447
Selling, general and administrative		1,544,890			1,501,813			1,375,887
Financial services expenses		671,550			675,788			736,050
Other operating (income) expense, net		42,988			(13,450	)		(59,594	)
		7,151,991			6,995,514			6,438,790
Equity in net income (loss) of affiliated companies		(30,235	)		14,062			(121,697	)
Operating income (loss)		31,772			199,821			(67,275	)
Other income:
Interest and dividends		13,191			11,783			15,101
Gain on sale of securities investments, net		9,953			14,325			671
Foreign exchange gain, net		—			9,297			—
Other		20,690			9,561			7,706
		43,834			44,966			23,478
Other expenses:
Interest		22,505			23,909			23,432
Loss on devaluation of securities investments		2,946			7,669			3,604
Foreign exchange loss, net		10,876			—			5,089
Other		12,367			8,196			7,264
		48,694			39,774			39,389
Income (loss) before income taxes		26,912			205,013			(83,186	)
Income taxes:
Current		79,120			117,918			108,545
Deferred		(65,162	)		307,421			206,694
		13,958			425,339			315,239
Net income (loss)		12,954			(220,326	)		(398,425	)
Less — Net income attributable to noncontrolling interests		53,756			39,259			58,235
Net loss attributable to Sony Corporation’s stockholders		(40,802	)		(259,585	)		(456,660	)

(Continued on following page.)

F-6

SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Income (Continued)


	Yen
	2010			2011			2012
Per share data:
Common stock
Net loss attributable to Sony Corporation’s stockholders
— Basic		(40.66	)		(258.66	)		(455.03	)
— Diluted		(40.66	)		(258.66	)		(455.03	)
Cash dividends		25.00			25.00			25.00

The accompanying notes are an integral part of these statements.

F-7

SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Cash Flows

Fiscal year ended March 31


	Yen in millions
	2010			2011			2012
Cash flows from operating activities:
Net income (loss)		12,954			(220,326	)		(398,425	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities —
Depreciation and amortization, including amortization of deferred insurance acquisition costs		371,004			325,366			319,594
Amortization of film costs		277,665			250,192			188,836
Stock-based compensation expense		2,202			1,952			1,952
Accrual for pension and severance costs, less payments		(9,763	)		(15,229	)		36,647
Other operating (income) expense, net		42,988			(13,450	)		(59,594	)
(Gain) loss on sale or devaluation of securities investments, net		(7,007	)		(6,656	)		2,933
(Gain) loss on revaluation of marketable securities held in the financial services business for trading purposes, net		(49,837	)		10,958			(21,080	)
(Gain) loss on revaluation or impairment of securities investments held in the financial services business, net		(53,984	)		5,080			2,819
Deferred income taxes		(65,162	)		307,421			206,694
Equity in net (income) loss of affiliated companies, net of dividends		36,183			(11,479	)		138,772
Changes in assets and liabilities:
(Increase) decrease in notes and accounts receivable, trade		(53,306	)		104,515			4,427
(Increase) decrease in inventories		148,584			(112,089	)		29,778
Increase in film costs		(296,819	)		(244,063	)		(186,783	)
Increase (decrease) in notes and accounts payable, trade		262,032			(18,119	)		(59,410	)
Increase (decrease) in accrued income and other taxes		71,939			(8,020	)		(44,635	)
Increase in future insurance policy benefits and other		284,972			278,897			332,728
Increase in deferred insurance acquisition costs		(71,999	)		(69,196	)		(68,634	)
Increase in marketable securities held in the financial services business for trading purposes		(8,335	)		(30,102	)		(39,161	)
Increase in other current assets		(32,405	)		(89,473	)		(35,181	)
Increase in other current liabilities		5,321			56,076			10,595
Other		45,680			113,990			156,667
Net cash provided by operating activities		912,907			616,245			519,539

(Continued on following page.)

F-8

SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Cash Flows (Continued)


	Yen in millions
	2010			2011			2012
Cash flows from investing activities:
Payments for purchases of fixed assets		(338,050	)		(253,688	)		(382,549	)
Proceeds from sales of fixed assets		15,671			18,743			22,661
Payments for investments and advances by financial services business		(1,581,841	)		(1,458,912	)		(1,028,150	)
Payments for investments and advances (other than financial services business)		(41,838	)		(15,316	)		(28,021	)
Proceeds from sales or return of investments and collections of advances by financial services business		1,128,500			874,031			474,466
Proceeds from sales or return of investments and collections of advances (other than financial services business)		54,324			30,332			93,165
Proceeds from sales of businesses		22,084			99,335			8,430
Payment for Sony Ericsson acquisition, net of cash acquired		—			—			(71,843	)
Other		(4,854	)		(8,964	)		28,955
Net cash used in investing activities		(746,004	)		(714,439	)		(882,886	)
Cash flows from financing activities:
Proceeds from issuance of long-term debt		510,128			1,499			216,887
Payments of long-term debt		(144,105	)		(216,212	)		(112,043	)
Increase (decrease) in short-term borrowings, net		(250,252	)		6,120			(26,158	)
Increase in deposits from customers in the financial services business, net		276,454			229,327			211,597
Dividends paid		(25,085	)		(25,098	)		(25,078	)
Other		(2,126	)		(5,748	)		(7,869	)
Net cash provided by (used in) financing activities		365,014			(10,112	)		257,336
Effect of exchange rate changes on cash and cash equivalents		(1,098	)		(68,890	)		(13,825	)
Net increase (decrease) in cash and cash equivalents		530,819			(177,196	)		(119,836	)
Cash and cash equivalents at beginning of the fiscal year		660,789			1,191,608			1,014,412
Cash and cash equivalents at end of the fiscal year		1,191,608			1,014,412			894,576
Supplemental data:
Cash paid during the fiscal year for —
Income taxes		60,022			116,376			127,643
Interest		19,821			20,583			20,276
Non-cash investing and financing activities —
Obtaining assets by entering into capital leases		2,553			3,738			56,403
Collections of deferred proceeds from sales of receivables —		—			153,550			132,636

The accompanying notes are an integral part of these statements.

F-9

SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity


	Yen in millions
	Common stock		Additional paid-in capital		Retained earnings			Accumulated other comprehensive income			Treasury stock, at cost			Sony Corporation’s stockholders’ equity			Noncontrolling interests			Total equity
Balance at March 31, 2009		630,765		1,155,034		1,916,951			(733,443	)		(4,654	)		2,964,653			251,949			3,216,602
Exercise of stock acquisition rights		57		57											114			6			120
Stock-based compensation				2,174											2,174						2,174
Comprehensive income:
Net income (loss)						(40,802	)								(40,802	)		53,756			12,954
Other comprehensive income, net of tax —
Unrealized gains on securities									32,267						32,267			16,527			48,794
Unrealized gains on derivative instruments									1,548						1,548			2			1,550
Pension liability adjustment									23,720						23,720			(27	)		23,693
Foreign currency translation adjustments									6,850						6,850			(343	)		6,507

Total comprehensive income															23,583			69,915			93,498

Dividends declared						(25,088	)								(25,088	)		(5,399	)		(30,487	)
Purchase of treasury stock												(139	)		(139	)					(139	)
Reissuance of treasury stock						(57	)					118			61						61
Transactions with noncontrolling interests shareholders and other				547											547			3,179			3,726

Balance at March 31, 2010		630,822		1,157,812		1,851,004			(669,058	)		(4,675	)		2,965,905			319,650			3,285,555

(Continued on following page.)

F-10

SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity (Continued)


	Yen in millions
	Common stock		Additional paid-in capital			Retained earnings			Accumulated other comprehensive income			Treasury stock, at cost			Sony Corporation’s stockholders’ equity			Noncontrolling interests			Total equity
Balance at March 31, 2010		630,822		1,157,812			1,851,004			(669,058	)		(4,675	)		2,965,905			319,650			3,285,555
Exercise of stock acquisition rights		99		99												198			22			220
Stock-based compensation				1,782												1,782						1,782
Comprehensive income:
Net income (loss)							(259,585	)								(259,585	)		39,259			(220,326	)
Other comprehensive income, net of tax —
Unrealized losses on securities										(12,001	)					(12,001	)		(3,516	)		(15,517	)
Unrealized losses on derivative instruments										(1,553	)					(1,553	)					(1,553	)
Pension liability adjustment										(3,176	)					(3,176	)		(123	)		(3,299	)
Foreign currency translation adjustments										(118,416	)					(118,416	)		(616	)		(119,032	)

Total comprehensive income (loss)																(394,731	)		35,004			(359,727	)

Stock issue costs, net of tax							(8	)								(8	)					(8	)
Dividends declared							(25,089	)								(25,089	)		(6,599	)		(31,688	)
Purchase of treasury stock													(111	)		(111	)					(111	)
Reissuance of treasury stock							(48	)					116			68						68
Transactions with noncontrolling interests shareholders and other				(27	)											(27	)		40,515			40,488

Balance at March 31, 2011		630,921		1,159,666			1,566,274			(804,204	)		(4,670	)		2,547,987			388,592			2,936,579

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity (Continued)


	Yen in millions
	Common stock		Additional paid-in capital			Retained earnings			Accumulated other comprehensive income			Treasury stock, at cost			Sony Corporation’s stockholders’ equity			Noncontrolling interests			Total equity
Balance at March 31, 2011		630,921		1,159,666			1,566,274			(804,204	)		(4,670	)		2,547,987			388,592			2,936,579
Exercise of stock acquisition rights		2		2												4			165			169
Stock-based compensation				1,838												1,838						1,838
Comprehensive income:
Net income (loss)							(456,660	)								(456,660	)		58,235			(398,425	)
Other comprehensive income, net of tax —
Unrealized gains on securities										14,546						14,546			6,011			20,557
Unrealized gains on derivative instruments										539						539						539
Pension liability adjustment										(34,668	)					(34,668	)		1,495			(33,173	)
Foreign currency translation adjustments										(18,306	)					(18,306	)		395			(17,911	)

Total comprehensive income (loss)																(494,549	)		66,136			(428,413	)

Stock issue costs, net of tax							(1	)								(1	)					(1	)
Dividends declared							(25,090	)								(25,090	)		(7,760	)		(32,850	)
Purchase of treasury stock													(79	)		(79	)					(79	)
Reissuance of treasury stock							(61	)					112			51						51
Transactions with noncontrolling interests shareholders and other				(1,270	)											(1,270	)		14,083			12,813

Balance at March 31, 2012		630,923		1,160,236			1,084,462			(842,093	)		(4,637	)		2,028,891			461,216			2,490,107

The accompanying notes are an integral part of these statements.

F-12

SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

Index to Notes to Consolidated Financial Statements

Sony Corporation and Consolidated Subsidiaries


		Page
Notes to Consolidated Financial Statements
1.	Nature of operations	F-14
2.	Summary of significant accounting policies	F-14
3.	Inventories	F-27
4.	Film costs	F-27
5.	Related party transactions	F-28
6.	Transfer of financial assets	F-31
7.	Marketable securities and securities investments	F-33
8.	Leased assets	F-35
9.	Goodwill and intangible assets	F-37
10.	Insurance-related accounts	F-39
11.	Short-term borrowings and long-term debt	F-41
12.	Housing loans and deposits from customers in the banking business	F-42
13.	Fair value measurements	F-43
14.	Derivative instruments and hedging activities	F-49
15.	Pension and severance plans	F-53
16.	Stockholders’ equity	F-62
17.	Stock-based compensation plans	F-65
18.	Great East Japan Earthquake and Thai Floods	F-67
19.	Restructuring charges and asset impairments	F-68
20.	Supplemental consolidated statements of income information	F-74
21.	Income taxes	F-75
22.	Reconciliation of the differences between basic and diluted EPS	F-80
23.	Variable interest entities	F-80
24.	Acquisitions	F-83
25.	Divestitures	F-90
26.	Collaborative arrangements	F-91
27.	Commitments, contingent liabilities and other	F-91
28.	Business segment information	F-94

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

Notes to Consolidated Financial Statements

Sony Corporation and Consolidated Subsidiaries

1.	*Nature of operations*

Sony Corporation and its consolidated subsidiaries (hereinafter collectively referred to as “Sony”) are 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, manufacture, marketing, distribution and broadcasting of image-based software, including motion picture, home entertainment and television products. Sony is also engaged in the development, production, 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.

2.	*Summary of significant accounting policies*

The accompanying consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Certain adjustments and reclassifications have been incorporated in the accompanying consolidated financial statements to conform with U.S. GAAP. These adjustments were not recorded in the statutory books and records as Sony Corporation and its subsidiaries in Japan maintain their records and prepare their statutory financial statements in accordance with accounting principles generally accepted in Japan while its foreign subsidiaries maintain their records and prepare their financial statements in conformity with accounting principles generally accepted in the countries of their domiciles.

(1)

Significant accounting policies:

Basis of consolidation and accounting for investments in affiliated companies -

The consolidated financial statements include the accounts of Sony Corporation and its majority-owned subsidiary companies, general partnerships and other entities in which Sony has a controlling interest, and variable interest entities for which Sony is the primary beneficiary. All intercompany transactions and accounts are eliminated. Investments in business entities in which Sony does not have control, but has the ability to exercise significant influence over operating and financial policies, generally through 20-50% ownership, are accounted for under the equity method. In addition, investments in general partnerships in which Sony does not have a controlling interest and limited partnerships are also accounted for under the equity method if more than minor influence over the operation of the investee exists (generally through more than 3-5% ownership). When the interest in the partnership is so minor that Sony has no significant influence over the operation of the investee, the cost method is used. Under the equity method, investments are stated at cost plus/minus Sony’s portion of equity in undistributed earnings or losses. Sony’s equity in current earnings or losses of such entities is reported net of income taxes and is included in operating income (loss) after the elimination of unrealized intercompany profits. If the value of an investment has declined and is judged to be other-than-temporary, the investment is written down to its estimated fair value.

On occasion, a consolidated subsidiary or an affiliated company accounted for by the equity method may issue its shares to third parties in either a public or private offering or upon conversion of convertible debt to common stock at amounts per share in excess of or less than Sony’s average per share carrying value. With respect to such transactions, the resulting gains or losses arising from the change in interest are recorded in

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

earnings for the year the change in interest transaction occurs, while a change in interest of a consolidated subsidiary that does not result in a change in control is accounted for as a capital transaction and no gains or losses are recorded in earnings.

The excess of the cost over the underlying net equity of investments in consolidated subsidiaries and affiliated companies accounted for on an equity basis is allocated to identifiable tangible and intangible assets and liabilities based on fair values at the date of acquisition. The unassigned residual value of the excess of the cost over Sony’s underlying net equity is recognized as goodwill as a component of the investment balance.

Use of estimates -

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates include those used in determining the valuation of investment securities, valuation of inventories, fair values of long-lived assets, fair values of goodwill, intangible assets and assets and liabilities assumed in business combinations, product warranty liability, pension and severance plans, valuation of deferred tax assets, uncertain tax positions, film costs, and insurance related liabilities. Actual results could differ from those estimates.

Translation of foreign currencies -

All asset and liability accounts of foreign subsidiaries and affiliates are translated into Japanese yen at appropriate fiscal year end current exchange rates and all income and expense accounts are translated at exchange rates that approximate those rates prevailing at the time of the transactions. The resulting translation adjustments are accumulated as a component of accumulated other comprehensive income. Upon remeasurement of a previously held equity interest in accordance with the accounting guidance for business combinations achieved in stages, accumulated translation adjustments, if any, remain as a component of accumulated other comprehensive income as there has not been sale or complete or substantially complete liquidation of the net investment.

Receivables and payables denominated in foreign currencies are translated at appropriate fiscal year end exchange rates and the resulting translation gains or losses are taken into income.

Cash and cash equivalents -

Cash and cash equivalents include all highly liquid investments, with original maturities of three months or less, that are readily convertible to known amounts of cash and are so near maturity that they present insignificant risk of changes in value because of changes in interest rates.

Marketable debt and equity securities -

Debt and equity securities designated as available-for-sale, whose fair values are readily determinable, are carried at fair value with unrealized gains or losses included as a component of accumulated other comprehensive income, net of applicable taxes. Debt and equity securities classified as trading securities are carried at fair value with unrealized gains or losses included in income. Debt securities that are expected to be held-to-maturity are carried at amortized cost. Individual securities classified as either available-for-sale or held-to-maturity are reduced to fair value by a charge to income for other-than-temporary declines in fair value. Realized gains and losses are determined on the average cost method and are reflected in income.

Sony regularly evaluates its investment portfolio to identify other-than-temporary impairments of individual securities. Factors that are considered by Sony in determining whether an other-than-temporary decline in value has occurred include: the length of time and extent to which the market value of the security has been less than

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

its original cost, the financial condition, operating results, business plans and estimated future cash flows of the issuer of the security, other specific factors affecting the market value, deterioration of the credit condition of the issuers, sovereign risk, and whether or not Sony is able to retain the investment for a period of time sufficient to allow for the anticipated recovery in market value.

In evaluating the factors for available-for-sale securities whose fair values are readily determinable, Sony presumes a decline in value to be other-than-temporary if the fair value of the security is 20 percent or more below its original cost for an extended period of time (generally for a period of up to six months). This criterion is employed as a threshold to identify securities which may have a decline in value that is other-than-temporary. The presumption of an other-than-temporary impairment in such cases may be overcome if there is evidence to support that the decline is temporary in nature due to the existence of other factors which overcome the duration or magnitude of the decline. On the other hand, there may be cases where impairment losses are recognized when the decline in the fair value of the security is not more than 20 percent or such decline has not existed for an extended period of time, as a result of considering specific factors which may indicate the decline in the fair value is other-than-temporary.

When an other-than-temporary impairment of a debt security has occurred, the amount of the other-than-temporary impairment recognized in income depends on whether Sony intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost. If the debt security meets either of these two criteria, the other-than-temporary impairment is recognized in income, measured as the entire difference between the security’s amortized cost and its fair value at the impairment measurement date. For other-than-temporary impairments of debt securities that do not meet these two criteria, the net amount recognized in income is a credit loss equal to the difference between the amortized cost of the debt security and its net present value calculated by discounting Sony’s best estimate of projected future cash flows at the effective interest rate implicit in the debt security prior to impairment. Any difference between the fair value and the net present value of the debt security at the impairment measurement date is recorded in accumulated other comprehensive income. Unrealized gains or losses on securities for which an other-than-temporary impairment has been recognized in income are presented as a separate component of accumulated other comprehensive income.

Equity securities in non-public companies -

Equity securities in non-public companies are primarily carried at cost if fair value is not readily determinable. If the carrying value of a non-public equity investment is estimated to have declined and such decline is judged to be other-than-temporary, Sony recognizes the impairment of the investment and the carrying value is reduced to its fair value. Determination of impairment is based on the consideration of several factors, including operating results, business plans and estimated future cash flows. Fair value is determined through the use of various methodologies such as discounted cash flows, valuation of recent financings and comparable valuations of similar companies.

Allowance for doubtful accounts -

Sony maintains an allowance for doubtful accounts to reserve for potentially uncollectible receivables. Sony reviews accounts receivable by amounts due by customers which are past due to identify specific customers with known disputes or collectability issues. In determining the amount of the reserve, Sony makes judgments about the creditworthiness of customers based on past collection experience and ongoing credit risk evaluations.

Inventories -

Inventories in the Consumer Products & Services, Professional, Device & Solutions and Music segments as well as non-film inventories for the Pictures segment are valued at cost, not in excess of market, cost being determined on the “average cost” basis except for the cost of finished products carried by certain subsidiary

F-16

SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

companies which is determined on the “first-in, first-out” basis, including the inventories in the Sony Mobile Communications segment. The market value of inventory is determined as the net realizable value - i.e., estimated selling price in the ordinary course of business less predictable costs of completion and disposal. Sony does not consider a normal profit margin when calculating the net realizable value.

Other receivables -

Other receivables include receivables which relate to arrangements with certain component manufacturers whereby Sony procures goods, including product components, for these component manufacturers and is reimbursed for the related purchases. No revenue or profit is recognized on these transfers. Sony usually will repurchase the inventory at a later date from the component manufacturers as either finished goods inventory or as partially assembled product.

Film costs -

Film costs include direct production costs, production overhead and acquisition costs for both motion picture and television productions and are stated at the lower of unamortized cost or estimated fair value and classified as noncurrent assets. Film costs are amortized and the estimated liabilities for residuals and participations are accrued using an individual-film-forecast method based on the ratio of current period actual revenues to the estimated remaining total revenues. Film costs also include broadcasting rights which consist of acquired programming to be aired on Sony’s worldwide channel network and are recognized when the license period begins and the program is available for use. Broadcasting rights are stated at the lower of unamortized cost or net realizable value, classified as either current or noncurrent assets based on timing of expected use, and amortized based on estimated usage or on a straight-line basis over the useful life, as appropriate. Estimates used in calculating the fair value of the film costs and the net realizable value of the broadcasting rights are based upon assumptions about future demand and market conditions and are reviewed on a periodic basis.

Property, plant and equipment and depreciation -

Property, plant and equipment are stated at cost. Depreciation of property, plant and equipment is computed on the declining-balance method for Sony Corporation and its Japanese subsidiaries, except for certain semiconductor manufacturing facilities and buildings whose depreciation is computed on the straight-line method over the estimated useful life of the assets. Depreciation of property, plant and equipment for foreign subsidiaries is also computed on the straight-line method. Useful lives for depreciation range from two to 50 years for buildings and from two to 10 years for machinery and equipment. Significant renewals and additions are capitalized at cost. Maintenance and repairs, and minor renewals and betterments are charged to income as incurred.

Goodwill and other intangible assets -

Goodwill and certain other intangible assets that are determined to have an indefinite useful life are not amortized and are tested annually for impairment during the fourth quarter of the fiscal year and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value below its carrying amount. Goodwill impairment is determined using a two-step process. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. Reporting units are Sony’s operating segments or one level below the operating segments. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is not performed. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is

F-17

SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

recognized in an amount equal to that excess. Fair value of reporting units and indefinite lived intangible assets is generally determined using a discounted cash flow analysis. 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. In addition to the estimates of future cash flows, two of the most significant estimates involved in the determination of fair value of the reporting units are the discount rates and perpetual growth rate applied to terminal values used in the discounted cash flow analysis. The discount rates used in the cash flow models for the goodwill impairment testing consider market and industry data as well as specific risk factors for each reporting unit. The perpetual growth rates for the individual reporting units, for purposes of the terminal value determination, are generally set after an initial three-year forecasted period, although certain reporting units utilized longer forecasted periods, and are based on historical experience, market and industry data.

Intangible assets with finite useful lives mainly consist of patent rights, know-how, license agreements, customer relationships, trademarks, software to be sold, leased or otherwise marketed, music catalogs, artist contracts and television carriage agreements (broadcasting agreements). Patent rights, know-how, license agreements, trademarks and software to be sold, leased or otherwise marketed are generally amortized on a straight-line basis, generally, over three to eight years. Customer relationships, music catalogs, artist contracts and television carriage agreements (broadcasting agreements) are amortized on a straight-line basis, generally, over 10 to 40 years.

Software to be sold, leased, or marketed -

Sony accounts for software development costs in accordance with accounting guidance for the costs of software to be sold, leased, or marketed. The costs related to establishing the technological feasibility of a software product are expensed as incurred as a part of research and development in cost of sales. Costs that are incurred to produce the finished product after technological feasibility is established are capitalized and amortized to cost of sales over the estimated economic life, which is generally three years. The technological feasibility of game software is established when the product master is completed. Consideration to capitalize game software development costs before this point is limited to the development costs of games for which technological feasibility can be proven to be at an earlier stage. At each balance sheet date, Sony performs periodic reviews to ensure that unamortized capitalized software costs remain recoverable from future profits of the related software products.

Deferred insurance acquisition costs -

Costs that vary with and are primarily related to acquiring new insurance policies are deferred as long as they are recoverable. The deferred insurance acquisition costs include such items as commissions, medical examination costs and inspection report fees, and are subject to recoverability testing at least annually to ensure that the capitalized amounts do not exceed the present value of anticipated gross profits or premiums less benefits and maintenance expenses, as applicable. The deferred insurance acquisition costs for traditional life insurance contracts are amortized over the premium-paying period of the related insurance policies using assumptions consistent with those used in computing policy reserves. The deferred insurance acquisition costs for non-traditional life insurance contracts are amortized over the expected life in proportion to the estimated gross profits.

Product warranty -

Sony provides for the estimated cost of product warranties at the time revenue is recognized. The product warranty is calculated based upon product sales, estimated probability of failure and estimated cost per claim. The variables used in the calculation of the provision are reviewed on a periodic basis.

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

Certain subsidiaries in the Consumer Products & Services and Professional, Device & Solutions segments offer extended warranty programs. The consideration received for extended warranty service is deferred and recognized as revenue on a straight-line basis over the term of the extended warranty.

Future insurance policy benefits -

Liabilities for future insurance policy benefits are primarily comprised of the present value of estimated future payments to policyholders. These liabilities are computed by the net level premium method based upon the assumptions, including future investment yield, morbidity, mortality, withdrawals and other factors. These assumptions are reviewed on a periodic basis. Liabilities for future insurance policy benefits also include liabilities for guaranteed benefits related to certain non-traditional life and annuity contracts.

Policyholders’ account in the life insurance business -

Liabilities for policyholders’ account in the life insurance business represent the contract value that has accrued to the benefit of the policyholders as of the balance sheet date. This liability is generally equal to the accumulated account deposits, plus interest credited, less policyholder withdrawals and other charges assessed against the account balances.

Impairment of long-lived assets -

Sony reviews the recoverability of the carrying value of its long-lived assets held and used, other than goodwill and intangible assets with indefinite lives, and assets to be disposed of, whenever events or changes in circumstances indicate that the individual carrying amount of an asset or asset group 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 cash flows are determined to be less than the carrying value of the asset or asset group, an impairment loss has occurred and the loss would be recognized during the period for the difference between the carrying value of the asset or asset group and estimated fair value. Long-lived assets that are to be disposed of other than by sale are considered held and used until they are disposed of. Long-lived assets that are to be disposed of by sale are reported at the lower of their carrying value or fair value less cost to sell and are not depreciated. Fair value is determined using the present value of estimated net 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 applied to determine terminal values, determination of appropriate market comparables and the determination of whether a premium or discount should be applied to comparables.

Fair value measurement -

Sony measures fair value as an exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date.

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

The accounting guidance for fair value measurements specifies a hierarchy of inputs to valuation techniques based on the extent to which inputs used in measuring fair value are observable in the market. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect Sony’s assumptions about the assumptions that market participants would use in pricing the asset or liability. Observable market data is used if such data is available without undue cost and effort. Each fair value measurement is reported in one of three levels which is determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are:


Level 1	—	Inputs are unadjusted quoted prices for identical assets and liabilities in active markets.

Level 2	—	Inputs are based on observable inputs other than level 1 prices, such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations, in which all significant inputs are observable in active markets.

Level 3	—	One or more significant inputs are unobservable.

When available, Sony uses unadjusted quoted market prices in active markets to measure fair value and classifies such items within level 1. If quoted market prices are not available, fair value is based upon internally developed valuation techniques that use, where possible, current market-based or independently sourced market parameters, such as interest rates, currency rates and option volatilities. Items valued using internally generated models are classified according to the lowest level input that is significant to the valuation. For certain financial assets and liabilities, Sony determines fair value using third-party information such as indicative quotes from dealers and quantitative input from investment advisors following Sony’s established valuation procedures including validation against internally developed prices. Additionally, Sony considers both counterparty credit risk and Sony’s own creditworthiness in determining fair value. Sony attempts to mitigate credit risk to third parties by entering into netting agreements and actively monitoring the creditworthiness of counterparties and its exposure to credit risk through the use of credit limits and by selecting major international banks and financial institutions as counterparties.

Transfers between levels are deemed to have occurred at the beginning of the each interim period in which the transfers occur.

Derivative financial instruments -

All derivatives are recognized as either assets or liabilities in the consolidated balance sheets at fair value. Changes in the fair value of derivative financial instruments are either recognized periodically in income or stockholders’ equity (as a component of accumulated other comprehensive income), depending on whether the derivative financial instrument qualifies as a hedge and the derivative is being used to hedge changes in fair value or cash flows.

The accounting guidance for hybrid financial instruments permits an entity to elect fair value remeasurement for any hybrid financial instrument if the hybrid instrument contains an embedded derivative that would otherwise be required to be bifurcated and accounted for separately under accounting guidance for derivative instruments and hedging activities. The election to measure the hybrid instrument at fair value is made on an instrument-by-instrument basis and is irreversible. Certain subsidiaries in the Financial Services segment have hybrid financial instruments, disclosed in Note 7 as debt securities, that contain embedded derivatives where the entire instrument is carried at fair value.

In accordance with accounting guidance for derivative instruments and hedging activities, the various derivative financial instruments held by Sony are classified and accounted for as described below.

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

Fair value hedges

Changes in the fair value of derivatives designated and effective as fair value hedges for recognized assets or liabilities or unrecognized firm commitments are recognized in earnings as offsets to changes in the fair value of the related hedged assets or liabilities.

Cash flow hedges

Changes in the fair value of derivatives designated and effective as cash flow hedges for forecasted transactions or exposures associated with recognized assets or liabilities are initially recorded in other comprehensive income and reclassified into earnings when the hedged transaction affects earnings. Changes in the fair value of the ineffective portion are recognized in current period earnings.

Derivatives not designated as hedges

Changes in the fair value of derivatives that are not designated as hedges are recognized in current period earnings.

Assessment of hedges

When applying hedge accounting, Sony formally documents all hedging relationships between the derivatives designated as hedges and the hedged items, as well as its risk management objectives and strategies for undertaking various hedging activities. Sony links all hedges that are designated as fair value or cash flow hedges to specific assets or liabilities on the consolidated balance sheets or to the specific forecasted transactions. Sony also assesses, both at the inception of the hedge and on an on-going basis, whether the derivatives that are designated as hedges are highly effective in offsetting changes in fair value or cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge, Sony discontinues hedge accounting. Hedge ineffectiveness, if any, is included in the current period earnings.

Stock-based compensation -

Sony accounts for stock-based compensation using the fair value based method, measured on the date of grant using the Black-Scholes option-pricing model. The expense is mainly included in selling, general and administrative expenses. Sony recognizes this compensation expense, net of an estimated forfeiture rate, only for the rights expected to vest ratably over the requisite service period of the stock acquisition rights, which is generally a period of three years. The estimated forfeiture rate is based on Sony’s historical experience in the stock acquisition rights plans where the majority of the vesting terms have been satisfied.

Revenue recognition -

Revenues from sales in the Consumer Products & Services, Professional, Device & Solutions, Music and Sony Mobile Communications segments are recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the sales price is fixed or determinable, and collectability is reasonably assured. Delivery is considered to have occurred when the customer has taken title to the product and the risks and rewards of ownership have been substantively transferred. If the sales contract contains a customer acceptance provision, then sales are recognized after customer acceptance occurs or the acceptance provisions lapse. Revenues are recognized net of anticipated returns and sales incentives.

Revenue arrangements with customers may include multiple elements, including any combination of products, services and software. An example includes sales of electronics products with rights to receive promotional goods. For Sony’s multiple element arrangements where at least one of the elements is not subject to existing software revenue recognition guidance, elements are separated into more than one unit of accounting when the delivered element(s) have value to the customer on a standalone basis, and delivery of the undelivered

F-21

SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

element(s) is probable and substantially in the control of Sony. Revenue is then allocated to each unit of accounting based on the relative selling price of each unit of accounting based first on vendor-specific objective evidence of selling price (“VSOE”) if it exists, based next on third-party evidence of selling price (“TPE”) if VSOE does not exist, and, finally, if both VSOE and TPE do not exist, based on estimated selling prices (“ESP”). VSOE is limited to either the price charged for an element when it is sold separately or, for an element not yet being sold separately, the price established by management having the relevant authority; it must be probable that the price, once established, will not change before the separate introduction of the element into the market place. TPE is the price of Sony’s or any competitor’s largely interchangeable products or services in standalone sales to similarly situated customers. ESP is the price at which Sony would transact if the element were sold by Sony regularly on a standalone basis. When determining ESP, Sony considers all relevant inputs, including sales, cost and margin analysis of the product, targeted rate of return of the product, competitors’ and Sony’s pricing practices and customer perspectives.

Certain software products published by Sony provide limited on-line features at no additional cost to the customer. Generally, such features are considered to be incidental to the overall software product and an inconsequential deliverable. Accordingly, revenue related to software products containing these limited on-line features is not deferred. In instances where the software products’ on-line features or additional functionality is considered a substantive deliverable in addition to the software product, revenue and costs of sales are recognized ratably over an estimated service period, which is estimated to be six months.

Revenues from the theatrical exhibition of motion pictures are recognized as the customer exhibits the film. Revenues from the licensing of motion picture and television product are recorded when the product is available for exploitation by the licensee and when any restrictions regarding the use of the product lapse. Revenues from the sale of DVDs and Blu-ray Disc^™, net of anticipated returns and sales incentives, are recognized upon availability of sale to the public. Revenues from the sale of broadcast advertising are recognized when the advertisement is aired. Revenues from subscription fees received by the television networks are recognized when the service is provided.

Traditional life insurance policies that the life insurance subsidiary underwrites, most of which are categorized as long-duration contracts, mainly consist of whole life, term life and accident and health insurance contracts. Premiums from these policies are reported as revenue when due from policyholders.

Amounts received as payment for non-traditional contracts such as interest sensitive whole life contracts, single payment juvenile contracts and other contracts without life contingencies are recognized in policyholders’ account in the life insurance business. Revenues from these contracts are comprised of fees earned for administrative and contract-holder services, which are recognized over the period of the contracts, and included in financial services revenue.

Property and casualty insurance policies that the non-life insurance subsidiary underwrites are primarily automotive insurance contracts which are categorized as short-duration contracts. Premiums from these policies are reported as revenue over the period of the contract in proportion to the amount of insurance protection provided.

Revenue is recognized net of any taxes collected from customers and subsequently remitted to governmental authorities.

Consideration given to a customer or a reseller -

In accordance with the accounting guidance for consideration given by a vendor to a customer or reseller of the vendor’s products, sales incentives or other cash consideration given to a customer or a reseller including payments for buydowns, slotting fees and cooperative advertising programs, are accounted for as a reduction of revenue unless Sony receives an identifiable benefit (goods or services) in exchange for the consideration, the fair value of the benefit is reasonably estimated and documentation from the reseller is received to support the amounts paid to the reseller. Payments meeting these criteria are recorded as selling, general and administrative

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

expenses. For the fiscal years ended March 31, 2010, 2011 and 2012, consideration given to a reseller, primarily for free promotional shipping and cooperative advertising programs included in selling, general and administrative expenses totaled 23,591 million yen, 23,250 million yen and 17,641 million yen, respectively.

Cost of sales -

Costs classified as cost of sales relate to the producing and manufacturing of products and include items such as material cost, subcontractor cost, depreciation of fixed assets, amortization of intangible assets, personnel expenses, research and development costs, and amortization of film costs related to motion picture and television products.

Research and development costs -

Research and development costs, included in cost of sales, include items such as salaries, personnel expenses and other direct and indirect expenses associated with research and product development. Research and development costs are expensed as incurred.

Selling, general and administrative -

Costs classified as selling expense relate to promoting and selling products and include items such as advertising, promotion, shipping, and warranty expenses. General and administrative expenses include operating items such as officers’ salaries, personnel expenses, depreciation of fixed assets, office rental for sales, marketing and administrative divisions, a provision for doubtful accounts and amortization of intangible assets.

Financial services expenses -

Financial services expenses include a provision for policy reserves and amortization of deferred insurance acquisition costs, and all other operating costs such as personnel expenses, depreciation of fixed assets, and office rental of subsidiaries in the Financial Services segment.

Advertising costs -

Advertising costs are expensed when the advertisement or commercial appears in the selected media.

Shipping and handling costs -

The majority of shipping and handling, warehousing and internal transfer costs for finished goods are included in selling, general and administrative expenses. An exception to this is in the Pictures segment where such costs are charged to cost of sales as they are an integral part of producing and distributing films under accounting guidance for accounting by producers or distributors of films. All other costs related to Sony’s distribution network are included in cost of sales, including inbound freight charges, purchasing and receiving costs, inspection costs and warehousing costs for raw materials and in-process inventory. Amounts paid by customers for shipping and handling costs are included in net sales.

Income taxes -

The provision for income taxes is computed based on the pretax income included in the consolidated statements of income, and the tax liability attributed to undistributed earnings of subsidiaries and affiliated companies accounted for by the equity method expected to be remitted in the foreseeable future. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities.

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

Carrying amounts of deferred tax assets require a reduction by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically with appropriate consideration given to all positive and negative evidence related to the realization of the deferred tax assets. Management’s judgments related to this assessment consider, among other matters, the nature, frequency and severity of current and cumulative losses on an individual tax jurisdiction basis, forecasts of future profitability after consideration of uncertain tax positions, excess of appreciated asset value over the tax basis of net assets, the duration of statutory carryforward periods, the past utilization of net operating loss carryforwards prior to expiration, as well as prudent and feasible tax planning strategies which would be employed by Sony to prevent net operating loss and tax credit carryforwards from expiring unutilized.

Sony records assets and liabilities for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. Sony continues to recognize interest and penalties, if any, with respect to income taxes, including unrecognized tax benefits, as interest expense and as income tax expense, respectively, in the consolidated statements of income. The amount of income taxes Sony pays is subject to ongoing audits by various taxing authorities, which may result in proposed assessments. In addition, several significant items related to intercompany transfer pricing are currently the subject of negotiations between taxing authorities in different jurisdictions as a result of pending advance pricing agreement applications and competent authority requests. Sony’s estimate for the potential outcome for any uncertain tax issues is judgmental and requires significant estimates. Sony assesses its income tax positions and records tax benefits for all years subject to examinations based upon the evaluation of the facts, circumstances and information available at that reporting date. For those tax positions for which it is more likely than not that a tax benefit will be sustained, Sony records the amount that has a greater than 50% likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. If Sony does not believe that it is more likely than not that a tax benefit will be sustained, no tax benefit is recognized. However, Sony’s future results may include favorable or unfavorable adjustments to Sony’s estimated tax liabilities due to closure of income tax examinations, the outcome of negotiations between taxing authorities in different jurisdictions, new regulatory or judicial pronouncements or other relevant events. As a result, the amount of unrecognized tax benefits, and the effective tax rate, may fluctuate significantly.

Net income (loss) attributable to Sony Corporation’s stockholders per share (“EPS”) -

Basic EPS is computed based on the weighted-average number of shares of common stock outstanding during each period. The computation of diluted EPS reflects the maximum possible dilution from conversion, exercise, or contingent issuance of securities including the conversion of contingently convertible debt instruments regardless of whether the conditions to exercise the conversion rights have been met. All potentially dilutive securities are excluded from the calculation in a situation where there is a net loss attributable to Sony Corporation’s stockholders.

(2)

Recently adopted accounting pronouncements:

Goodwill impairment testing for reporting units with zero or negative carrying amounts -

In December 2010, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance that modifies the first step of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform the second step of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with existing authoritative guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. This guidance was effective for Sony as of April 1, 2011. The adoption of this guidance did not have a material impact on Sony’s results of operations and financial position.

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

Disclosure of supplementary pro forma information for business combinations -

In December 2010, the FASB issued new accounting guidance addressing when a business combination should be assumed to have occurred for the purpose of providing pro forma disclosure. The new guidance requires disclosure of revenue and income of the combined entity as though the business combination occurred as of the beginning of the comparable prior reporting period. The guidance also expands the supplemental pro forma disclosure to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The guidance was effective for Sony as of April 1, 2011. Since this guidance impacts disclosures only, its adoption did not have an impact on Sony’s results of operations and financial position.

Amendments to achieve common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”) -

In May 2011, the FASB issued new guidance to substantially converge fair value measurement and disclosure requirements under U.S. GAAP and IFRS, including a consistent definition of fair value. The amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. For many of the requirements, the FASB does not intend for the new guidance to result in a change in the application of the existing guidance for fair value measurements. However, some of the amendments clarify the FASB’s intent about the application of existing fair value measurement requirements and other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The guidance was effective for Sony in the fourth quarter of the fiscal year ended March 31, 2012. The adoption of this guidance did not have a material impact on Sony’s results of operations and financial position.

Disclosures about an employer’s participation in a multiemployer plan -

In September 2011, the FASB issued new disclosure guidance regarding multiemployer pension and other postretirement benefit plans. This guidance requires additional quantitative and qualitative disclosures for all individually significant multiemployer pension plans on annual basis, and revises the disclosures for multiemployer plans that provide other postretirement benefits. This guidance does not change the current recognition and measurement guidance for an employer’s participation in a multiemployer plan. This guidance was effective for Sony beginning with the fiscal year ended March 31, 2012, and is applied retrospectively. Since this guidance impacts disclosures only, and Sony does not have any significant participation in multiemployer plans, its adoption did not have an impact on Sony’s results of operations and financial position.

(3)

Recent accounting pronouncements not yet adopted:

Accounting for costs associated with acquiring or renewing insurance contracts -

In October 2010, the FASB issued new accounting guidance for costs associated with acquiring or renewing insurance contracts. Under the new guidance acquisition costs are to include only those costs that are directly related to the acquisition or renewal of insurance contracts by applying a model similar to the accounting for loan origination costs. An entity may defer incremental direct costs of contract acquisition that are incurred in transactions with independent third parties or employees as well as the portion of employee compensation and other costs directly related to underwriting, policy issuance and processing, medical inspection, and contract selling for successfully negotiated contracts. Additionally, an entity may capitalize as a deferred acquisition cost only those advertising costs meeting the capitalization criteria for direct-response advertising. This change is effective for Sony as of April 1, 2012. Sony will apply this guidance prospectively from the date of adoption. The adoption of this guidance is not expected to have a material impact on Sony’s results of operations and financial position.

Testing goodwill for impairment -

In September 2011, the FASB issued a new standard to simplify how an entity tests goodwill for impairment. The new standard allows companies an option to first assess qualitative factors to determine whether

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining if it is necessary to perform the two-step quantitative goodwill impairment test. Under the new standard, a company is no longer required to calculate the fair value of a reporting unit unless the company determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The new standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. This standard is effective for Sony as of April 1, 2012. The adoption of this standard is not expected to have a material impact on Sony’s results of operations and financial position.

Presentation of comprehensive income -

In June 2011, the FASB issued new accounting guidance for presentation of comprehensive income. The amendments require reporting entities to report components of comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements. This change is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and will be applied retrospectively. Subsequently, in December 2011, the FASB issued update accounting guidance for deferral of the effective date for amendments to the presentation of reclassifications of items out of accumulated other comprehensive income. The remaining requirements of the guidance issued in June 2011 will become effective as originally issued. The guidance is effective for Sony as of April 1, 2012. Since this guidance impacts disclosures only, its adoption will not have an impact on Sony’s results of operations and financial position.

Disclosure about balance sheet offsetting -

In December 2011, the FASB issued new accounting guidance which requires entities to disclose information about offsetting and related arrangements to enable financial statement users to understand the effect of such arrangements on the statement of financial position as well as to improve comparability of balance sheets prepared under U.S. GAAP and IFRS. The new guidance is required to be applied retrospectively and is effective for Sony as of April 1, 2013. Since this guidance impacts disclosures only, its adoption will not have an impact on Sony’s results of operations and financial position.

(4)

Reclassifications:

Certain reclassifications of the financial statements and accompanying footnotes for the fiscal years ended March 31, 2010 and 2011 have been made to conform to the presentation for the fiscal year ended March 31, 2012.

(5)

Out of period adjustments:

The calculation of indirect taxes at a subsidiary -

In the first quarter of the fiscal year ended March 31, 2012, Sony recorded an out of period adjustment to correct an error in the calculation of indirect taxes at a subsidiary. The indirect tax calculation error began in 2005 and continued until it was identified by Sony in the first quarter of the fiscal year ended March 31, 2012. The adjustment, substantially all of which related to the Consumer Products & Services segment, impacted net sales, selling, general and administrative expenses and interest expenses and, in the aggregate, increased loss before income taxes in consolidated statements of income by 4,413 million yen for the fiscal year ended March 31, 2012. Sony determined that the adjustment was not material to the consolidated financial statements for any prior annual or interim periods and for the year ended March 31, 2012.

Revision of the presentation in the consolidated financial statements for the fiscal years ended March 31, 2010 and 2011 -

The presentation of certain amounts for the fiscal years ended March 31, 2010 and 2011 have been revised to conform with the presentation as of March 31, 2012 to reflect the results of an analysis of deferred tax assets in relation to certain unrecognized tax benefits that was completed during the fiscal year ended March 31, 2012. For

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

the fiscal year ended March 31, 2010, within income taxes in the consolidated statements of income, this revision increased current income taxes by 30,422 million yen with a corresponding decrease to deferred income taxes, with no impact on net income and net loss attributable to Sony Corporation’s stockholders. For the fiscal year ended March 31, 2010, within operating activities in the consolidated statements of cash flows, this revision decreased deferred income taxes by 30,422 million yen, increased accrued income and other taxes by 8,320 million yen and increased other by 22,102 million yen, with no impact on net cash provided by operating activities. This revision had no impact on Sony’s consolidated statements of changes in stockholders’ equity for the fiscal year ended March 31, 2010. As of March 31, 2011, in the consolidated balance sheets, this revision increased deferred income taxes in other assets by 61,115 million yen, decreased other noncurrent assets by 74,981 million yen, decreased total assets by 13,866 million yen, increased accrued income and other taxes by 8,320 million yen, decreased other noncurrent liabilities by 22,186 million yen and decreased total liabilities and equity by 13,866 million yen. This revision had no impact on Sony’s consolidated statements of income, consolidated statements of cash flows and consolidated statements of changes in stockholders’ equity for the fiscal year ended March 31, 2011.

3.	*Inventories*

Inventories are comprised of the following:


	Yen in millions
	March 31
	2011		2012
Finished products		529,666		498,430
Work in process		70,969		88,236
Raw materials, purchased components and supplies		103,408		120,386

		704,043		707,052

4.	*Film costs*

Film costs are comprised of the following:


	Yen in millions
	March 31
	2011			2012
Motion picture productions:
Released		102,415			98,910
Completed and not released		14,260			10,800
In production and development		107,811			102,295
Television productions:
Released		40,581			44,461
In production and development		1,688			2,853
Broadcasting rights		24,544			27,830
Less: current portion of broadcasting rights included in inventories		(15,910	)		(17,101	)

Film costs		275,389			270,048

Sony estimates that approximately 90% of the unamortized costs of released films at March 31, 2012 will be amortized within the next three years. Approximately 84 billion yen of completed film costs are expected to be amortized during the next twelve months. Approximately 91 billion yen of accrued participation liabilities included in accounts payable, other and accrued expenses are expected to be paid during the next twelve months.

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

5.	*Related party transactions*

Sony accounts for its investments in affiliated companies over which Sony has significant influence under the equity method. In addition, investments in general partnerships in which Sony does not have a controlling interest and limited partnerships are also accounted for under the equity method if more than minor influence over the operation of the investee exists (generally through more than 3-5% ownership).

During fiscal year ended March 31, 2012, Sony Corporation acquired the remaining interests in Sony Ericsson Mobile Communications AB (“Sony Ericsson”) and sold all of its shares of S-LCD Corporation (“S-LCD”), both of which were considered significant equity affiliates. There are no remaining individually significant investments at March 31, 2012.

The summarized combined financial information that is based on information provided by the equity investees including information for significant equity affiliates and the reconciliation of such information to the consolidated financial statements is shown below:

Balance Sheets


	Yen in millions
	March 31, 2011
	Sony Ericsson			S-LCD			Others			Total
Current assets		254,858			188,903			183,597			627,358
Noncurrent assets		92,925			233,988			137,720			464,633

Total assets		347,783			422,891			321,317			1,091,991

Current liabilities		282,857			71,572			166,056			520,485
Long-term liabilities and noncontrolling interests		8,089			29,696			61,036			98,821
Stockholders’ equity		56,837			321,623			94,225			472,685
Percentage of ownership in equity investees		50	%		50	%		20%-50	%
Equity investment and undistributed earnings of affiliated companies, before consolidating and reconciling adjustments		28,419			160,812
Consolidation and reconciling adjustments:
Other		(79	)		—

Investment in and advances to equity investees at cost plus equity in undistributed earnings since acquisition		28,340			160,812			32,841			221,993


	Yen in millions
	March 31, 2012
Current assets		167,786
Noncurrent assets		168,143

Total assets		335,929

Current liabilities		93,535
Long-term liabilities and noncontrolling interests		79,513
Stockholders’ equity		162,881
Percentage of ownership in equity investees		20%-50	%
Investment in and advances to equity investees at cost plus equity in undistributed earnings since acquisition		36,800

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

Statements of Income


	Yen in millions
	Fiscal year ended March 31, 2010
	Sony Ericsson			S-LCD			Others			Total
Net revenues		837,149			796,575			323,576			1,957,300

Operating income (loss)		(81,385	)		3,825			29,686			(47,874	)
Other income (expense), net		(4,676	)		(4,055	)

Income (loss) before income taxes		(86,061	)		(230	)
Income tax (expense) benefit		20,470			53
Net income (loss) attributable to noncontrolling interests		(3,318	)		—

Net income (loss) attributable to controlling interests		(68,909	)		(177	)		17,064			(52,022	)
Percentage of ownership in equity investees		50	%		50	%		20%-50	%
Equity in net income (loss) of affiliated companies, before consolidating and reconciling adjustments		(34,455	)		(89	)
Consolidation and reconciling adjustments:
Other		(59	)		476

Equity in net income (loss) of affiliated companies		(34,514	)		387			3,892			(30,235	)


	Yen in millions
	Fiscal year ended March 31, 2011
	Sony Ericsson			S-LCD			Others			Total
Net revenues		673,464			807,955			268,604			1,750,023

Operating income (loss)		16,453			12,527			17,630			46,610
Other income (expense), net		(1,572	)		(4,119	)

Income (loss) before income taxes		14,881			8,408
Income tax (expense) benefit		(6,065	)		3,094
Net income (loss) attributable to noncontrolling interests		(520	)		—

Net income (loss) attributable to controlling interests		8,296			11,502			8,895			28,693
Percentage of ownership in equity investees		50	%		50	%		20%-50	%
Equity in net income (loss) of affiliated companies, before consolidating and reconciling adjustments		4,148			5,751
Consolidation and reconciling adjustments:
Other		7			1,463

Equity in net income (loss) of affiliated companies		4,155			7,214			2,693			14,062

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES


	Yen in millions
	Fiscal year ended March 31, 2012
	Sony Ericsson			S-LCD			Others			Total
Net revenues		475,898			146,002			123,610			745,510

Operating income (loss)		(44,239	)		(4,644	)		5,247			(43,636	)
Other income (expense), net		4,504			(3,098	)

Income (loss) before income taxes		(39,735	)		(7,742	)
Income tax (expense) benefit		(73,054	)		(374	)
Net income (loss) attributable to noncontrolling interests		(2,729	)		—

Net income (loss) attributable to controlling interests		(115,518	)		(8,116	)		950			(122,684	)
Percentage of ownership in equity investees		50	%		50	%		20%-50	%
Equity in net income (loss) of affiliated companies, before consolidating and reconciling adjustments		(57,759	)		(4,058	)
Consolidation and reconciling adjustments:
Impairment loss including translation adjustments		—			(60,019	)
Other		79			(1	)

Equity in net income (loss) of affiliated companies		(57,680	)		(64,078	)		61			(121,697	)

Sony Ericsson, a 50/50 joint venture with Telefonaktiebolaget LM Ericsson (“Ericsson”) focused on mobile phone handsets, was established in October 2001 and was included in affiliated companies accounted for under the equity method through February 15, 2012. On February 15, 2012, Sony Corporation acquired Ericsson’s 50 percent stake in Sony Ericsson, making the mobile handset business a wholly-owned subsidiary of Sony Corporation. Refer to Note 24.

S-LCD, a joint venture with Samsung Electronics Co., Ltd. (“Samsung”) focused on manufacturing amorphous TFT panels, was established in April 2004 with Sony’s ownership interest of 50% minus 1 share. S-LCD was strategic to Sony’s television business as it provided a source of high quality large screen LCD panels to differentiate Sony’s Bravia LCD televisions. In June 2011, S-LCD decreased its capital stock by 0.6 trillion Korean won and Sony received a cash distribution of 22,100 million yen from S-LCD. However, LCD panel and television market conditions became increasingly challenging and in order to respond to the situation and to strengthen their respective market competitiveness, Sony and Samsung agreed to shift to a new LCD panel business alliance in December 2011. As a result of this agreement, on January 19, 2012, Sony sold to Samsung all of its shares of S-LCD, and received cash consideration of 71,986 million yen (1.07 trillion Korean won) from Samsung. Following the transaction S-LCD was no longer an equity affiliate. During the fiscal year ended March 31, 2012, Sony recorded a 60,019 million yen other-than-temporary impairment loss on its share of S-LCD, including the reclassification to net income of foreign currency translation adjustments and the impact of exchange rate fluctuations between the initial impairment loss and closing of the sale to Samsung. Cash proceeds from the sale of the investment in S-LCD are included in sales of securities investments in the consolidated statements of cash flows.

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

There was no significant difference between Sony’s proportionate share in the underlying net assets of the investees and the carrying value of investments in affiliated companies at March 31, 2011 and 2012.

There were no affiliated companies accounted for under the equity method with a market quotation at March 31, 2011 and 2012.

The number of affiliated companies accounted for under the equity method at March 31, 2011 and 2012 were 82 and 95, respectively.

Account balances and transactions with affiliated companies accounted for under the equity method are presented below:


	Yen in millions
	March 31
	2011		2012
Accounts receivable, trade		18,631		4,125

Accounts payable, trade		45,434		508
Capital lease obligations		—		39,080


	Yen in millions
	Fiscal year ended March 31
	2010		2011		2012
Sales		132,937		96,164		79,677

Purchases		309,550		383,922		157,930
Lease payments		—		—		24,159

SFI Leasing Company, Limited (“SFIL”), a leasing company in Japan, is accounted for under the equity method and 34% is owned by Sony after deconsolidation in November 2010. Sony entered into a three year sale and leaseback transaction regarding certain acquired machinery and equipment with SFIL in the fiscal year ended March 31, 2012. Refer to Note 24.

Dividends from affiliated companies accounted for under the equity method for the fiscal years ended March 31, 2010, 2011 and 2012 were 5,948 million yen, 2,583 million yen and 1,964 million yen, respectively.

During the fiscal year ended March 31, 2012 and prior to the sale of its shares of S-LCD, Sony paid additional LCD panel related expenses of 22,759 million yen (292 million U.S. dollars) resulting from low capacity utilization of S-LCD.

6.	*Transfer of financial assets*

The below transactions are accounted for as sales in accordance with the accounting guidance for transfers of financial assets, because Sony has relinquished control of the receivables. In each case, losses from these transactions were insignificant, and although Sony continues servicing the receivables subsequent to being sold or contributed, no servicing liabilities are recorded as the costs of collection of the sold receivables are insignificant. In addition to the cash proceeds from the sales below, net cash flows related to these transactions, including servicing fees, in the fiscal years ended March 31, 2010, 2011 and 2012 were insignificant.

Sony has established several accounts receivable sales programs in Japan whereby Sony can sell up to 50,200 million yen of eligible trade accounts receivable in the aggregate at any one time. Through these programs, Sony can sell receivables to special purpose entities owned and operated by banks. Sony can sell

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

receivables in which the agreed upon original due dates are no more than 190 days after the sales of receivables. Total trade accounts receivable sold during the fiscal years ended March 31, 2010, 2011 and 2012 were 109,271 million yen, 136,232 million yen and 126,513 million yen, respectively.

A subsidiary of the Financial Services segment has established several receivables sales programs whereby the subsidiary can sell up to 24,000 million yen of eligible receivables in the aggregate at any one time. Through these programs, the subsidiary can sell receivables to special purpose entities owned and operated by banks. The subsidiary can sell receivables in which the agreed upon original due dates are no more than 180 days after the sales of receivables. Total receivables sold during the fiscal years ended March 31, 2010, 2011 and 2012 were 183,805 million yen, 166,025 million yen and 130,060 million yen, respectively.

During the fiscal year ended March 31, 2010, Sony established an accounts receivable sales program in the United States. Through this program, a bankruptcy-remote entity, which is consolidated by Sony’s U.S. subsidiary, can sell up to 450 million U.S. dollars of eligible trade accounts receivables in the aggregate at any one time to a commercial bank. Total trade accounts receivables sold during the fiscal year ended March 31, 2010 were 258,085 million yen. Subsequent to its establishment, Sony amended this program. While the transactions continued to qualify as sales under the new accounting guidance for transfers of financial assets, the amended program requires that a portion of the sales proceeds be held back and deferred until collection of the related receivables by the purchaser. The portion of the sales proceeds held back and deferred is initially recorded at estimated fair value, is included in other current assets and was 32,751 million yen at March 31, 2011 and 16,272 million yen at March 31, 2012. Sony includes collections on such receivables as cash flows within operating activities in the consolidated statements of cash flows since the receivables are the result of operating activities and the associated interest rate risk is insignificant due to its short-term nature. Total trade receivables sold, deferred proceeds from those sales and collections of deferred proceeds during the fiscal year ended March 31, 2011 were 414,147 million yen, 185,647 million yen and 153,550 million yen, respectively. Total trade receivables sold, deferred proceeds from those sales and collections of deferred proceeds during the fiscal year ended March 31, 2012 were 476,855 million yen, 117,343 million yen and 132,636 million yen, respectively.

The accounts receivable sales programs in Japan and in the Financial Services segment above involved qualified special purpose entities (“QSPEs”) under the accounting guidance effective prior to April 1, 2010 for transfers of financial assets. Since the QSPEs met certain criteria, they were not consolidated by Sony. From April 1, 2010, the entities that formerly met the criteria to be a QSPE are subject to the same consolidation accounting guidance as other variable interest entities (“VIEs”). Refer to Note 23.

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7.	*Marketable securities and securities investments*

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


	Yen in millions
	March 31, 2011									March 31, 2012
	Cost		Gross unrealized gains		Gross unrealized losses			Fair value		Cost		Gross unrealized gains		Gross unrealized losses			Fair value
Available-for-sale:
Debt securities:
Japanese national government bonds		1,124,704		24,032		(4,971	)		1,143,765		1,036,946		55,384		(879	)		1,091,451
Japanese local government bonds		22,845		184		(64	)		22,965		33,513		163		(1	)		33,675
Japanese corporate bonds		332,567		1,511		(440	)		333,638		293,885		1,489		(224	)		295,150
Foreign corporate bonds		332,316		4,872		(11,367	)		325,821		377,609		4,705		(7,063	)		375,251
Other		8,241		109		(118	)		8,232		22,383		1,548		(6	)		23,925

		1,820,673		30,708		(16,960	)		1,834,421		1,764,336		63,289		(8,173	)		1,819,452

Equity securities		80,983		63,822		(3,316	)		141,489		60,694		53,016		(1,513	)		112,197

Held-to-maturity Securities:
Japanese national government bonds		2,902,342		22,420		(48,149	)		2,876,613		3,404,069		157,740		(4,499	)		3,557,310
Japanese local government bonds		18,912		218		(2	)		19,128		12,592		277		—			12,869
Japanese corporate bonds		32,349		158		(67	)		32,440		31,379		1,501		—			32,880
Foreign corporate bonds		47,330		13		(3	)		47,340		46,441		10		—			46,451

		3,000,933		22,809		(48,221	)		2,975,521		3,494,481		159,528		(4,499	)		3,649,510

Total		4,902,589		117,339		(68,497	)		4,951,431		5,319,511		275,833		(14,185	)		5,581,159

The following table presents the cost and fair value of debt securities classified as available-for-sale securities and held-to-maturity securities by contractual maturity:


	Yen in millions
	March 31, 2012
	Available-for-sale securities				Held-to-maturity securities
	Cost		Fair Value		Cost		Fair Value
Due in one year or less		230,037		223,870		23,552		23,625
Due after one year through five years		505,497		510,183		18,280		18,559
Due after five year through ten years		210,411		215,180		27,225		28,219
Due after ten years		818,391		870,219		3,425,424		3,579,107

Total		1,764,336		1,819,452		3,494,481		3,649,510

Proceeds from sales of available-for-sale securities were 785,698 million yen, 532,619 million yen and 177,850 million yen for the fiscal years ended March 31, 2010, 2011 and 2012, respectively. On these sales, gross realized gains were 39,622 million yen, 38,654 million yen and 9,593 million yen and gross realized losses were 37,537 million yen, 2,014 million yen and 1,834 million yen, respectively.

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

Marketable securities classified as trading securities at March 31, 2011 and 2012 were 375,802 million yen and 433,491 million yen, respectively, which consist of debt and equity securities.

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 amounts of the investments in non-public companies at March 31, 2011 and 2012, totaled 75,930 million yen and 93,050 million yen, respectively. Non-public equity investments are primarily valued at cost as fair value is not readily determinable.

With respect to trading securities, primarily in the Financial Services segment, Sony recorded net unrealized gains of 50,992 million yen for the fiscal year ended March 31, 2010, net unrealized losses of 10,768 million yen for the fiscal year ended March 31, 2011 and net unrealized gains of 21,216 million yen for the fiscal year ended March 31, 2012. Changes in the fair value of trading securities are primarily recognized in financial services revenue in the consolidated statements of income.

The following tables present the gross unrealized losses on, and fair value of, Sony’s investment securities with unrealized losses, aggregated by investment category and the length of time that individual investment securities have been in a continuous unrealized loss position, at March 31, 2011 and 2012.


	Yen in millions
	March 31, 2011
	Less than 12 months					12 months or More					Total
	Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses
Available-for-sale:
Debt securities:
Japanese national government bonds		223,686		(3,230	)		54,477		(1,741	)		278,163		(4,971	)
Japanese local government bonds		12,434		(64	)		—		—			12,434		(64	)
Japanese corporate bonds		130,318		(440	)		—		—			130,318		(440	)
Foreign corporate bonds		126,184		(7,183	)		30,277		(4,184	)		156,461		(11,367	)
Other		3,182		(118	)		—		—			3,182		(118	)

		495,804		(11,035	)		84,754		(5,925	)		580,558		(16,960	)

Equity securities		36,391		(3,223	)		386		(93	)		36,777		(3,316	)

Held-to-maturity Securities:
Japanese national government bonds		1,812,196		(48,149	)		—		—			1,812,196		(48,149	)
Japanese local government bonds		531		(2	)		—		—			531		(2	)
Japanese corporate bonds		20,788		(67	)		—		—			20,788		(67	)
Foreign corporate bonds		194		(3	)		—		—			194		(3	)

		1,833,709		(48,221	)		—		—			1,833,709		(48,221	)

Total		2,365,904		(62,479	)		85,140		(6,018	)		2,451,044		(68,497	)

F-34

SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES


	Yen in millions
	March 31, 2012
	Less than 12 months					12 months or More					Total
	Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses
Available-for-sale:
Debt securities:
Japanese national government bonds		55,450		(877	)		3,048		(2	)		58,498		(879	)
Japanese local government bonds		2,364		(1	)		—		—			2,364		(1	)
Japanese corporate bonds		1,034		(196	)		25,243		(28	)		26,277		(224	)
Foreign corporate bonds		68,277		(6,065	)		83,650		(998	)		151,927		(7,063	)
Other		335		(6	)		—		—			335		(6	)

		127,460		(7,145	)		111,941		(1,028	)		239,401		(8,173	)

Equity securities		4,337		(318	)		280		(1,195	)		4,617		(1,513	)

Held-to-maturity Securities:
Japanese national government bonds		—		—			333,702		(4,499	)		333,702		(4,499	)
Japanese local government bonds		70		(0	)		—		—			70		(0	)
Japanese corporate bonds		—		—			—		—			—		—
Foreign corporate bonds		—		—			—		—			—		—

		70		(0	)		333,702		(4,499	)		333,772		(4,499	)

Total		131,867		(7,463	)		445,923		(6,722	)		577,790		(14,185	)

For the fiscal years ended March 31, 2010, 2011 and 2012, total realized impairment losses were 5,508 million yen, 9,763 million yen and 5,530 million yen, respectively.

At March 31, 2012, Sony determined that the decline in value for securities with unrealized losses shown in the above table is not other-than-temporary in nature.

8.	*Leased assets*

Sony leases certain communication and commercial equipment, plant, office space, warehouses, employees’ residential facilities and other assets. Certain of these leases have renewal and purchase options. In addition, during the fiscal year ended March 31, 2012, Sony entered into a three year sale and leaseback transaction, accounted for as a capital lease, for certain machinery and equipment. Sony received proceeds of 50,537 million yen based on the amounts recorded at fair value in the acquisition described in Note 24, and as such there was no gain in the sale and leaseback transaction. Sony has also entered into capital lease arrangements with third parties to finance certain of its motion picture productions.

F-35

SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

Leased assets under capital leases are comprised of the following:


	Yen in millions
	March 31
Class of property	2011			2012
Machinery, equipment and others		9,288			58,751
Film costs		19,208			9,465
Accumulated amortization		(4,634	)		(20,514	)

		23,862			47,702

The following is a schedule by year of the future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of March 31, 2012:


Fiscal year ending March 31	Yen in millions
2013		20,652
2014		20,098
2015		2,035
2016		1,469
2017		1,346
Later years		5,647

Total minimum lease payments		51,247
Less — Amount representing interest		1,493

Present value of net minimum lease payments		49,754
Less — Current obligations		20,494

Long-term capital lease obligations		29,260

Rental expenses under operating leases for the fiscal years ended March 31, 2010, 2011 and 2012 were 87,077 million yen, 78,538 million yen and 76,188 million yen, respectively. Sublease rentals received under operating leases for the fiscal years ended March 31, 2010, 2011 and 2012 were 1,675 million yen, 1,974 million yen and 1,423 million yen, respectively. The total minimum rentals to be received in the future under noncancelable subleases for operating leases as of March 31, 2012 were 4,527 million yen.

The minimum rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year at March 31, 2012 are as follows:


Fiscal year ending March 31	Yen in millions
2013		42,789
2014		33,110
2015		24,087
2016		17,368
2017		13,653
Later years		49,174

Total minimum future rentals		180,181

F-36

SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

9.	*Goodwill and intangible assets*

Intangible assets acquired during the fiscal year ended March 31, 2012 totaled 174,430 million yen, of which 174,275 million yen is subject to amortization and are comprised of the following:


	Intangible assets acquired during the year		Weighted-average amortization period
	Yen in millions		Years
Patent rights, know-how and license agreements*¹		103,036		7
Customer relationships		19,793		14
Trademarks		14,177		7
Software to be sold, leased or otherwise marketed		23,621		3
Other		13,648		4

*1	Includes intellectual property cross-licensing and developed technology relating to the Sony Ericsson acquisition. Refer to Note 24.

Intangible assets subject to amortization are comprised of the following:


	Yen in millions
	March 31, 2011					March 31, 2012
	Gross carrying amount		Accumulated amortization			Gross carrying amount		Accumulated amortization
Patent rights, know-how and license agreements		122,444		(69,224	)		226,142		(80,334	)
Customer relationships		3,051		(1,105	)		23,758		(1,409	)
Trademarks		4,938		(1,401	)		20,214		(2,154	)
Software to be sold, leased or otherwise marketed		76,112		(40,447	)		98,852		(58,865	)
Music catalogs		160,325		(40,455	)		157,699		(45,570	)
Artist contracts		27,727		(17,903	)		27,401		(19,419	)
Television carriage agreements (broadcasting agreements)		35,874		(228	)		36,216		(2,370	)
Other		82,519		(40,136	)		87,843		(54,338	)

Total		512,990		(210,899	)		678,125		(264,459	)

The aggregate amortization expense for intangible assets for the fiscal years ended March 31, 2010, 2011 and 2012 was 57,069 million yen, 52,763 million yen and 57,023 million yen, respectively. The estimated aggregate amortization expense for intangible assets for the next five years is as follows:


Fiscal year ending March 31	Yen in millions
2013		68,735
2014		58,885
2015		48,971
2016		41,218
2017		36,509

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

Total carrying amount of intangible assets having an indefinite life are comprised of the following:


	Yen in millions
	March 31
	2011		2012
Trademarks		66,967		66,729
Distribution agreements		18,834		18,807
Other		3,230		4,497

Total		89,031		90,033

The changes in the carrying amount of goodwill by segment for the fiscal years ended March 31, 2011 and 2012 are as follows:


	Yen in millions
	Consumer Products & Services			Professional, Device & Solutions			Pictures			Music			Financial Services			Sony Mobile*¹		All Other			Total
Balance, March 31, 2010:
Goodwill — gross		135,591			65,123			102,481			110,192			3,020			—		36,749			453,156
Accumulated impairments		(5,320	)		(300	)		—			(306	)		(706	)		—		(7,655	)		(14,287	)

Goodwill		130,271			64,823			102,481			109,886			2,314			—		29,094			438,869

Increase (decrease) due to:
Acquisitions*²		—			1,085			46,504			203			—			—		55			47,847
Sales and dispositions		(257	)		—			—			—			—			—		—			(257	)
Impairments		—			—			—			—			—			—		—			—
Translation adjustments		(770	)		31			(8,401	)		(6,956	)		—			—		(1,239	)		(17,335	)
Other*³		171			232			—			(445	)		—			—		(77	)		(119	)

Balance, March 31, 2011:
Goodwill — gross		134,735			66,471			140,584			102,994			3,020			—		35,488			483,292
Accumulated impairments		(5,320	)		(300	)		—			(306	)		(706	)		—		(7,655	)		(14,287	)

Goodwill		129,415			66,171			140,584			102,688			2,314			—		27,833			469,005

Increase (decrease) due to:
Acquisitions		166			—			1,330			—			—			128,522		4,358			134,376
Sales and dispositions		—			(589	)		—			—			—			—		—			(589	)
Impairments*⁴		—			—			—			—			—			—		(932	)		(932	)
Translation adjustments		(65	)		(184	)		(3,073	)		(1,891	)		—			9,733		(559	)		3,961
Other³⁵		(201	)		(28,773	)		(521	)		(147	)		—			—		579			(29,063	)

Balance, March 31, 2012:
Goodwill — gross		134,635			36,925			138,320			100,956			3,020			138,255		39,866			591,977
Accumulated impairments		(5,320	)		(300	)		—			(306	)		(706	)		—		(8,587	)		(15,219	)

Goodwill		129,315			36,625			138,320			100,650			2,314			138,255		31,279			576,758

*1	The amounts in the Sony Mobile Communications (“Sony Mobile”) segment relate to the Sony Ericsson acquisition. Refer to Note 24.

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

*2	Substantially all of the acquisition amounts in the Pictures segment relate to the Game Show Network, LLC (“GSN”) acquisition. Refer to Note 24.

*3	Other primarily consists of purchase price adjustments for prior years and amounts reclassified as held for sale.

During the fiscal year ended March 31, 2012, Sony recorded impairment losses of 932 million yen in a reporting unit included in All Other. The impairment charge reflected the overall decline in the fair value of the reporting unit. The fair value of the reporting unit was estimated using the expected present value of future cash flows.

As described in Note 2, Sony performs an annual impairment test for goodwill. As a result of the impairment test, there were no impairments other than the one noted above for the fiscal year ended March 31, 2012.

10.

Insurance-related accounts

Sony’s Financial Services segment subsidiaries in Japan maintain their accounting records as described in Note 2 in accordance with the accounting principles and practices generally accepted in Japan, which vary in some respects from U.S. GAAP.

Those differences are mainly that insurance acquisition costs for life and non-life insurance are charged to income when incurred in Japan whereas in the U.S. those costs are deferred and amortized generally over the premium-paying period of the related insurance policies, and that future policy benefits for life insurance calculated locally under the authorization of the supervisory administrative agencies are comprehensively adjusted to a net level premium method with certain adjustments of actuarial assumptions for U.S. GAAP purposes. For purposes of preparing the consolidated financial statements, appropriate adjustments have been made to reflect the accounting for these items in accordance with U.S. GAAP.

The combined amounts of statutory net equity of the insurance subsidiaries, which is not measured in accordance with U.S. GAAP, as of March 31, 2011 and 2012 were 232,160 million yen and 282,846 million yen, respectively.

(1)

Insurance policies:

Life insurance policies that a subsidiary in the Financial Services segment underwrites, most of which are categorized as long-duration contracts, mainly consist of whole life, term life and accident and health insurance contracts. The life insurance revenues for the fiscal years ended March 31, 2010, 2011 and 2012 were 554,650 million yen, 600,291 million yen and 654,986 million yen, respectively. Property and casualty insurance policies that a subsidiary in the Financial Services segment underwrites are primarily automotive insurance contracts, which are categorized as short-duration contracts. The non-life insurance revenues for the fiscal years ended March 31, 2010, 2011 and 2012 were 64,987 million yen, 71,037 million yen and 76,958 million yen, respectively.

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

(2)

Deferred insurance acquisition costs:

(3)

Future insurance policy benefits:

Liabilities for future policy benefits, which mainly related to individual life insurance policies, are established in amounts adequate to meet the estimated future obligations of policies in force. These liabilities, which require significant management judgment and estimates, are computed by the net level premium method based upon the assumptions as to future investment yield, morbidity, mortality, withdrawals and other factors. Future policy benefits are computed using interest rates ranging from 1.4% to 4.5% and are based on factors such as market conditions and expected investment returns. Morbidity, mortality and withdrawal assumptions for all policies are based on either the subsidiary’s own experience or various actuarial tables. Generally these assumptions are locked-in throughout the life of the contract upon the issuance of new insurance, although significant changes in experience or assumptions may require Sony to provide for expected future losses. At March 31, 2011 and 2012, future insurance policy benefits amounted to 2,918,960 million yen and 3,202,066 million yen, respectively.

(4)

Policyholders’ account in the life insurance business:

Policyholders’ account in the life insurance business represents an accumulation of account deposits plus credited interest less withdrawals, expenses and mortality charges. Policyholders’ account includes universal life insurance and investment contracts. Universal life insurance includes interest sensitive whole life contracts and variable contracts. The credited rate associated with interest sensitive whole life contracts is 2.0%. For variable contracts, policy values are expressed in terms of investment units. Each unit is linked to an asset portfolio. The value of a unit increases or decreases based on the value of the linked assets portfolio. Investment contracts mainly include single payment juvenile contracts and policies after the start of annuity payments. The credited rates associated with investment contracts ranges from 0.1% to 6.3%.

Policyholders’ account in the life insurance business is comprised of the following:


	Yen in millions
	March 31
	2011		2012
Universal life insurance		896,539		1,010,277
Investment contracts		322,580		340,600
Other		82,133		98,767

Total		1,301,252		1,449,644

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

11.

Short-term borrowings and long-term debt

Short-term borrowings are comprised of the following:


	Yen in millions
	March 31
	2011		2012
Unsecured loans:
with a weighted-average interest rate of 4.40%		43,737
with a weighted-average interest rate of 3.98%				89,878
Secured call money:
with a weighted-average interest rate of 0.11%		10,000
with a weighted-average interest rate of 0.11%				10,000

		53,737		99,878

At March 31, 2012, securities investments with a book value of 10,845 million yen were pledged as collateral for 10,000 million yen of call money, by subsidiaries in the Financial Services segment. In addition, marketable securities with a book value of 129,472 million yen were pledged as collateral for cash settlements, variation margins of futures markets and certain other purposes at March 31, 2012.

Long-term debt is comprised of the following:


	Yen in millions
	March 31
	2011		2012
Unsecured loans, representing obligations principally to banks:
Due 2011 to 2018, with interest rates ranging from 0.20% to 4.50% per annum		441,976
Due 2012 to 2024, with interest rates ranging from 0.23% to 4.50% per annum				564,275
Unsecured 1.52% bonds, due 2011, net of unamortized discount		50,000
Unsecured 1.16% bonds, due 2012, net of unamortized discount		39,996		39,999
Unsecured 1.52% bonds, due 2013, net of unamortized discount		34,999		35,000
Unsecured 1.57% bonds, due 2015, net of unamortized discount		29,991		29,993
Unsecured 1.75% bonds, due 2015, net of unamortized discount		24,996		24,997
Unsecured 1.17% bonds, due 2011		10,500
Unsecured 0.95% bonds, due 2012		60,000		60,000
Unsecured 1.40% bonds, due 2013		10,700		10,700
Unsecured 1.30% bonds, due 2014		110,000		110,000
Unsecured 0.55% bonds, due 2016				10,000
Unsecured 0.66% bonds, due 2017				45,000
Unsecured 2.00% bonds, due 2018		16,300		16,300
Unsecured 2.07% bonds, due 2019		50,000		50,000
Unsecured 1.41% bonds, due 2022				10,000
Capital lease obligations:
Due 2011 to 2021, with interest rates ranging from 0.03% to 9.09% per annum Due 2012 to 2026, with interest rates ranging from 0.03% to 8.74% per annum		24,673		49,754
Guarantee deposits received		17,718		16,691

		921,849		1,072,709
Less — Portion due within one year		109,614		310,483

		812,235		762,226

F-41

SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

In March 2012, Sony executed a 1,365 million U.S. dollar unsecured bank loan with a group of lenders having six to ten year maturity terms in connection with acquiring Ericsson’s 50% equity interest in Sony Ericsson. This bank loan utilizes the Japan Bank for International Cooperation (“JBIC”) Facility, which was established to facilitate overseas mergers and acquisitions by Japanese companies as one of countermeasures against yen appreciation. Of the 1,365 million U.S. dollar loan, 60% or 819 million U.S. dollars is from the JBIC Facility and 40% or 546 million U.S. dollars is from private banks. The terms of this U.S. dollar loan agreement require accelerated repayment of the loan if Sony Corporation or its wholly-owned subsidiaries discontinue the business of mobile devices featuring telephone functionality.

There are no significant adverse debt covenants or cross-default provisions related to the above borrowings.

Aggregate amounts of annual maturities of long-term debt are as follows:


Fiscal year ending March 31	Yen in millions
2013		310,483
2014		135,487
2015		209,814
2016		77,391
2017		97,419
Later years		242,115

Total		1,072,709

At March 31, 2012, Sony had unused committed lines of credit amounting to 800,306 million yen and can generally borrow up to 180 days from the banks with whom Sony has committed line contracts. Furthermore, at March 31, 2012, Sony has commercial paper programs, the size of which was 746,570 million yen. Sony can issue commercial paper for a period generally not in excess of 270 days up to the size of the programs.

12.

Housing loans and deposits from customers in the banking business

(1)

Housing loans in the banking business:

Sony acquires and holds certain financial receivables in the normal course of business. A majority of financing receivables held by Sony consist of housing loans in the banking business and no other significant financial receivables exist.

A subsidiary in the banking business monitors the credit quality of housing loans based on the classification set by the financial conditions and the past due status of individual obligators. Past due status is monitored on a daily basis and the aforementioned classification is reviewed on a quarterly basis.

The allowance for the credit losses is established based on the aforementioned classifications and the evaluation of collateral. The amount of housing loans in the banking business and the corresponding allowance for credit losses at March 31, 2011 were 656,047 million yen and 925 million yen, and at March 31, 2012 were 749,636 million yen and 1,066 million yen, respectively. During the fiscal year ended March 31, 2011 and 2012, charge-offs on housing loans in the banking business and changes in the allowance for credit losses, which took into consideration the impact of the Great East Japan Earthquake discussed in Note 18, were not significant.

In addition, the balance of housing loans placed on nonaccrual status or past due status were not significant at March 31, 2011 and 2012. A subsidiary in the banking business assesses the nonaccrual status based on the aforementioned classification, and may resume the accrual of the interest on the housing loan if the classification of the housing loan is changed.

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

(2)

Deposits from customers in the banking business:

All deposits from customers in the banking business within the Financial Services segment are interest bearing deposits. At March 31, 2011 and 2012, the balances of time deposits issued in amounts of 10 million yen or more were 247,799 million yen and 374,665 million yen, respectively. These amounts have been classified as current liabilities due to the ability of the customers to make withdrawals prior to maturity.

At March 31, 2012, aggregate amounts of annual maturities of time deposits with a remaining term of more than one year are as follows:


Fiscal year ending March 31	Yen in millions
2014		32,531
2015		11,421
2016		9,064
2017		3,946
2018		2,104
Later years		33,721

Total		92,787

13.

Fair value measurements

As discussed in Note 2, assets and liabilities subject to the accounting guidance for fair value measurements held by Sony are classified and accounted for as described below.

(1)

Assets and liabilities that are measured at fair value on a recurring basis:

The following section describes the valuation techniques used by Sony to measure different financial instruments at fair value, including an indication of the level in the fair value hierarchy in which each instrument is generally classified.

Trading securities, available-for-sale securities and other investments

Where quoted prices are available in an active market, securities are classified in level 1 of the fair value hierarchy. Level 1 securities include exchange-traded equities. If quoted market prices are not available for the specific security or the market is inactive, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows and mainly classified in level 2 of the hierarchy. Level 2 securities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments, such as the majority of government bonds and corporate bonds. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within level 3 of the fair value hierarchy. Level 3 securities do not have actively traded quotes at the balance sheet date and require the use of unobservable inputs, such as indicative quotes from dealers and qualitative input from investment advisors, to value these securities. Level 3 assets include financial instruments whose value is determined using pricing models, discounted cash flow techniques, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation of assumptions that market participants would use in pricing the asset. Level 3 securities primarily include certain hybrid financial instruments and certain private equity investments not classified within levels 1 or 2.

Derivatives

Exchange-traded derivatives valued using quoted prices are classified within level 1 of the fair value hierarchy. However, few classes of derivative contracts are listed on an exchange; thus, the majority of Sony’s

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

derivative positions are valued using internally developed models that use as their basis readily observable market parameters — i.e., parameters that are actively quoted and can be validated to external sources, including industry pricing services. Depending on the types and contractual terms of derivatives, fair value can be modeled using a series of techniques, such as the Black-Scholes option pricing model, which are consistently applied. Where derivative products have been established for some time, Sony uses models that are widely accepted in the financial services industry. These models reflect the contractual terms of the derivatives, including the period to maturity, and market-based parameters such as interest rates, volatility, and the credit rating of the counterparty. Further, many of these models do not contain a high level of subjectivity as the techniques used in the models do not require significant judgment, and inputs to the model are readily observable from actively quoted markets. Such instruments are generally classified within level 2 of the fair value hierarchy.

In determining the fair value of Sony’s interest rate swap derivatives, Sony uses the present value of expected cash flows based on market observable interest rate yield curves commensurate with the term of each instrument. For foreign currency derivatives, Sony’s approach is to use forward contract and option valuation models employing market observable inputs, such as spot currency rates, time value and option volatilities. These derivatives are classified within level 2 since Sony primarily uses observable inputs in its valuation of its derivative assets and liabilities.

The fair value of Sony’s assets and liabilities that are measured at fair value on a recurring basis at March 31, 2011 and 2012 are as follows:


	Yen in millions
	March 31, 2011
									Presentation in the consolidated balance sheets
	Level 1		Level 2		Level 3		Total		Marketable securities		Securities investments and other		Other current assets/ liabilities		Other noncurrent assets/ liabilities
Assets:
Trading securities		189,320		186,482		—		375,802		375,802		—		—		—
Available-for-sale securities
Debt securities
Japanese national government bonds		—		1,143,765		—		1,143,765		71,472		1,072,293		—		—
Japanese local government bonds		—		22,965		—		22,965		3,415		19,550		—		—
Japanese corporate bonds		—		329,057		4,581		333,638		96,745		236,893		—		—
Foreign corporate bonds		—		306,070		19,751		325,821		81,486		244,335		—		—
Other		—		7,933		299		8,232		—		8,232		—		—
Equity securities		141,408		81		—		141,489		—		141,489		—		—
Other investments*¹		5,459		4,637		74,026		84,122		—		84,122		—		—
Derivative assets*²		—		15,110		—		15,110		—		—		15,101		9

Total assets		336,187		2,016,100		98,657		2,450,944		628,920		1,806,914		15,101		9

Liabilities:
Derivative liabilities*²		—		33,759		—		33,759		—		—		32,096		1,663

Total liabilities		—		33,759		—		33,759		—		—		32,096		1,663

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES


	Yen in millions
	March 31, 2012
									Presentation in the consolidated balance sheets
	Level 1		Level 2		Level 3		Total		Marketable securities		Securities investments and other		Other current assets/ liabilities		Other noncurrent assets/ liabilities
Assets:
Trading securities		214,036		219,455		—		433,491		433,491		—		—		—
Available-for-sale securities
Debt securities
Japanese national government bonds		—		1,091,451		—		1,091,451		23,267		1,068,184		—		—
Japanese local government bonds		—		33,675		—		33,675		1,405		32,270		—		—
Japanese corporate bonds		—		293,637		1,513		295,150		123,434		171,716		—		—
Foreign corporate bonds		—		359,960		15,291		375,251		75,764		299,487		—		—
Other		—		23,616		309		23,925		—		23,925		—		—
Equity securities		111,517		680		—		112,197		—		112,197		—		—
Other investments*¹		5,475		4,592		73,451		83,518		—		83,518		—		—
Derivative assets*²		—		18,518		—		18,518		—		—		18,513		5

Total assets		331,028		2,045,584		90,564		2,467,176		657,361		1,791,297		18,513		5

Liabilities:
Derivative liabilities*²		—		41,218		—		41,218		—		—		40,034		1,184

Total liabilities		—		41,218		—		41,218		—		—		40,034		1,184

*1	Other investments include certain hybrid financial instruments and certain private equity investments.

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

There were no significant transfers between levels 1 and 2 for the fiscal year ended March 31, 2011. Transfers into level 1 were 2,169 million yen for the fiscal year ended March 31, 2012 as quoted prices for certain trading securities became available in an active market. Transfers out of level 1 were 7,221 million yen for the fiscal year ended March 31, 2012 as quoted prices for certain trading securities were not available in an active market.

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

The changes in fair value of level 3 assets and liabilities for the fiscal years ended March 31, 2011 and 2012 are as follows:


	Yen in millions
	Fiscal year ended March 31, 2011
	Assets
	Available-for-sale securities									Other investments
	Debt securities
	Japanese corporate bonds			Foreign corporate bonds			Other
Beginning balance		1,097			17,433			—			73,608
Total realized and unrealized gains (losses):
Included in earnings*¹		(13	)		(224	)		—			(3,332	)
Included in other comprehensive income (loss)*²		(18	)		(841	)		(1	)		2,638
Purchases, issuances, sales and settlements		3,515			7,951			300			1,112
Transfers in and/or out of level 3		—			(4,568	)		—			—

Ending balance		4,581			19,751			299			74,026

Changes in unrealized gains (losses) relating to instruments still held at reporting date:
Included in earnings*¹		(2	)		10			—			(3,779	)

	Yen in millions
	Fiscal year ended March 31, 2012
	Assets
	Available-for-sale securities									Other investments
	Debt securities
	Japanese corporate bonds			Foreign corporate bonds			Other
Beginning balance		4,581			19,751			299			74,026
Total realized and unrealized gains (losses):
Included in earnings*¹		—			27			—			(1,214	)
Included in other comprehensive income (loss)*²		(2	)		271			10			505
Purchases		—			6,994			—			3,144
Settlements		(500	)		(5,961	)		—			(2,784	)
Transfers into level 3*³		2,116			956			—			—
Transfers out of level 3*⁴		(4,682	)		(6,747	)		—			—
Other		—			—			—			(226	)

Ending balance		1,513			15,291			309			73,451

Changes in unrealized gains (losses) relating to instruments still held at reporting date:
Included in earnings*¹		—			(2	)		—			(1,215	)

*1	Earning effects are included in financial services revenue in the consolidated statements of income.

*2	Unrealized gains (losses) are included in unrealized gains (losses) on securities in the consolidated statements of changes in stockholders’ equity.

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

*3	Certain corporate bonds were transferred into level 3 because differences between fair value determined by indicative quotes from dealers and internally developed prices became significant and the observability of inputs decreased.

*4	Certain corporate bonds were transferred out of level 3 because quoted prices became available.

Level 3 assets include certain hybrid financial instruments for which the price fluctuates primarily based on the main stock index in Japan (Nikkei index), certain private equity investments, and certain domestic and foreign corporate bonds for which quoted prices are not available in a market and where there is less transparency around inputs. In determining the fair value of such assets, Sony uses third-party information such as indicative quotes from dealers without adjustment. For validating the fair values, Sony primarily uses internal models which include management judgment or estimation of assumptions that market participants would use in pricing the asset.

(2)	Assets and liabilities that are measured at fair value on a nonrecurring basis:

Sony also has assets and liabilities that are required to be recorded at fair value on a nonrecurring basis when certain circumstances occur. During the fiscal years ended March 31, 2011 and 2012, such measurements of fair value related primarily to the impairments of long-lived assets, the remeasurement of the previously owned equity interests as part of the Game Show Network and Sony Ericsson acquisitions, and the S-LCD impairment.

Long-lived assets impairments

Long-lived assets are measured at the lesser of carrying value or fair value if such assets are held for sale or when there is a determination that the asset is impaired. During the fiscal years ended March 31, 2011 and 2012, Sony recorded impairment losses of 23,735 million yen and 59,583 million yen related to long-lived assets with carrying values prior to impairment of 27,513 million yen and 67,875 million yen; the fair value of the long-lived assets after impairments was 3,778 million yen and 8,292 million yen, respectively. Sony’s determination of fair value was based on the comparable market values or estimated net cash flows which considered prices and other relevant information generated by market transactions involving comparable assets or cash flow projections based upon the most recent business plan. These measurements are classified as level 3 because significant unobservable inputs, such as the conditions of the assets or projections of future cash flows, were considered in the fair value measurements.

Remeasurement of previously owned equity interests

During the fiscal years ended March 31, 2011 and 2012, Sony remeasured to fair value the previously owned equity interests as part of the Game Show Network and Sony Ericsson acquisitions. These measurements are classified as level 3 because significant unobservable inputs, such as projections of future cash flows and market comparables of similar transactions and companies were considered in the fair value measurements. Refer to Note 24.

S-LCD impairment

During the fiscal year ended March 31, 2012, Sony recorded a 60,019 million yen other-than-temporary impairment loss on its share of S-LCD, including the reclassification to net income of foreign currency translation adjustments and the impact of the exchange rate fluctuations between the initial impairment loss and closing of the sale to Samsung. The fair value of the shares of S-LCD after impairment was 71,662 million yen which approximated the cash consideration of 1.07 trillion Korean won subsequently received from Samsung upon its acquisition of Sony’s share of S-LCD. This measurement is classified as level 3 because significant unobservable inputs, primarily the estimate of the cash that would be received upon the sale to Samsung were considered in the fair value measurement. Refer to Note 5.

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

(3)

Financial instruments:

The estimated fair values by fair value hierarchy level of certain financial instruments that are not reported at fair value are summarized as follows:


	Yen in millions
	March 31, 2011
	Estimated fair value								Carrying amount
	Level 1		Level 2		Level 3		Total		Total
Assets:
Housing loans in the banking business		—		714,985		—		714,985		656,047

Total assets		—		714,985		—		714,985		656,047

Liabilities:
Long-term debt including the current portion		—		928,820		—		928,820		921,849
Investment contracts included in policyholders’ account in the life insurance business		—		320,036		—		320,036		322,649

Total liabilities		—		1,248,856		—		1,248,856		1,244,498


	Yen in millions
	March 31, 2012
	Estimated fair value								Carrying amount
	Level 1		Level 2		Level 3		Total		Total
Assets:
Housing loans in the banking business		—		823,668		—		823,668		749,636

Total assets		—		823,668		—		823,668		749,636

Liabilities:
Long-term debt including the current portion		—		1,069,914		—		1,069,914		1,072,709
Investment contracts included in policyholders’ account in the life insurance business		—		338,589		—		338,589		340,600

Total liabilities		—		1,408,503		—		1,408,503		1,413,309

The summary excludes cash and cash equivalents, call loans, time deposits, notes and accounts receivable, trade, call money, short-term borrowings, notes and accounts payable, trade and deposits from customers in the banking business because the carrying values of these financial instruments approximated their fair values due to their short-term nature. The summary also excludes held-to-maturity securities disclosed in Note 7.

Cash and cash equivalents, call loans and call money are classified in level 1. Time deposits, short-term borrowings, deposits from customers in the banking business are classified in level 2. Held-to-maturity securities, included in marketable securities and securities investments and other in the consolidated balance sheets,

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

primarily include debt securities with quoted prices that are traded less frequently than exchange-traded instruments, such as the majority of government bonds and corporate bonds and are substantially all classified in level 2. The fair values of housing loans in the banking business, included in securities investments and other in the consolidated balance sheets, were estimated based on the discounted future cash flows using interest rates reflecting London InterBank Offered Rate base yield curve with a certain risk premium. The fair values of long-term debt including the current portion and investment contracts included in policyholders’ account in the life insurance business were estimated based on either the market value or the discounted future cash flows using Sony’s current incremental borrowing rates for similar liabilities.

14.

Derivative instruments and hedging activities

Sony has certain financial instruments including financial assets and liabilities acquired in the normal course of business. Such financial instruments are exposed to market risk arising from the changes of foreign currency exchange rates and interest rates. In applying a consistent risk management strategy for the purpose of reducing such risk, Sony uses derivative financial instruments, which include foreign exchange forward contracts, foreign currency option contracts, and interest rate swap agreements (including interest rate and currency swap agreements). Certain other derivative financial instruments are entered into in the Financial Services segment for asset-liability management (ALM) purposes. These instruments are executed with creditworthy financial institutions, and virtually all foreign currency contracts are denominated in U.S. dollars, euros and other currencies of major countries. These derivatives generally mature or expire within six months after the balance sheet date. Other than derivatives utilized in the Financial Services segment for ALM, Sony does not use derivative financial instruments for trading or speculative purposes. These derivative transactions utilized for ALM in the Financial Services segment are executed within a certain limit in accordance with an internal risk management policy.

Derivative financial instruments held by Sony are classified and accounted for as described below.

Fair value hedges

Both the derivatives designated as fair value hedges and the hedged items are reflected at fair value in the consolidated balance sheets. Changes in the fair value of the derivatives designated as fair value hedges as well as offsetting changes in the carrying value of the underlying hedged items are recognized in income. For the fiscal years ended March 31, 2010, 2011 and 2012, these fair value hedges were fully effective. In addition, there were no amounts excluded from the assessment of hedge effectiveness of fair value hedges.

Cash flow hedges

Changes in the fair value of derivatives designated as cash flow hedges are initially recorded in other comprehensive income (“OCI”) and reclassified into earnings when the hedged transaction affects earnings. For the fiscal years ended March 31, 2010, 2011 and 2012, the ineffective portion of the hedging relationship is not significant. In addition, there were no amounts excluded from the assessment of hedge effectiveness for cash flow hedges.

Derivatives not designated as hedges

Changes in the fair value of derivatives not designated as hedges are recognized in income.

A description of the purpose and classification of the derivative financial instruments held by Sony is as follows:

Foreign exchange forward contracts and foreign currency option contracts

Foreign exchange forward contracts and purchased and written foreign currency option contracts are utilized primarily to limit the exposure affected by changes in foreign currency exchange rates on cash flows generated

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

by anticipated intercompany transactions and intercompany accounts receivable and payable denominated in foreign currencies. The majority of written foreign currency option contracts are a part of range forward contract arrangements and expire in the same month with the corresponding purchased foreign currency option contracts.

Sony also enters into foreign exchange forward contracts, which effectively fix the cash flows from foreign currency denominated debt. Accordingly, these derivatives have been designated as cash flow hedges.

Foreign exchange forward contracts and foreign currency option contracts that do not qualify as hedges are marked-to-market with changes in value recognized in other income and expenses.

Foreign exchange forward contracts, foreign currency option contracts and currency swap agreements held by certain subsidiaries in the Financial Services segment are marked-to-market with changes in value recognized in financial service revenue.

Interest rate swap agreements (including interest rate and currency swap agreements)

Interest rate swap agreements are utilized primarily to lower funding costs, to diversify sources of funding and to limit Sony’s exposure associated with underlying debt instruments and available-for-sale debt securities resulting from adverse fluctuations in interest rates, foreign currency exchange rates and changes in fair values. Interest rate swap agreements entered into in the Financial Services segment are used for reducing the risk arising from the changes in the fair value of fixed rate available-for-sale debt securities. These derivatives are considered to be a hedge against changes in the fair value of available-for-sale debt securities in the Financial Services segment. Accordingly, these derivatives have been designated as fair value hedges.

Sony also enters into certain interest rate swap agreements for the purpose of reducing the risk arising from the changes in anticipated cash flows of variable rate debt and foreign currency denominated debt. These interest rate swap agreements, which effectively swap foreign currency denominated variable rate debt for functional currency denominated fixed rate debt, are considered to be a hedge against changes in the anticipated cash flows of Sony’s foreign denominated variable rate obligations. Accordingly, these derivatives have been designated as cash flow hedges.

Certain subsidiaries in the Financial Services segment have interest rate swap agreements as part of their ALM, which are marked-to-market with changes in value recognized in financial service revenue.

Any other interest rate swap agreements that do not qualify as hedges, which are used for reducing the risk arising from changes of variable rate debt, are marked-to-market with changes in value recognized in other income and expenses.

Other agreements

Certain subsidiaries in the Financial Services segment have credit default swap agreements, equity future contracts, other currency contracts and hybrid financial instruments as part of their ALM, which are marked-to-market with changes in value recognized in financial services revenue. The hybrid financial instruments, disclosed in Note 7 as debt securities, contain embedded derivatives that are not required to be bifurcated because the entire instruments are carried at fair value.

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

The estimated fair values of Sony’s outstanding derivative instruments are summarized as follows:


Derivatives designated as hedging instruments	Yen in millions
	Balance sheet location	Fair value				Balance sheet location	Fair value
		March 31					March 31
	Asset derivatives	2011		2012		Liability derivatives	2011		2012
Interest rate contracts	Prepaid expenses and other current assets		416		151	Current liabilities other		9,026		14,017
Interest rate contracts			—		—	Liabilities other		1,663		1,184
Foreign exchange contracts	Prepaid expenses and other current assets		—		7,558	Current liabilities other		67		15

			416		7,709			10,756		15,216

Derivatives not designated as hedging instruments	Yen in millions
	Balance sheet location	Fair value				Balance sheet location	Fair value
		March 31					March 31
	Asset derivatives	2011		2012		Liability derivatives	2011		2012
Interest rate contracts	Prepaid expenses and other current assets		314		5	Current liabilities other		3,630		4,390
Interest rate contracts			—		—	Liabilities other		—		—
Foreign exchange contracts	Prepaid expenses and other current assets		14,353		10,798	Current liabilities other		19,361		21,612
Foreign exchange contracts	Assets other		9		5			—		—
Credit contracts	Prepaid expenses and other current assets		18		1	Current liabilities other		12		—

			14,694		10,809			23,003		26,002

Total derivatives			15,110		18,518			33,759		41,218

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

Presented below are the effects of derivative instruments on the consolidated statements of income for the fiscal years ended March 31, 2010, 2011 and 2012 (yen in millions).


Derivatives under fair value hedging relationships	Location of gain or (loss) recognized in income on derivative	Amount of gain or (loss) recognized in income on derivative
		Fiscal year ended March 31
		2010			2011			2012
Interest rate contracts	Financial services revenue		(3,475	)		588			(2,998	)
Foreign exchange contracts	Foreign exchange gain or (loss), net		97			(18	)		(49	)

Total			(3,378	)		570			(3,047	)

Derivatives under
cash flow
hedging relationships

Yen in millions

Fiscal year ended March 31, 2011

Amount of
gain or (loss)
recognized in
OCI on derivative

Gain or (loss) reclassified from
accumulated OCI into income

(effective portion)

Gain or (loss) recognized in
income on derivative
(ineffective portion)

Amount

Location

Amount

Location

Amount

Interest rate contracts

(108

)

Interest expense

329

Interest expense

—

Total

(108

)

Total

329

Total

—

Derivatives under
cash flow
hedging relationships

Yen in millions

Fiscal year ended March 31, 2012

Amount of
gain or (loss)
recognized in
OCI on derivative

Gain or (loss) reclassified from
accumulated OCI into income
(effective portion)

Gain or (loss) recognized in
income on derivative

(ineffective portion)

Amount

Location

Amount

Location

Amount

Interest rate contracts

171

Interest expense

308

Interest expense

—

Total

171

Total

308

Total

—

At March 31, 2012, amounts related to derivatives qualifying as cash flow hedges amounted to a net reduction of equity of 1,050 million yen.


Derivatives not designated as hedging instruments	Location of gain or (loss) recognized in income on derivative	Amount of gain or (loss) recognized in income on derivative (Yen in millions)
		Fiscal year ended March 31
		2010			2011			2012
Interest rate contracts	Financial services revenue		(884	)		(3,332	)		(3,303	)
Interest rate contracts	Financial services expenses		32			32			—
Foreign exchange contracts	Financial services revenue		1,468			(1,294	)		(79	)
Foreign exchange contracts	Foreign exchange gain or (loss), net		(8,779	)		8,311			4,324
Equity contracts	Financial services revenue		83			—			—
Bond contracts	Financial services revenue		68			44			—
Credit contracts	Financial services revenue		(518	)		(101	)		(25	)

Total			(8,530	)		3,660			917

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

The following table summarizes additional information, including notional amounts, for each type of derivative:


	Yen in millions
	March 31, 2011					March 31, 2012
	Notional amount		Fair value			Notional amount		Fair value
Foreign exchange contracts:
Foreign exchange forward contracts		1,364,147		(8,825	)		1,227,889		(7,305	)
Currency option contracts purchased		5,822		19			9,878		91
Currency option contracts written		423		(9	)		152		(1	)
Currency swap agreements		117,028		2,015			519,041		2,206
Other currency contracts		46,201		1,734			48,347		1,743
Interest rate contracts:
Interest rate swap agreements		448,353		(13,589	)		451,416		(19,435	)
Credit contracts:
Credit default swap agreements		4,841		6			1,367		1

15.

Pension and severance plans

Upon terminating employment, employees of Sony Corporation and its subsidiaries in Japan are entitled, under most circumstances, to lump-sum indemnities or pension payments as described below. In July 2004, Sony Corporation and certain of its subsidiaries amended their pension plans and introduced a point-based plan under which a point is added every year reflecting the individual employee’s performance over that year. Under the point-based plan, the amount of payment is determined based on the sum of cumulative points from past services and interest points earned on the cumulative points regardless of whether or not the employee is voluntarily retiring.

Under the plans, in general, the defined benefits cover 65% of the indemnities under existing regulations to employees. The remaining indemnities are covered by severance payments by the companies. The pension benefits are payable at the option of the retiring employee either in a lump-sum amount or monthly pension payments. Contributions to the plans are funded through several financial institutions in accordance with the applicable laws and regulations.

From April 1, 2012, Sony Corporation and substantially all of its subsidiaries in Japan have modified existing defined benefit pension plans such that life annuities will no longer accrue additional service benefits, with those participants instead accruing fixed-term annuities. The defined benefit pension plans were closed to new participants and a defined contribution plan was also introduced. The changes have no impact on Sony’s results of operations and financial position as of and for the fiscal year ended March 31, 2012.

In addition, several of Sony’s foreign subsidiaries have defined benefit pension plans or severance indemnity plans, which cover substantially all of their employees. Under such plans, the related cost of benefits is currently funded or accrued. Benefits awarded under these plans are based primarily on the current rate of pay and length of service.

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

The components of net periodic benefit costs for the fiscal years ended March 31, 2010, 2011 and 2012 were as follows:

Japanese plans:


	Yen in millions
	Fiscal year ended March 31
	2010			2011			2012
Service cost		30,980			29,589			29,774
Interest cost		15,402			16,067			15,196
Expected return on plan assets		(16,969	)		(17,987	)		(15,401	)
Recognized actuarial loss		16,000			11,802			12,219
Amortization of prior service costs		(10,391	)		(10,391	)		(10,380	)

Net periodic benefit costs		35,022			29,080			31,408

Foreign plans:


	Yen in millions
	Fiscal year ended March 31
	2010			2011			2012
Service cost		3,645			4,160			3,348
Interest cost		12,083			11,165			10,082
Expected return on plan assets		(8,652	)		(9,135	)		(9,049	)
Amortization of net transition asset		67			20			139
Recognized actuarial loss		857			2,911			2,771
Amortization of prior service costs		30			(32	)		(448	)
Losses (gains) on curtailments and settlements		1,766			(31	)		1,111

Net periodic benefit costs		9,796			9,058			7,954

The estimated net actuarial loss, prior service cost and obligation (asset) existing at transition for the defined benefit pension plans that will be amortized from accumulated other comprehensive income into net periodic benefit costs over the next fiscal year are 11,262 million yen, 10,671 million yen and 59 million yen, respectively.

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

The changes in the benefit obligation and plan assets as well as the funded status and composition of amounts recognized in the consolidated balance sheets were as follows:


	Japanese plans						Foreign plans
	Yen in millions						Yen in millions
	March 31						March 31
	2011			2012			2011			2012
Change in benefit obligation:
Benefit obligation at beginning of the fiscal year		709,554			735,853			231,341			206,497
Service cost		29,589			29,774			4,160			3,348
Interest cost		16,067			15,196			11,165			10,082
Plan participants’ contributions		—			—			764			684
Amendments		—			(1,119	)		(6,677	)		440
Actuarial (gain) loss		6,424			25,098			(6,869	)		12,376
Foreign currency exchange rate changes		—			—			(16,994	)		(3,273	)
Curtailments and settlements		(404	)		(301	)		(166	)		(577	)
Effect of changes in consolidated subsidiaries		—			8,852			—			3,104
Benefits paid		(25,377	)		(24,294	)		(10,227	)		(11,040	)

Benefit obligation at end of the fiscal year		735,853			789,059			206,497			221,641

Change in plan assets:
Fair value of plan assets at beginning of the fiscal year		515,701			536,648			134,226			140,387
Actual return on plan assets		4,327			18,447			10,930			11,421
Foreign currency exchange rate changes		—			—			(9,121	)		(1,872	)
Employer contribution		34,892			15,745			13,029			9,033
Plan participants’ contributions		—			—			764			684
Curtailments and settlements		—			—			(217	)		(1,386	)
Effect of changes in consolidated subsidiaries		—			4,592			—			2,331
Benefits paid		(18,272	)		(19,185	)		(9,224	)		(9,459	)

Fair value of plan assets at end of the fiscal year		536,648			556,247			140,387			151,139

Funded status at end of the fiscal year		(199,205	)		(232,812	)		(66,110	)		(70,502	)


Amounts recognized in the consolidated balance sheets consist of:

	Japanese plans						Foreign plans
	Yen in millions						Yen in millions
	March 31						March 31
	2011			2012			2011			2012
Noncurrent assets		1,454			1,769			3,894			4,399
Current liabilities		—			—			(2,716	)		(2,943	)
Noncurrent liabilities		(200,659	)		(234,581	)		(67,288	)		(71,958	)

Ending balance		(199,205	)		(232,812	)		(66,110	)		(70,502	)

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

Amounts recognized in accumulated other comprehensive income, excluding tax effects, consist of:


	Japanese plans						Foreign plans
	Yen in millions						Yen in millions
	March 31						March 31
	2011			2012			2011			2012
Prior service cost (credit)		(86,470	)		(75,840	)		(3,930	)		(2,933	)
Net actuarial loss		278,895			292,382			33,919			38,196
Obligation existing at transition		—			—			204			52

Ending balance		192,425			216,542			30,193			35,315

The accumulated benefit obligations for all defined benefit pension plans were as follows:

Japanese plans

Foreign plans

Yen in millions

March 31

2011

2012

2011

2012

Accumulated benefit obligations

731,666

786,679

183,954

189,360

The projected benefit obligations, the accumulated benefit obligations and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were as follows:


	Japanese plans				Foreign plans
	Yen in millions				Yen in millions
	March 31				March 31
	2011		2012		2011		2012
Projected benefit obligations		729,691		781,983		176,755		170,314
Accumulated benefit obligations		725,504		779,604		167,609		163,002
Fair value of plan assets		530,300		549,017		121,338		111,667

Weighted-average assumptions used to determine benefit obligations as of March 31, 2011 and 2012 were as follows:


	Japanese plans						Foreign plans
	March 31						March 31
	2011			2012			2011			2012
Discount rate		2.1	%		1.9	%		5.2	%		4.7	%
Rate of compensation increase		*			*			3.5			3.5

*	Substantially all of Sony’s Japanese pension plans were point-based. Point-based plans do not incorporate a measure of compensation rate increases.

Weighted-average assumptions used to determine the net periodic benefit costs for the fiscal years ended March 31, 2010, 2011 and 2012 were as follows:


	Japanese plans									Foreign plans
	Fiscal year ended March 31									Fiscal year ended March 31
	2010			2011			2012			2010			2011			2012
Discount rate		2.2	%		2.3	%		2.1	%		6.5	%		5.5	%		5.2	%
Expected return on plan assets		3.6			2.9			3.0			6.5			5.9			6.5
Rate of compensation increase		2.7			*			*			3.2			4.0			3.5

*	As of March 31, 2011 and 2012, substantially all of Sony’s Japanese pension plans were point-based. Point-based plans do not incorporate a measure of compensation rate increases.

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

Sony reviews these assumptions for changes in circumstances.

The weighted-average rate of compensation increase is calculated based only on the pay-related plans. The point-based plans discussed above are excluded from the calculation because payments made under the plan are not based on employee compensation.

To determine the expected long-term rate of return on pension plan assets, Sony considers the current and expected asset allocations, as well as the historical and expected long-term rates of returns on various categories of plan assets. Sony’s pension investment policy recognizes the expected growth and the variability risk associated with the long-term nature of pension liabilities, the returns and risks of diversification across asset classes, and the correlation among assets. The asset allocations are designed to maximize returns consistent with levels of liquidity and investment risk that are considered prudent and reasonable. While the pension investment policy gives appropriate consideration to recent market performance and historical returns, the investment assumptions utilized by Sony are designed to achieve a long-term return consistent with the long-term nature of the corresponding pension liabilities.

The investment objectives of Sony’s plan assets are designed to generate returns that will enable the plans to meet their future obligations. The precise amount for which these obligations will be settled depends on future events, including the retirement dates and life expectancy of the plans’ participants. The obligations are estimated using actuarial assumptions, based on the current economic environment and other pertinent factors. Sony’s investment strategy balances the requirement to generate returns, using potentially higher yielding assets such as equity securities, with the need to control risk in the portfolio with less volatile assets, such as fixed-income securities. Risks include, among others, inflation, volatility in equity values and changes in interest rates that could negatively impact the funding level of the plans, thereby increasing its dependence on contributions from Sony. To mitigate any potential concentration risk, thorough consideration is given to balancing the portfolio among industry sectors and geographies, taking into account interest rate sensitivity, dependence on economic growth, currency and other factors that affect investment returns. The target allocations as of March 31, 2012, are, as a result of Sony’s asset liability management, 28% of equity securities, 58% of fixed income securities and 14% of other investments for the pension plans of Sony Corporation and most of its subsidiaries in Japan, and, on a weighted average basis, 46% of equity securities, 39% of fixed income securities and 15% of other investments for the pension plans of foreign subsidiaries.

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

The fair values of the assets held by Japanese and foreign plans, which are classified in accordance with the fair value hierarchy described in Note 2, are as follows:


	Japanese plans
	Yen in millions
	Fair value at March 31, 2011		Fair value measurements using inputs considered as
Asset class	Fair value at March 31, 2011		Level 1		Level 2		Level 3
Cash and cash equivalents		25,151		25,151		—		—
Equity:
Equity securities^(a)		127,695		125,692		2,003		—
Fixed income:
Government bonds^(b)		226,183		—		226,183		—
Corporate bonds^(c)		23,375		—		23,375		—
Asset-backed securities^(d)		3,451		—		3,451		—
Commingled funds^(e)		63,693		—		63,693		—
Commodity funds^(f)		1,991		—		1,991		—
Private equity^(g)		19,888		—		—		19,888
Hedge funds^(h)		43,688		—		—		43,688
Real estate		1,533		—		—		1,533

Total		536,648		150,843		320,696		65,109


	Japanese plans
	Yen in millions
	Fair value at March 31, 2012		Fair value measurements using inputs considered as
Asset class	Fair value at March 31, 2012		Level 1		Level 2		Level 3
Cash and cash equivalents		14,586		14,586		—		—
Equity:
Equity securities^(a)		130,283		127,918		2,365		—
Fixed income:
Government bonds^(b)		255,010		—		255,010		—
Corporate bonds^(c)		23,853		—		23,853		—
Asset-backed securities^(d)		4,722		—		4,722		—
Commingled funds^(e)		58,862		—		58,862		—
Commodity funds^(f)		1,850		—		1,850		—
Private equity^(g)		23,388		—		—		23,388
Hedge funds^(h)		42,258		—		—		42,258
Real estate		1,435		—		—		1,435

Total		556,247		142,504		346,662		67,081

(a)	Includes approximately 64 percent and 65 percent of Japanese equity securities, and 36 percent and 35 percent of foreign equity securities for the fiscal years ended March 31, 2011 and 2012, respectively.

(b)	Includes approximately 65 percent and 64 percent of debt securities issued by Japanese national and local governments, and 35 percent and 36 percent of debt securities issued by foreign national and local governments for the fiscal years ended March 31, 2011 and 2012, respectively.

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

(c)	Includes debt securities issued by Japanese and foreign corporation and government related agencies.

(d)	Includes primarily mortgage-backed securities.

(e)

Commingled funds represent pooled institutional investments, including primarily investment trusts. They include approximately 39 percent and 42 percent of investments in equity, 58 percent and 56 percent of investments in fixed income, and 3 percent and 2 percent of investments in other for the fiscal years ended March 31, 2011 and 2012, respectively.

(f)	Represents commodity futures funds.

(g)	Includes multiple private equity funds of funds that primarily invest in venture, buyout, and distressed markets in the U.S. and Europe.

(h)	Includes primarily funds that invest in a portfolio of a broad range of hedge funds to diversify the risks and reduce the volatilities associated with a single hedge fund.


	Foreign plans
	Yen in millions
	Fair value at March 31, 2011		Fair value measurements using inputs considered as
Asset class	Fair value at March 31, 2011		Level 1		Level 2		Level 3
Cash and cash equivalents		860		860		—		—
Equity:
Equity securities^(a)		38,512		33,273		5,239		—
Fixed income:
Government bonds^(b)		21,405		—		21,405		—
Corporate bonds^(c)		14,994		—		10,148		4,846
Asset-backed securities		2,053		—		2,053		—
Insurance contracts^(d)		6,718		—		6,718		—
Commingled funds^(e)		50,517		—		49,987		530
Real estate and other^(f)		5,328		45		1,510		3,773

Total		140,387		34,178		97,060		9,149


	Foreign plans
	Yen in millions
	Fair value at March 31, 2012		Fair value measurements using inputs considered as
Asset class	Fair value at March 31, 2012		Level 1		Level 2		Level 3
Cash and cash equivalents		859		859		—		—
Equity:
Equity securities^(a)		36,497		30,514		5,983		—
Fixed income:
Government bonds^(b)		43,504		—		43,504		—
Corporate bonds^(c)		9,192		—		5,231		3,961
Asset-backed securities		648		—		648		—
Insurance contracts^(d)		9,283		—		9,283		—
Commingled funds^(e)		43,902		—		43,902		—
Real estate and other^(f)		7,254		20		2,151		5,083

Total		151,139		31,393		110,702		9,044

(a)	Includes primarily foreign equity securities.

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

(b)	Includes primarily foreign government debt securities.

(c)	Includes primarily foreign corporate debt securities.

(d)	Represents annuity contracts with or without profit sharing.

(e)	Commingled funds represent pooled institutional investments including mutual funds, common trust funds, and collective investment funds. They are primarily comprised of foreign equities and fixed income investments.

(f)	Includes primarily private real estate investment trusts.

Each level in the fair value hierarchy in which each plan asset is classified is determined based on inputs used to measure the fair values of the asset, and does not necessarily indicate the risks or rating of the asset.

The following is a description of the valuation techniques used to measure Japanese and foreign plan assets at fair value. There were no changes in valuation techniques during the fiscal years ended March 31, 2011 and 2012.

Equity securities are valued at the closing price reported in the active market in which the individual securities are traded. These assets are generally classified as level 1.

The fair value of fixed income securities is typically estimated using pricing models, quoted prices of securities with similar characteristics or discounted cash flows and are generally classified as level 2.

Commingled funds are typically valued using the net asset value provided by the administrator of the fund and reviewed by Sony. The net asset value is based on the value of the underlying assets owned by the fund, minus liabilities and divided by the number of shares or units outstanding. These assets are classified as level 1, level 2 or level 3 depending on availability of quoted market prices.

Commodity funds are valued using inputs that are derived principally from or corroborated by observable market data. These assets are generally classified as level 2.

Private equity and private real estate investment trust valuations require significant judgment due to the absence of quoted market prices, the inherent lack of liquidity and the long-term nature of such assets. These assets are initially valued at cost and are reviewed periodically utilizing available and relevant market data to determine if the carrying value of these assets should be adjusted. These investments are classified as level 3. The valuation methodology is applied consistently from period to period.

Hedge funds are valued using the net asset value as determined by the administrator or custodian of the fund. These investments are classified as level 3.

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

The following table sets forth a summary of changes in the fair values of Japanese and foreign plans’ level 3 assets for the fiscal years ended March 31, 2011 and 2012:


	Japanese plans
	Yen in millions
	Fair value measurement using significant unobservable inputs (Level 3)
	Private equity			Hedge funds			Real estate			Total
Beginning balance at April 1, 2010		21,337			51,498			1,655			74,490
Return on assets held at end of year		(1,449	)		2,467			(122	)		896
Return on assets sold during the year		—			(436	)		—			(436	)
Purchases, sales, and settlements, net		—			(9,841	)		—			(9,841	)
Transfers, net		—			—			—			—

Ending balance at March 31, 2011		19,888			43,688			1,533			65,109

Return on assets held at end of year		450			470			(98	)		822
Return on assets sold during the year		—			—			—			—
Purchases, sales, and settlements, net		3,050			(1,900	)		—			1,150
Transfers, net		—			—			—			—

Ending balance at March 31, 2012		23,388			42,258			1,435			67,081


	Foreign plans
	Yen in millions
	Fair value measurement using significant unobservable inputs (Level 3)
	Corporate bonds			Asset-backed securities			Commingled funds			Real estate and other			Total
Beginning balance at April 1, 2010		4,571			75			528			3,777			8,951
Return on assets held at end of year		503			—			9			490			1,002
Return on assets sold during the year		—			5			—			—			5
Purchases, sales, and settlements, net		260			(72	)		—			(159	)		29
Transfers, net		—			—			—			—			—
Other*		(488	)		(8	)		(7	)		(335	)		(838	)

Ending balance at March 31, 2011		4,846			—			530			3,773			9,149

Return on assets held at end of year		447			—			—			558			1,005
Return on assets sold during the year		—			—			—			—			—
Purchases, sales, and settlements, net		(1,209	)		—			(530	)		156			(1,583	)
Transfers, net		—			—			—			—			—
Other*		(123	)		—			—			596			473

Ending balance at March 31, 2012		3,961			—			—			5,083			9,044

*	Primarily consists of translation adjustments.

Sony makes contributions to its defined benefit pension plans as deemed appropriate by management after considering the fair value of plan assets, expected return on plan assets and the present value of benefit obligations. Sony expects to contribute approximately 18 billion yen to the Japanese plans and approximately 9 billion yen to the foreign plans during the fiscal year ending March 31, 2013. At the end of the fiscal year

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

ended March 31, 2011, Sony had expected to contribute approximately 35 billion yen to the Japanese plans. However, Sony actually contributed 16 billion yen to the plans in the fiscal year ended March 31, 2012.

The expected future benefit payments are as follows:


	Japanese plans		Foreign plans
Fiscal year ending March 31	Yen in millions		Yen in millions
2013		26,197		9,418
2014		28,084		9,485
2015		30,972		10,461
2016		33,553		10,163
2017		34,518		10,827
2018 — 2022		209,895		58,880

16.

Stockholders’ equity

(1)

Common stock:

Changes in the number of shares of common stock issued and outstanding during the fiscal years ended March 31, 2010, 2011 and 2012 have resulted from the following:


	Number of shares
Balance at March 31, 2009		1,004,535,364
Exercise of stock acquisition rights		36,100

Balance at March 31, 2010		1,004,571,464
Exercise of stock acquisition rights		65,200

Balance at March 31, 2011		1,004,636,664
Exercise of stock acquisition rights		1,500

Balance at March 31, 2012		1,004,638,164

At March 31, 2012, 22,417,400 shares of common stock would be issued upon the conversion or exercise of all convertible bonds and stock acquisition rights outstanding.

Conversions of convertible bonds into common stock are accounted for in accordance with the provisions of the Companies Act of Japan (Kaishaho) and related regulations (collectively the “Companies Act”) by crediting approximately one-half of the conversion proceeds to the common stock account and the remainder to the additional paid-in capital account.

Sony Corporation may purchase its own shares at any time by a resolution of the Board of Directors up to the retained earnings available for dividends to shareholders, in accordance with the Companies Act. No common stock had been acquired by the resolution of the Board of Directors during the fiscal years ended March 31, 2010, 2011 and 2012.

(2)

Retained earnings:

The amount of statutory retained earnings of Sony Corporation available for dividends to shareholders as of March 31, 2012 was 310,522 million yen. The appropriation of retained earnings for the fiscal year ended March 31, 2012, including cash dividends for the six-month period ended March 31, 2012, has been incorporated

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

in the accompanying consolidated financial statements. This appropriation of retained earnings was approved at the meeting of the Board of Directors of Sony Corporation held on May 9, 2012 and was then recorded in the statutory books of account, in accordance with the Companies Act.

Retained earnings include Sony’s equity in undistributed earnings of affiliated companies accounted for by the equity method in the amount of 30,809 million yen and 7,891 million yen at March 31, 2011 and 2012, respectively.

(3)

Other comprehensive income:

Other comprehensive income for the fiscal years ended March 31, 2010, 2011 and 2012 were comprised of the following:


	Yen in millions
	Pre-tax amount			Tax benefit/(expense)			Net-of-tax amount
For the fiscal year ended March 31, 2010:
Unrealized gains (losses) on securities, net —
Unrealized holding gains arising during the period*		74,501			(22,469	)		33,502
Less : Reclassification adjustment included in net income		(1,896	)		661			(1,235	)
Unrealized gains (losses) on derivative instruments, net —
Unrealized holding gains arising during the period		2,040			(415	)		1,625
Less : Reclassification adjustment included in net income		(566	)		489			(77	)
Pension liability adjustment*		45,767			(22,074	)		23,720
Foreign currency translation adjustments —
Translation adjustments arising during the period		4,583			(22	)		4,561
Less : Reclassification adjustment included in net income		2,289			—			2,289

Other comprehensive income		126,718			(43,830	)		64,385

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES


	Yen in millions
	Pre-tax amount			Tax benefit/(expense)			Net-of-tax amount
For the fiscal year ended March 31, 2011:
Unrealized gains (losses) on securities, net —
Unrealized holding losses arising during the period*		(42,311	)		12,996			(25,445	)
Less : Reclassification adjustment included in net income		21,548			(8,104	)		13,444
Unrealized gains (losses) on derivative instruments, net —
Unrealized holding losses arising during the period		(662	)		52			(610	)
Less : Reclassification adjustment included in net income		(785	)		(158	)		(943	)
Pension liability adjustment*		3,164			(6,463	)		(3,176	)
Foreign currency translation adjustments —
Translation adjustments arising during the period		(118,840	)		1,256			(117,584	)
Less : Reclassification adjustment included in net income		(832	)		—			(832	)

Other comprehensive income (loss)		(138,718	)		(421	)		(135,146	)


	Yen in millions
	Pre-tax amount			Tax benefit/(expense)			Net-of-tax amount
For the fiscal year ended March 31, 2012:
Unrealized gains (losses) on securities, net —
Unrealized holding gains arising during the period*		28,712			(10,162	)		12,369
Less : Reclassification adjustment included in net income		3,417			(1,240	)		2,177
Unrealized gains (losses) on derivative instruments, net —
Unrealized holding losses arising during the period		(177	)		(70	)		(247	)
Less : Reclassification adjustment included in net income		911			(125	)		786
Pension liability adjustment*		(29,239	)		(3,934	)		(34,668	)
Foreign currency translation adjustments —
Translation adjustments arising during the period*		(32,640	)		74			(32,961	)
Less : Reclassification adjustment included in net income		14,655			—			14,655

Other comprehensive income (loss)		(14,361	)		(15,457	)		(37,889	)

*	Amounts allocable to the noncontrolling interests in the equity of a subsidiary and other are deducted from the net-of-tax amount for unrealized holding gains on securities, pension liability adjustment and foreign currency translation adjustments arising during the period.

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

During the fiscal years ended March 31, 2010, 2011 and 2012, losses of 2,289 million yen, gains of 832 million yen and losses of 14,655 million yen, respectively, of foreign currency translation adjustments were transferred from accumulated other comprehensive income to net income as a result of the liquidation or sale of certain foreign subsidiaries and affiliates. The amount transferred during the fiscal year ended March 31, 2012 includes losses of 12,772 million yen as a result of the other-than-temporary impairment loss on the shares of S-LCD. Refer to Note 5.

17.

Stock-based compensation plans

The stock-based compensation expense for the fiscal years ended March 31, 2010, 2011 and 2012 was 2,202 million yen, 1,952 million yen and 1,952 million yen, respectively. The income tax benefit related to the stock-based compensation expense for the fiscal years ended March 31, 2010, 2011 and 2012 was 271 million yen, 322 million yen and 287 million yen, respectively. The total cash received from exercises under all of the stock-based compensation plans during the fiscal years ended March 31, 2010, 2011 and 2012 was 114 million yen, 198 million yen and 4 million yen, respectively. Sony issued new shares upon exercise of these rights. The actual income tax benefit realized for tax deductions from exercises under all the stock-based compensation plans for the fiscal years ended March 31, 2010, 2011 and 2012 was insignificant.

Sony has three types of stock-based compensation plans as incentive plans for selected directors, corporate executive officers and employees.

(1)

Stock Acquisition Rights plan:

Sony has an equity-based compensation plan that issues common stock acquisition rights for the purpose of granting stock options to selected directors, corporate executive officers and employees of Sony, pursuant to the Companies Act. The stock acquisition rights generally vest ratably over a period of three years and are exercisable up to ten years from the date of grant.

The weighted-average fair value per share at the date of grant of stock acquisition rights granted during the fiscal years ended March 31, 2010, 2011 and 2012 was 813 yen, 1,036 yen and 345 yen, respectively. The fair value of stock acquisition rights granted on the date of grant and used to recognize compensation expense for the fiscal years ended March 31, 2010, 2011 and 2012 was estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions:


	Fiscal year ended March 31
	2010			2011			2012
Weighted-average assumptions
Risk-free interest rate		2.08	%		1.60	%		1.08	%
Expected lives		6.49	years		6.64	years		6.77	years
Expected volatility*		33.70	%		35.74	%		36.88	%
Expected dividends		0.99	%		0.83	%		1.85	%

Expected volatility was based on the historical volatilities of Sony Corporation’s common stock over the expected life of the stock acquisition rights.

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A summary of the activities regarding the stock acquisition rights plan during the fiscal year ended March 31, 2012 is as follows:


	Fiscal year ended March 31, 2012
	Number of shares		Weighted- average exercise price		Weighted- average remaining life		Total intrinsic value
			Yen		Years		Yen in millions
Outstanding at beginning of the fiscal year		17,011,400		3,458
Granted		2,537,500		1,520
Exercised		1,500		2,347
Forfeited or expired		667,100		3,326

Outstanding at end of the fiscal year		18,880,300		3,188		5.78		336

Exercisable at end of the fiscal year		13,952,100		3,548		4.64		—

The total intrinsic value of shares exercised under the stock acquisition rights plan during the fiscal years ended March 31, 2010, 2011 and 2012 was 20 million yen, 26 million yen and 0.2 million yen, respectively.

As of March 31, 2012, there was 1,425 million yen of total unrecognized compensation expense related to nonvested stock acquisition rights. This expense is expected to be recognized over a weighted-average period of 2.01 years.

(2)

Convertible Bonds plan:

Sony had an equity-based compensation plan for selected executives of Sony’s U.S. subsidiaries using U.S. dollar-denominated non-interest bearing convertible bonds, which had characteristics similar to that of an option plan. Each convertible bond could be converted into 100 shares of the common stock of Sony Corporation at an exercise price based on the prevailing market rate shortly before the date of grant. The convertible bonds vested ratably over a three-year period and were exercisable up to ten years from the date of grant. As the convertible bonds were issued in exchange for a non-interest bearing employee loan and a right of offset exists between the convertible bonds and the employee loans, no accounting recognition was given to either the convertible bonds or the employee loans in Sony’s consolidated balance sheets.

A summary of the activities regarding the convertible bond plan during the fiscal year ended March 31, 2012 is as follows:


	Fiscal year ended March 31, 2012
	Number of shares			Weighted-average exercise price
				Yen
Outstanding at beginning of the fiscal year		548,500			6,931
Expired		(548,500	)		6,931

Outstanding at end of the fiscal year		—

There were no shares granted or exercised under the convertible bond plan during the fiscal years ended March 31, 2010, 2011 and 2012. At March 31, 2012, the remaining exercisable shares expired under this plan and there are no further shares outstanding or exercisable under the convertible bond plan as of March 31, 2012.

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(3)

Stock Appreciation Rights (“SARs”) plan:

Sony granted SARs in the United States of America for selected employees. Under the terms of these plans, employees upon exercise of such rights receive cash equal to the amount that the market price of Sony Corporation’s common stock exceeds the strike price of the SARs. The SARs generally vest ratably over a period of three years, and are generally exercisable up to ten years from the date of grant.

There were no SARs granted during the fiscal years ended March 31, 2010, 2011 and 2012. As of March 31, 2012, there were 23,200 SARs outstanding and the weighted-average exercise price was 4,298 yen. All SARs were exercisable as of March 31, 2012.

The compensation expense for the SARs is measured as the excess of the quoted market price of Sony Corporation’s common stock over the SARs strike price. SAR compensation expense for the fiscal years ended March 31, 2010, 2011, and 2012 was insignificant.

18.

Great East Japan Earthquake and Thai Floods

(1)

Great East Japan Earthquake

On March 11, 2011, Japan experienced a massive earthquake and tsunami (the “Great East Japan Earthquake”). The disaster caused significant damage to certain fixed assets including buildings, machinery and equipment as well as inventories in manufacturing sites and warehouses located principally in northeastern Japan.

For the fiscal year ended March 31, 2011, Sony incurred incremental losses and expenses including repair, removal and cleaning costs directly related to the damage caused by the disaster of 10,897 million yen, including the disposal or impairment of fixed assets of 7,668 million yen. These losses and expenses were primarily recorded in other operating (income) expense, net in the consolidated statements of income and were offset by insurance recoveries of 10,841 million yen, the amount that was deemed probable up to the extent of the corresponding losses recognized, as described below. The restoration costs anticipated to occur on or after April 1, 2011 were not recorded in the period ended March 31, 2011. In addition, Sony also incurred other losses and expenses of 11,821 million yen, which included idle facility costs at manufacturing sites, and an additional provision for life insurance policy reserves. These losses and expenses were primarily recorded in cost of sales and financial services expenses in the consolidated statements of income.

For the fiscal year ended March 31, 2012, Sony incurred incremental losses and expenses including repair, removal, restoration and cleaning costs directly related to the damage caused by the disaster of 5,864 million yen. These losses and expenses were primarily recorded in cost of sales in the consolidated statements of income and were partially offset by insurance recoveries of 2,159 million yen, as described below. In addition, Sony also incurred other losses and expenses of 6,294 million yen, which included idle facility costs at manufacturing sites. These losses and expenses were primarily recorded in cost of sales in the consolidated statements of income.

Sony has insurance policies which cover certain damage directly caused by the Great East Japan Earthquake for Sony Corporation and certain of its subsidiaries including manufacturing sites. The insurance policies cover the damage and costs associated with fixed assets and inventories and provide business interruption coverage, including lost profits.

Insurance claims in the amount of 15,000 million yen, the total coverage amount, were agreed to by the insurance carriers as a final settlement and were paid in March 2012. Of this amount, 2,000 million yen is due to a certain carrier as reinsurance and recorded in other current liabilities in the consolidated balance sheets. The insurance proceeds are primarily included in investing activities in the consolidated statements of cash flows.

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(2)

Thai Floods

In October 2011, certain of Sony’s Thailand subsidiaries temporarily closed operations due to significant floods (the “Floods”). The Floods caused significant damage to certain fixed assets including buildings, machinery and equipment as well as inventories in manufacturing sites and warehouses located in Thailand. In addition, the Floods impacted the operations of certain Sony subsidiaries in Japan and other countries.

For the fiscal year ended March 31, 2012, Sony incurred incremental losses and expenses including repair, removal and cleaning costs directly related to the damage caused by the Floods of 13,236 million yen, including the disposal or impairment of fixed assets of 7,882 million yen. These losses and expenses were primarily recorded in other operating (income) expense, net in the consolidated statements of income and were offset by insurance recoveries as described below. The restoration costs anticipated to occur on or after April 1, 2012 were not recorded in the fiscal year ended March 31, 2012 and will be recorded when the services are rendered and liabilities incurred. In addition, Sony also incurred other losses and expenses of 13,899 million yen, which included idle facility costs at manufacturing sites and other additional expenses. These losses and expenses were mainly recorded in cost of sales in the consolidated statements of income.

Sony has insurance policies which cover certain damage directly caused by the Floods for Sony Corporation and certain of its subsidiaries including manufacturing sites. The insurance policies cover the damage and costs associated with fixed assets, inventories and additional expenses including removal and cleaning costs and provide business interruption coverage, including lost profits.

Insurance claims in the amount of 50,416 million yen were agreed to by the insurance carriers and were paid during the fiscal year ended March 31, 2012. Of this amount, Sony received 26,316 million yen for fixed assets, inventories and additional expenses, of which 17,520 million yen represents the portion of insurance recoveries in excess of the carrying value before the damage caused by the Floods of the insured fixed assets and inventories, and were recorded in cost of sales and other operating (income) expense, net in the consolidated statements of income. The remaining amount of the insurance claims paid of 24,100 million yen was for business interruption insurance recoveries, which applies to the lost profit which occurred after the Floods to December 31, 2011, and were recorded in other operating revenue in the consolidated statements of income. The insurance proceeds for fixed assets and for other than fixed assets are included in investing activities and operating activities in the consolidated statements of cash flows, respectively.

In addition, as of March 31, 2012, Sony still had pending insurance claims for damage to fixed assets, inventories, additional expenses and business interruption. Sony recorded insurance receivables of 5,788 million yen which represents the portion of the insurance claims that were deemed probable of collection up to the extent of the amount of corresponding losses recognized in the same period and substantially all relate to damaged assets and inventories. Sony concluded that the recoveries from these insurance claims are probable based on the coverage under valid policies, communications with the insurance carriers, Sony’s past claims history with the insurance carriers, and Sony’s assessment that the insurance carriers have the financial ability to pay the claims. These receivables were primarily recorded in prepaid expenses and other current assets in the consolidated balance sheets.

19.

Restructuring charges and asset impairments

As part of its effort to improve the performance of the various businesses, Sony has undertaken a number of 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. For the fiscal years ended March 31, 2010, 2011 and 2012, Sony recorded total restructuring charges of 116,472 million yen, 62,318 million yen and 52,645 million yen, respectively.

Sony anticipates recording approximately 75 billion yen of restructuring charges for the fiscal year ending March 31, 2013.

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The changes in the accrued restructuring charges for the fiscal years ended March 31, 2010, 2011 and 2012 are as follows:


	Yen in millions
	Employee termination benefits			Non-cash write-downs and disposals, net*			Other associated costs			Total
Balance at March 31, 2009		53,813			—			11,461			65,274
Restructuring costs		65,133			31,928			19,411			116,472
Non-cash charges		—			(31,928	)		—			(31,928	)
Cash payments		(88,803	)		—			(21,754	)		(110,557	)
Adjustments		(2,925	)		—			(156	)		(3,081	)

Balance at March 31, 2010		27,218			—			8,962			36,180
Restructuring costs		38,264			8,294			15,760			62,318
Non-cash charges		—			(8,294	)		—			(8,294	)
Cash payments		(47,521	)		—			(19,086	)		(66,607	)
Adjustments		(2,376	)		—			(662	)		(3,038	)

Balance at March 31, 2011		15,585			—			4,974			20,559
Sony Ericsson acquisition		8,789			—			2,190			10,979
Restructuring costs		25,453			20,428			6,764			52,645
Non-cash charges		—			(20,428	)		—			(20,428	)
Cash payments		(24,928	)		—			(4,862	)		(29,790	)
Adjustments		98			—			(1,130	)		(1,032	)

Balance at March 31, 2012		24,997			—			7,936			32,933

Significant asset impairments excluded from restructuring charges are described below.

The total amount of costs incurred in connection with these restructuring programs by segment for the fiscal years ended March 31, 2010, 2011 and 2012 are as follows:


	Yen in millions
	Fiscal year ended March 31
	2010		2011		2012
Consumer Products & Services		31,255		25,532		8,972
Professional, Device & Solutions		41,067		19,507		25,645
Pictures		5,605		2,722		1,273
Music		5,225		2,662		5,710
Financial Services		5,078		5,010		1,822
Sony Mobile*		—		—		537
All Other and Corporate		28,242		6,885		8,686

Total net charges		116,472		62,318		52,645

Sony acquired Ericsson’s shares in Sony Ericsson and it became a wholly-owned subsidiary of Sony. Subsequent to the acquisition, Sony Ericsson was renamed Sony Mobile. Refer to Note 24.

In addition to the restructuring charges in the tables above, Sony recorded in cost of sales 7,851 million, 4,751 million yen and 2,115 million yen of non-cash charges related to depreciation associated with restructured assets for the fiscal years ended March 31, 2010, 2011 and 2012, respectively. Depreciation associated with

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restructured assets as used in the context of the disclosures regarding restructuring activity 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. Any impairment of the asset is recognized immediately in the period.

Consumer Products & Services segment

In an effort to improve the performance of the Consumer Products & Services segment, Sony has undergone a number of restructuring efforts to reduce its operating costs. These efforts included headcount reduction programs, initiatives to advance rationalization of manufacturing operations, shifting and aggregating manufacturing to low-cost areas, and utilizing the services of third-party original equipment and design manufacturers (OEMs and ODMs). Significant restructuring activities are as follows:

Retirement programs -

In an effort to improve the performance of the Consumer Products & Services segment, Sony has undergone several headcount reduction programs to further reduce operating costs. Through measures including the realignment of its manufacturing sites, a review of its development and design structure, and the streamlining of its sales and administrative functions, Sony has continued to implement a company-wide (including headquarters) rationalization. Sony intends to reallocate and optimize its workforce through programs including work reassignments and outplacements. As a result of these measures, Sony recorded in the Consumer Products & Services segment restructuring charges related mainly to employee termination benefits totaling 20,189 million yen, 14,035 million yen and 8,134 million yen for the fiscal years ended March 31, 2010, 2011 and 2012, respectively, in selling, general and administrative expenses in the consolidated statements of income. These staff reductions were achieved worldwide mostly through the implementation of early retirement programs. Sony will continue to implement programs to reduce headcount by streamlining business operations, including closure and consolidation of manufacturing sites, and the consolidation of headquarters and administrative functions.

Realignment of manufacturing operations in Japan -

During the fiscal year ended March 31, 2010, Sony implemented extensive measures to better compete in terms of speed to market and profitability, including the reevaluation of both its domestic and overseas manufacturing operations. As part of this process, manufacturing operations in Japan for certain product categories were consolidated in order to increase the efficiency of these manufacturing operations.

As a result of this realignment of manufacturing operations in Japan, restructuring charges for the closure of production facilities totaling 7,132 million yen were recorded which consisted mainly of personnel related costs and the disposal or impairment of assets. Of the total restructuring charges, 3,586 million yen for employee termination benefits were recorded in selling, general and administrative expenses and 3,261 million yen for the disposal or impairment of assets was recorded in other operating (income) expense, net in the consolidated statements of income. In addition to the restructuring charges, 4,823 million yen of non-cash charges related to depreciation associated with restructured assets were recorded in cost of sales in the consolidated statements of income as a result of this realignment of manufacturing operations in Japan.

Sales and transfers of manufacturing operations outside of Japan -

During the fiscal year ended March 31, 2011, Sony sold and transferred certain manufacturing operations outside of Japan to third parties to reduce operating costs. The resulting restructuring charges included expenses of 11,583 million yen related to the transfer of a factory in Barcelona and the impairment of related assets.

Cash flows from the sales and transfers of manufacturing operations are included in sales of businesses in the consolidated statements of cash flows.

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

Professional, Device & Solutions segment

In an effort to improve the performance of the Professional, Device & Solutions segment, Sony has undergone a number of restructuring efforts to reduce operating costs. These efforts included headcount reduction programs, initiatives to advance rationalization of manufacturing operations, shifting and aggregating manufacturing to low-cost areas, and utilizing the services of third-party original equipment and design manufacturers (OEMs and ODMs). Significant restructuring activities are as follows:

Retirement programs -

In an effort to improve the performance of the Professional, Device & Solutions segment, Sony has undergone several headcount reduction programs to further reduce operating costs. Through measures including the realignment of its manufacturing sites, a review of its development and design structure, and the streamlining of its sales and administrative functions, Sony has continued to implement a company-wide (including headquarters) rationalization. Sony intends to reallocate and optimize its workforce through programs including work reassignments and outplacements. As a result of these measures, Sony recorded in the Professional, Device & Solutions segment restructuring charges related mainly to employee termination benefits totaling 23,002 million yen, 14,073 million yen and 6,925 million yen for the fiscal years ended March 31, 2010, 2011 and 2012, respectively, in selling, general and administrative expenses in the consolidated statements of income. These staff reductions were achieved worldwide mostly through the implementation of early retirement programs. Sony will continue to implement programs to reduce headcount by streamlining business operations, including closure and consolidation of manufacturing sites, and the consolidation of headquarters and administrative functions.

Realignment of manufacturing operations in Japan -

As a result of this realignment of manufacturing operations in Japan, restructuring charges for the closure of production facilities totaling 6,087 million yen consisted mainly of personnel related costs and the disposal or impairment of assets. Of the total restructuring charges, 5,273 million yen for employee termination benefits were recorded in selling, general and administrative expenses and 455 million yen for the disposal or impairment of assets were recorded in other operating (income) expense, net in the consolidated statements of income. In addition to the restructuring charges, 799 million yen of non-cash charges related to depreciation associated with restructured assets were recorded in cost of sales in the consolidated statements of income as a result of this realignment of manufacturing operations in Japan.

Sale and asset-impairment of small- and medium-sized TFT LCD business -

In an effort to increase efficiency and strengthen operations in the small- and medium-sized TFT LCD business by consolidating manufacturing operations, Sony recorded 7,832 million yen for the impairment of TFT LCD related fixed assets for the fiscal year ended March 31, 2010. These charges were recorded in other operating (income) expense, net in the consolidated statements of income.

As described in Note 25, Sony sold its small- and medium-sized TFT LCD business to Japan Display Inc. During the fiscal year ended March 31, 2012, Sony recorded an impairment loss of 19,187 million yen in other operating (income) expense, net in the consolidated statements of income, as the long-lived assets used by the business were classified as held for sale and recorded at the lesser of carrying value or fair value.

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Asset-impairment of OLED related equipment -

During the fiscal year ended March 31, 2010, Sony recorded 5,265 million yen for the impairment of OLED related equipment, which was rendered obsolete due to the utilization of an alternative technology in the manufacture of OLED products. These charges were recorded in other operating (income) expense, net in the consolidated statements of income.

Pictures segment

In an effort to improve the performance of the Pictures segment, Sony has undergone a number of restructuring efforts to reduce operating costs and rationalize certain operations.

The resulting restructuring charges, included in the table above, were related mainly to employee termination benefits and included in selling, general and administrative expenses in the consolidated statements of income.

Music segment

In an effort to improve the performance of the Music segment due to the continued contraction of the physical music market, Sony has undergone a number of restructuring efforts to reduce operating costs.

Financial Services segment

In an effort to improve the performance of the Financial Services segment, Sony has undergone restructuring efforts to reduce operating costs.

During the fiscal year ended March 31, 2010, Sony recorded restructuring charges of 3,718 million yen in financial service expenses and 1,360 million yen in other operating (income) expense, net in the consolidated statements of income. These restructuring charges were related mainly to the realignment of credit financing operations and the disposal or impairment of assets. During the fiscal year ended March 31, 2011, Sony recorded restructuring charges of 3,371 million yen in financial service expenses and 1,639 million yen in other operating (income) expense, net in the consolidated statements of income. These restructuring charges related mainly to the partial sale of a leasing and credit card business.

Cash flows from the partial sale of a leasing and credit card business are included in sales of businesses in the consolidated statements of cash flows.

Sony Mobile segment

As a result of the acquisition of Sony Ericsson, which was subsequently renamed Sony Mobile, Sony reflected in the consolidated balance sheets 10,979 million yen of restructuring liabilities which related to restructuring activities undertaken by Sony Ericsson prior to Sony’s acquisition of Ericsson’s 50% equity interest in Sony Ericsson, but which had not yet been paid or settled by Sony Ericsson. The restructuring liability relates to activities previously accrued by Sony Ericsson but which were unpaid as of the acquisition date representing severance costs of 8,789 million yen and other associated costs of 2,190 million yen.

In an effort to improve the performance of the Sony Mobile segment, Sony has undergone restructuring efforts to reduce operating costs.

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

All Other and Corporate

Realignment of manufacturing operations in Japan -

During the fiscal year ended March 31, 2010, Sony implemented extensive measures to better compete in terms of speed to market and profitability, including the reevaluation of both its domestic and overseas manufacturing operations. As part of this process, mobile phone customer service and manufacturing operations in Japan were consolidated in order to establish an integrated operational structure from manufacturing through to customer service.

As a result of this realignment, restructuring charges for the closure of production facilities totaling 6,041 million yen were recorded, which consisted mainly of personnel related costs and the disposal or impairment of assets. Of the total restructuring charges, 4,900 million yen for employee termination benefits was recorded in selling, general and administrative expenses, and 862 million yen for the disposal or impairment of assets was recorded in other operating (income) expense, net in the consolidated statements of income. In addition to the restructuring charges, 553 million yen of non-cash charges related to depreciation associated with restructured assets were recorded in cost of sales in the consolidated statements of income.

Withdrawal from property lease contract -

During the fiscal year ended March 31, 2010, Sony withdrew from the property management operation of an entertainment complex in Japan and terminated the property lease contract. Sony recorded 6,495 million yen of termination payments in cost of sales in the consolidated statements of income.

Corporate restructuring charges related to headquarters -

During the fiscal year ended March 31, 2010, Sony underwent headquarters restructuring activities. As a result, 5,897 million yen for employee termination benefits were recorded in selling, general and administrative expenses in the consolidated statements of income for the fiscal year ended March 31, 2010.

Other asset impairment information

Asset-impairment of LCD television business related long-lived assets -

Sony recorded impairment losses of 27,100 million yen and 16,700 million yen for the fiscal years ended March 31, 2010 and 2012, respectively, included within the Consumer Products & Services segment, related to the LCD television assets group. These impairment losses primarily reflect a decrease in the estimated fair value of property, plant and equipment and certain intangible assets.

During the fiscal year ended March 31, 2010, management updated its strategic plans, which resulted in decreases in the assets’ estimated service periods and corresponding estimated future cash flows leading to the impairment loss.

During the fiscal year ended March 31, 2012, the corresponding estimated future cash flows leading to the impairment charge reflect the continued deterioration in LCD television market conditions in Japan, Europe and North America, and unfavorable foreign exchange rates.

Sony excluded these losses on impairment from restructuring charges as they were not directly related to Sony’s ongoing restructuring initiatives.

Asset-impairment of network business related long-lived assets -

Sony recorded an impairment loss of 12,601 million yen for the fiscal year ended March 31, 2012, included within the Consumer Products & Services segment, related to the network business asset group, which has made

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

investments in network improvements and security enhancements. This impairment loss primarily reflects a decrease in the estimated fair value of certain intangible and other long-lived assets.

During the fiscal year ended March 31, 2012, the corresponding estimated future cash flows leading to the impairment charge reflect management’s revised forecast over the limited period applicable to the impairment determination.

Sony excluded this loss on impairment from restructuring charges as it was not directly related to Sony’s ongoing restructuring initiatives.

20.

Supplemental consolidated statements of income information

(1)

Other operating (income) expense, net:

Other operating (income) expense, net is comprised of the following:


	Yen in millions
	March 31
	2010			2011			2012
GSN remeasurement gain*¹		—			(26,991	)		—
Sony Ericsson remeasurement gain*¹		—			—			(102,331	)
(Gain) loss on sale of interests in subsidiaries and affiliates, net*^1,2		(30,529	)		(4,465	)		(2,882	)
(Gain) loss on sale, disposal or impairment of assets, net*^2,3		73,517			18,006			45,619

		42,988			(13,450	)		(59,594	)

*1	Refer to Note 24.

*2	Refer to Note 25.

*3	Refer to Notes 13, 18 and 19.

(2)

Research and development costs:

Research and development costs charged to cost of sales for the fiscal years ended March 31, 2010, 2011 and 2012 were 432,001 million yen, 426,814 million yen and 433,477 million yen, respectively.

(3)

Advertising costs:

Advertising costs included in selling, general and administrative expenses for the fiscal years ended March 31, 2010, 2011 and 2012 were 383,540 million yen, 396,425 million yen and 357,106 million yen, respectively.

(4)

Shipping and handling costs:

Shipping and handling costs for finished goods included in selling, general and administrative expenses for the fiscal years ended March 31, 2010, 2011 and 2012 were 83,622 million yen, 91,926 million yen and 76,644 million yen, respectively, which included the internal transportation costs of finished goods.

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21.

Income taxes

Domestic and foreign components of income (loss) before income taxes and the provision for current and deferred income taxes attributable to such income are summarized as follows:


	Yen in millions
	Fiscal year ended March 31
	2010			2011			2012
Income (loss) before income taxes:
Sony Corporation and all subsidiaries in Japan		45,290			143,917			(106,496	)
Foreign subsidiaries		(18,378	)		61,096			23,310

		26,912			205,013			(83,186	)

Income taxes — Current:
Sony Corporation and all subsidiaries in Japan		42,723			60,514			33,921
Foreign subsidiaries		36,397			57,404			74,624

		79,120			117,918			108,545

Income taxes — Deferred:
Sony Corporation and all subsidiaries in Japan		(25,589	)		365,665			2,794
Foreign subsidiaries		(39,573	)		(58,244	)		203,900

		(65,162	)		307,421			206,694

Total income tax expense		13,958			425,339			315,239

As discussed in Note 2, current income taxes and deferred income taxes in foreign subsidiaries for the fiscal year ended March 31, 2010 have been revised, with an increase in current income taxes by 30,422 million yen and a corresponding decrease to deferred income taxes. This revision had no impact on total income tax expense.

A reconciliation of the differences between the Japanese statutory tax rate and the effective tax rate is as follows:


	Fiscal year ended March 31
	2010			2011			2012
Statutory tax rate		41.0	%		41.0	%		(41.0	)%
Non-deductible expenses		10.3			1.3			4.2
Income tax credits		(18.0	)		(2.0	)		(3.6	)
Change in statutory tax rate		(4.6	)		0.9			(36.2	)
Change in valuation allowances		4.7			174.5			491.0
Change in deferred tax liabilities on undistributed earnings of foreign subsidiaries and corporate joint ventures		5.8			1.5			(21.2	)
Lower tax rate applied to life and non-life insurance business in Japan		(30.3	)		(2.8	)		(7.8	)
Foreign income tax differential		(17.6	)		(10.5	)		6.7
Adjustments to tax accruals and reserves		16.2			4.5			(15.9	)
Effect of equity in net income (loss) of affiliated companies		46.0			(2.8	)		60.0
Sony Ericsson remeasurement gain		—			—			(50.6	)
Insurance recovery tax exemptions related to the Floods		—			—			(5.2	)
Other		(1.6	)		1.9			(1.4	)

Effective income tax rate		51.9	%		207.5	%		379.0	%

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SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

In November 2011, the Japanese legislature enacted tax law changes which included lowering the national tax rate, limiting the annual use of net operating loss carryforwards to 80% of taxable income and increasing the net operating loss carryforward period from seven to nine years for losses incurred in the tax years ending on or after April 1, 2008. As a result, the statutory tax rate during the fiscal years ending March 31, 2013 to March 31, 2015 will be approximately 38% and from the fiscal year ending March 31, 2016 will be approximately 36%. The limitation on the use of net operating loss carryforwards, however, may result in cash tax payments being due if there is taxable income in Japan even though Sony Corporation and its national tax filing group in Japan have significant net operating loss carryforwards available. These tax law changes take effect for Sony from April 1, 2012. Because accounting for income taxes requires the measurement of deferred tax assets and liabilities using the enacted tax rates, the tax law changes resulted in a net deferred tax expense of 32,729 million yen.

The significant components of deferred tax assets and liabilities are as follows:


	Yen in millions
	March 31
	2011			2012
Deferred tax assets:
Operating loss carryforwards for tax purposes		387,982			533,912
Accrued pension and severance costs		103,674			87,871
Film costs		16,405			40,566
Warranty reserves and accrued expenses		94,065			82,842
Future insurance policy benefits		26,177			22,907
Inventory		35,989			37,431
Depreciation		35,128			39,473
Tax credit carryforwards		74,284			73,945
Reserve for doubtful accounts		8,404			5,580
Impairment of investments		33,743			34,387
Deferred revenue in the Pictures segment		19,254			21,980
Other		140,745			146,777

Gross deferred tax assets		975,850			1,127,671
Less: Valuation allowance		(473,713	)		(868,233	)

Total deferred tax assets		502,137			259,438

Deferred tax liabilities:
Insurance acquisition costs		(155,073	)		(140,190	)
Future insurance policy benefits		(62,933	)		(66,998	)
Unbilled accounts receivable in the Pictures segment		(40,469	)		(45,467	)
Unrealized gains on securities		(33,101	)		(43,831	)
Intangible assets acquired through stock exchange offerings		(32,136	)		(28,139	)
Undistributed earnings of foreign subsidiaries and corporate joint ventures		(46,261	)		(27,920	)
Other		(46,970	)		(73,399	)

Gross deferred tax liabilities		(416,943	)		(425,944	)

Net deferred tax assets (liabilities)		85,194			(166,506	)

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As discussed in Note 2, the presentation of deferred income taxes in other assets as of March 31, 2011 in the consolidated balance sheets have been revised to conform with the presentation as of March 31, 2012 to reflect the results of an analysis of deferred tax assets in relation to certain unrecognized tax benefits that was completed during the fiscal year ended March 31, 2012. This revision increased total deferred tax assets by 61,115 million yen, which is composed of an increase of gross deferred tax assets and valuation allowance by 71,126 million yen and 10,011 million yen, respectively, as of March 31, 2011.

The significant increase in the deferred tax asset for film costs is as a result of a change in the method of amortization for film costs for tax return purposes. For book purposes, film costs are amortized on an individual-film-forecast method based on the ratio of current period actual revenues to the estimated remaining total revenues. For tax purposes, there is a film by film election to amortize film costs on either the income forecast method or the straight line method. Sony elected straight line for all films released in the fiscal year ended March 31, 2012.

The valuation allowance mainly relates to deferred tax assets of certain consolidated subsidiaries with operating loss carryforwards and tax credit carryforwards for tax purposes that are not more-likely-than-not to be realized. The net changes in the total valuation allowance were increases of 5,741 million yen, 347,460 million yen and 394,520 million yen for the fiscal years ended March 31, 2010, 2011 and 2012, respectively.

The increase during the fiscal year ended March 31, 2011 was primarily due to the additional valuation allowance recorded on deferred tax assets at Sony Corporation and its national tax filing group in Japan. Sony Corporation and its national tax filing group in Japan were in a three year cumulative loss position in the fiscal year ended March 31, 2011. 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. As the national tax filing group only includes wholly-owned subsidiaries, certain Japanese subsidiaries are excluded, the most significant of which are Sony Financial Holdings Inc. and its subsidiaries. Due to the cumulative losses in recent years, and because the net operating losses in Japan have a relatively short carryforward period of seven to nine years, a limited number of years remain in the carryforward period. The first year of expiration of the remaining net operating losses in Japan would be 2014 for local taxes and 2016 for national taxes. Carrying amounts of deferred tax assets 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. While the cumulative loss position and the remaining limited years in the carryforward period were significant negative evidence, there was positive evidence in the form of a history of taxable income and a history of utilizing assets before expiration, as well as the availability of tax strategies regarding the utilization of the deferred tax assets. However, based on the near term forecast at the end of the fiscal year ended March 31, 2011, including the anticipated impact of the Great East Japan Earthquake and the lesser weight provided to longer range forecasts when an entity is in a cumulative loss, Sony did not believe that the objectively verifiable positive evidence was sufficient to overcome the significant negative evidence of the cumulative loss. As the weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified, it is generally difficult for positive evidence regarding projected future taxable income exclusive of reversing taxable temporary differences to outweigh objectively verifiable negative evidence of recent financial reporting losses. Accordingly, Sony, based on the weight of the available positive and negative evidence, established a valuation allowance of 362,316 million yen as of March 31, 2011.

The increase during the fiscal year ended March 31, 2012 was primarily due to the additional valuation allowances recorded on deferred tax assets in the U.S. and the U.K. and additional valuation allowances recorded in Japan for Sony Corporation and certain Japanese subsidiaries. As of March 31, 2012, Sony has concluded that with respect to Sony Americas Holding Inc. (“SAHI”) and its consolidated tax filing group in the U.S., and Sony Europe Limited (“SEU”), a subsidiary in the U.K., the cumulative loss position was significant negative evidence that was difficult to overcome. There was positive evidence in the form of tax planning actions and strategies, the long carryforward periods for utilization, as well as a history of taxable income and utilization of assets before expiration. The tax planning strategies included changes in film amortization methods in the U.S. as described

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above, the success of which depends on future forecasts of income. Notwithstanding this positive evidence, the weight given to evidence is commensurate with the extent to which it can be objectively verified. It is generally difficult for positive evidence regarding projected future taxable income exclusive of reversing taxable temporary differences to outweigh objectively verifiable negative evidence of recent financial reporting losses. Accordingly, Sony, based on the weight of the available positive and negative evidence, established a valuation allowance of 203,025 million yen for SAHI and its consolidated tax filing group in the U.S., and 20,694 million yen for SEU, as of March 31, 2012. Sony Corporation and its national tax filing group in Japan remain in a cumulative loss position as of March 31, 2012, as a result, during the fiscal year ended March 31, 2012, Sony recorded an additional valuation allowance against certain deferred tax assets at Sony Corporation and its national tax filing group in Japan. In addition, several Japanese subsidiaries are also in a cumulative loss position as of March 31, 2012 and, therefore, recorded valuation allowances of 32,631 million yen against their separate deferred tax assets for local tax purposes.

Prior to its acquisition, Sony Ericsson, principally due to its cumulative loss position, had a valuation allowance against deferred tax assets mainly in Sweden in the amount of 78,393 million yen, for which Sony reported the impact of the valuation allowance through its 50% equity interest in Sony Ericsson.

Net deferred tax assets (net of valuation allowance) are included in the consolidated balance sheets as follows:


	Yen in millions
	March 31
	2011			2012
Current assets — Deferred income taxes		133,059			36,769
Other assets — Deferred income taxes		300,702			100,460
Current liabilities — Other		(42,340	)		(19,236	)
Long-term liabilities — Deferred income taxes		(306,227	)		(284,499	)

Net deferred tax assets (liabilities)		85,194			(166,506	)

As discussed in Note 2, deferred income taxes in other assets and net deferred tax assets as of March 31, 2011 have been revised, resulting in an increase of 61,115 million yen.

At March 31, 2012, deferred income taxes have not been provided on undistributed earnings of foreign subsidiaries and corporate joint ventures not expected to be remitted in the foreseeable future totaling 1,043,693 million yen, and on the gain of 61,544 million yen on a subsidiary’s sale of stock arising from the issuance of common stock of Sony Music Entertainment (Japan) Inc. (“SMEJ”) in a public offering to third parties in November 1991, as Sony does not anticipate any significant tax consequences on possible future disposition of its investment based on its tax planning strategies. The unrecognized deferred tax liabilities as of March 31, 2012 for such temporary differences cannot be determined.

At March 31, 2012, Sony has operating loss carryforwards for tax purposes, the tax effect of which totaled 533,912 million yen, which will be available as an offset against future taxable income on tax returns to be filed in various tax jurisdictions. With the exception of 125,537 million yen with no expiration period, substantially all of the total operating loss carryforwards expire at various periods between the fiscal years ending March 31, 2013 and 2021 and the remaining amounts expire in periods up to 20 years depending on the jurisdiction.

Tax credit carryforwards for tax purposes at March 31, 2012 amounted to 73,945 million yen. With the exception of 14,021 million yen with no expiration period, total available tax credit carryforwards expire at various dates primarily up to 10 years.

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A reconciliation of the beginning and ending gross amounts of unrecognized tax benefits is as follows:


	Yen in millions
	March 31
	2010			2011			2012
Balance at beginning of the fiscal year		276,627			229,228			225,120
Reductions for tax positions of prior years		(38,450	)		(39,005	)		(25,302	)
Additions for tax positions of prior years		4,816			19,947			59,159
Additions based on tax positions related to the current year		10,873			41,201			44,307
Settlements		(5,921	)		(1,478	)		(4,046	)
Lapse in statute of limitations		(1,506	)		(7,770	)		(3,807	)
Foreign currency translation adjustments		(17,211	)		(17,003	)		(7,120	)

Balance at end of the fiscal year		229,228			225,120			288,311

Total net amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate		76,125			87,497			77,925

The major changes in the total gross amount of unrecognized tax benefit balances relate to the Bilateral Advance Pricing Agreements (“APAs”) filed for certain subsidiaries in the Consumer Products & Services, Professional, Device & Solutions and All Other segments with respect to their intercompany cross-border transactions. These APAs include agreements between Sony and two taxing authorities under the authority of the mutual agreement procedure specified in income tax treaties. Sony reviews its estimated tax expense based on the progress made in these procedures and makes adjustments to its estimates as necessary. Because these are government to government negotiations, it is possible that the final outcomes of the agreements may differ from Sony’s current assessment of the more-likely-than-not outcomes of such agreements.

During the fiscal year ended March 31, 2010, Sony recorded 4,707 million yen of interest expense and 1,565 million yen of penalties.

During the fiscal year ended March 31, 2011, Sony recorded 3,612 million yen of interest expense and reversed 261 million yen of penalties. At March 31, 2011, Sony had recorded liabilities of 14,523 million yen and 4,407 million yen for the payments of interest and penalties, respectively.

During the fiscal year ended March 31, 2012, Sony reversed 1,336 million yen of interest expense and 333 million yen of penalties. At March 31, 2012, Sony had recorded liabilities of 13,187 million yen and 4,074 million yen for the payments of interest and penalties, respectively.

Sony operates in multiple jurisdictions throughout the world, and its tax returns are periodically audited by Japanese and foreign taxing authorities. As a result of audit settlements, the conclusion of current examinations, the expiration of the statute of limitations in several jurisdictions and other reevaluations of Sony’s tax positions, it is expected that the amount of unrecognized tax benefits will change in the next twelve months. Accordingly, Sony believes it is reasonably possible that its existing unrecognized tax benefits may be reduced by an amount up to 122,227 million yen within the next twelve months.

Sony remains subject to examinations by Japanese taxing authorities for tax years from 2005 through 2011, and by the U.S. and other foreign taxing authorities for tax years from 1998 through 2011.

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22.

Reconciliation of the differences between basic and diluted EPS

Reconciliation of the differences between basic and diluted EPS for the fiscal years ended March 31, 2010, 2011 and 2012 is as follows:


	Yen in millions
	Fiscal year ended March 31
	2010			2011			2012
Net loss attributable to Sony Corporation’s stockholders for basic and diluted EPS computation		(40,802	)		(259,585	)		(456,660	)


	Thousands of shares
Weighted-average shares outstanding		1,003,520			1,003,559			1,003,578
Effect of dilutive securities:
Stock acquisition rights		—			—			—
Convertible bonds		—			—			—

Weighted-average shares for diluted EPS computation		1,003,520			1,003,559			1,003,578


	Yen
Basic EPS		(40.66	)		(258.66	)		(455.03	)

Diluted EPS		(40.66	)		(258.66	)		(455.03	)

Potential shares of common stock upon the exercise of stock acquisition rights and convertible bonds, which were excluded from the computation of diluted EPS for the fiscal years ended March 31, 2010, 2011 and 2012 were 17,600 thousand shares, 19,383 thousand shares and 22,417 thousand shares, respectively. All potential shares were excluded as anti-dilutive for those fiscal years ended March 31, 2010, 2011 and 2012 due to Sony incurring a net loss attributable to Sony Corporation’s stockholders for those fiscal years.

23.

Variable interest entities

Sony has, from time to time, entered into various arrangements with VIEs. These arrangements include facilities which provide for the leasing of certain property, several joint ventures in the recorded music business, the U.S. based music publishing business, the financing of film production and the outsourcing of manufacturing operations. In addition, Sony has entered into several accounts receivable sales programs that involve VIEs, which are described in Note 6. For the VIEs that are described below, it has been determined that Sony is the primary beneficiary and, accordingly, these VIEs are consolidated by Sony.

Sony leases the headquarters building of its U.S. subsidiary from a VIE. At the end of the lease term which expires in December 2015, Sony has agreed to either renew the lease, purchase the building or remarket it to a third-party on behalf of the owner. Under the lease, Sony has provided a minimum guarantee to the VIE that if the sales price is less than 255 million U.S. dollars, Sony is obligated to make up the lesser of the shortfall or 214 million U.S. dollars. Based on a qualitative assessment, it was determined that Sony has the power to direct the activities that most significantly impact the VIE’s economic performance, as well as the obligation to absorb the losses of the VIE due to the minimum guarantee. As a result, it has been determined that Sony is the primary beneficiary. Sony has not provided any additional support to the VIE other than its contractually obligated lease payments. Sony has the option to purchase the building at any time during the lease term for 255 million U.S. dollars. The debt held by the VIE is unsecured and there is no recourse to the creditors outside of Sony. The assets of the VIE are not available to settle the obligations of Sony. At March 31, 2012, the VIE had property, plant and equipment of 14,332 million yen and long-term debt of 20,991 million yen which were included in Sony’s consolidated balance sheets.

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Sony’s U.S. subsidiary that is engaged in the recorded music business has entered into several joint ventures with companies involved in the production and creation of recorded music. Sony has reviewed these joint ventures and determined that they are VIEs. Based on a qualitative assessment, it was determined that Sony has the power to direct the activities that most significantly impact the VIEs’ economic performance, as well as the obligation to absorb the losses of theses VIEs as Sony is responsible for providing funding to these VIEs, and in most cases absorbs all losses until the VIEs become profitable. As a result, it has been determined that Sony is the primary beneficiary. The assets of these VIEs are not available to settle the obligations of Sony. On an aggregate basis, the total assets and liabilities for these VIEs at March 31, 2012 were 17,552 million yen and 7,918 million yen, respectively.

Sony’s U.S. based music publishing subsidiary is a joint venture with a third-party investor and has been determined to be a VIE. The subsidiary owns and acquires rights to musical compositions, exploits and markets these compositions and receives royalties or fees for their use. Under the terms of the joint venture, Sony has the obligation to fund any working capital deficits as well as any acquisition of music publishing rights made by the joint venture. In addition, the third-party investor receives a guaranteed annual dividend of up to 17.5 million U.S. dollars through December 31, 2013. Based on a qualitative assessment, it was determined that Sony has the power to direct the activities that most significantly impact the VIE’s economic performance, as well as the obligation to absorb the losses of the VIE due to its obligation to provide funding to the joint venture. As a result, it has been determined that Sony is the primary beneficiary. The assets of the music publishing subsidiary are not available to settle the obligations of Sony. At March 31, 2012, the assets and liabilities of the VIE that were included in Sony’s consolidated balance sheets were as follows:


	Yen in millions
Assets:
Cash and cash equivalents		5,239
Account receivables, net		248
Other current assets		20,523
Property, plant and equipment, net		863
Intangibles, net		54,566
Goodwill		12,483
Other noncurrent assets		6,708

Total assets		100,630

Liabilities:
Accounts payable and accrued expenses		32,835
Other current liabilities		5,222
Other noncurrent liabilities		1,254

Total liabilities		39,311

VIEs in which Sony holds a significant variable interest, but is not the primary beneficiary are described as follows:

In connection with the September 2010 refinancing of the debt obligations of the third-party investor in the music publishing subsidiary described above, Sony has issued a guarantee to a creditor of the third-party investor in which Sony has agreed to repay the outstanding principal plus accrued interest up to a maximum of 303 million U.S. dollars to the creditor should the third-party investor default on its obligation. The obligation of the third-party investor is collateralized by its 50% interest in Sony’s music publishing subsidiary. Should Sony have to make a payment under the terms of the guarantee, Sony would assume the creditor’s rights to the underlying collateral. The assets of the third-party investor that are being used as collateral were placed in a separate trust which is also a VIE in which Sony has significant variable interests. Based on a qualitative assessment, it was determined that Sony is not the primary beneficiary as Sony does not have the power to direct

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the activities of the trust. The assets held by the trust consist solely of the third-party investor’s 50% ownership interest in the music publishing subsidiary. At March 31, 2012, the fair value of the assets held by the trust exceeded 303 million U.S. dollars.

Sony’s subsidiary in the Pictures segment entered into a joint venture agreement with a VIE to acquire the international distribution rights, as defined, to 12 pictures. The subsidiary is required to distribute these pictures internationally, for contractually defined fees determined as percentages of gross receipts and is responsible for all distribution and marketing expenses, which are recouped from such distribution fees, each as defined. The VIE was capitalized with total financing of 406 million U.S. dollars. Of this amount, 11 million U.S. dollars was contributed by the subsidiary, 95 million U.S. dollars was provided by unrelated third-party investors and the remaining funding was provided through a 300 million U.S. dollar bank credit facility. Under the agreement, the subsidiary’s 11 million U.S. dollars equity investment is the last equity to be repaid. Based on the factors above, it was previously determined that the subsidiary was the primary beneficiary as it had the power to direct the activities of the VIE and was projected to absorb a significant amount of the losses or residual returns of the VIE. As of March 31, 2009, the bank credit facility had been terminated and the third-party investors have been repaid their 95 million U.S. dollar investment. On May 11, 2009, the subsidiary repurchased from the VIE the international distribution rights to the 12 pictures and the VIE received a participation interest in these films on identical financial terms to those described above. As a result of repurchasing the international distribution rights from the VIE, Sony determined that the subsidiary was no longer the primary beneficiary as it no longer had the power to direct the activities of the VIE and was not projected to absorb a significant amount of the losses or residual returns of the VIE. No gain or loss was recognized by the subsidiary on the deconsolidation of the VIE. As of March 31, 2012, the subsidiary’s balance sheet includes no film costs related to the international distribution rights acquired from the VIE and 748 million yen of participation liabilities recorded within accounts payable, other and accrued expenses as well as other noncurrent liabilities due to the VIE. On April 11, 2012, the subsidiary acquired the VIE’s participation interest for 22 million U.S. dollars. As a result of this acquisition, the VIE no longer has any financial interest in these pictures.

Sony’s subsidiary in the Pictures segment entered into two separate production/co-financing agreements with VIEs to co-finance 19 films that were released over the 31 months ended July 31, 2008. The subsidiary received 565 million U.S. dollars over the term of the agreements to fund the production or acquisition cost of films (including fees and expenses). Under these agreements, the subsidiary is responsible for the marketing and distribution of the product through its global distribution channels. The VIEs share in the net profits, as defined, of the films after the subsidiary recoups a distribution fee, its marketing and distribution expenses, and third-party participation and residual costs, each as defined. As the subsidiary did not have the power to direct the activities of these VIEs, the subsidiary is not the primary beneficiary of either of the VIEs. At March 31, 2012, there were no amounts recorded on the subsidiary’s balance sheet that related to either of the VIEs other than the investors’ earned but unpaid share of the films’ net profits, as defined.

Additionally, on January 19, 2007, the subsidiary entered into a third production/co-financing agreement with another VIE to co-finance a majority of the films submitted through March 2012. The subsidiary received a commitment from the VIE that it would fund up to 525 million U.S. dollars on a revolving basis to fund the production or acquisition cost of films (including fees and expenses). Under the agreement, the subsidiary is responsible for the marketing and distribution of the product through its global distribution channels. The VIE shares in the net profits, as defined, of the films after the subsidiary recoups a distribution fee, its marketing and distribution expenses, and third-party participation and residual costs, each as defined. As the subsidiary did not have the power to direct the activities of the VIE, the subsidiary is not the primary beneficiary of the VIE. On December 16, 2011, the subsidiary and the VIE agreed to modify the production/co-financing agreement (the “Modification”). Per the Modification, the VIE paid the subsidiary 20 million U.S. dollars and transferred selected rights in the films financed prior to the Modification (the “Previously Financed Films”) to the subsidiary, including the VIE’s share in the net profits in the Previously Financed Films. In exchange, the subsidiary released the VIE from its obligation to finance future films and the VIE received a participation interest in the Previously Financed Films. As the subsidiary, after the Modification, continues to not have the

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power to direct the activities of the VIE, the subsidiary is not the primary beneficiary of the VIE. At March 31, 2012, there were no amounts recorded on the subsidiary’s balance sheet that related to the VIE other than the VIE’s participation interest in the Previously Financed Films.

In January 2010, Sony sold 90.0% of its interest in a Mexican subsidiary which primarily manufactured LCD televisions, as well as other assets including machinery and equipment of 4,520 million yen and inventories of 5,619 million yen, to a contract manufacturer. The continuing entity, which would perform this manufacturing going forward, is a VIE as it is thinly capitalized and dependent on funding from the parent entity. Based on a qualitative assessment, it was determined that Sony is not the primary beneficiary as Sony does not have the power to direct the activities that most significantly impact the VIE’s economic performance nor does Sony have the obligation to absorb the losses of the VIE. In connection with the sale of Sony’s controlling interest in the subsidiary, Sony received 11,189 million yen and recorded a loss of 1,664 million yen during the fiscal year ended March 31, 2010. Concurrent with the sale, Sony entered into an agreement with the VIE and its parent company in which Sony agreed to purchase a significant share of the LCD televisions that Sony sells in certain markets, including the U.S. market. As of March 31, 2012, the amounts recorded on Sony’s consolidated balance sheets that relate to the VIE include receivables recorded within prepaid expenses and other current assets of 10,295 million yen and accounts payable, trade of 18,830 million yen. Sony’s maximum exposure to losses is considered insignificant.

As described in Note 6, accounts receivable sales programs in Japan and in the Financial Services segment also involve VIEs that formerly met the criteria to be a QSPE. These VIEs are all special purpose entities of the sponsor banks. In addition, a counterparty of the accounts receivable transactions in the U.S. includes a VIE. Based on a qualitative assessment, Sony is not the primary beneficiary and therefore does not consolidate these entities as Sony does not have the power to direct the activities, an obligation to absorb losses, or the right to receive the residual returns of these VIEs. Sony’s maximum exposure to losses from these VIEs is considered insignificant.

As described in Note 25, in connection with the sale of the small- and medium-sized TFT LCD business, Sony will transfer to a third-party legal ownership of a certain subsidiary within the former small- and medium-sized TFT LCD business during the fiscal year ending March 31, 2013. As of March 31, 2012, this entity is a VIE. Based on a qualitative assessment, Sony is not the primary beneficiary and therefore does not consolidate the entity after the sale as Sony does not have the power to direct the activities of the VIE nor does Sony have an obligation to absorb the losses or the right to receive the residual returns of this VIE. Sony’s maximum exposure to losses is considered insignificant.

24.

Acquisitions

(1)

Game Show Network acquisition

In April 2009, Sony sold a portion of its 50% ownership interest in GSN, which operates a U.S. cable network and online business, to the other investor in GSN, which resulted in cash proceeds of 8,831 million yen and a gain of 8,322 million yen for the fiscal year ended March 31, 2010. The gain was recorded in other operating (income) expense, net.

In March 2011, Sony acquired an additional 5% equity interest in GSN from the successor in interest to the other investor (the “Current Investor”) for 4,849 million yen, resulting in Sony owning a 40% equity interest in GSN. As part of the acquisition, Sony obtained a controlling interest in GSN, including the ability to appoint the majority of representatives on the GSN management committee, control over approval of the budget for GSN and control over the hiring, terminating, and setting compensation of the senior management of GSN. This acquisition will strengthen Sony’s presence in U.S. cable networks and Sony expects that it will allow GSN to further exploit and benefit from the light entertainment assets in the Pictures segment.

In addition to acquiring the additional 5% equity interest in GSN, Sony granted a put right to the Current Investor and received a call right from the Current Investor for an additional 18% equity interest in GSN. The put

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right is exercisable during three windows starting on April 1 of 2012, 2013 and 2014 and lasting for 60 business days (each such period, a “Trigger Window”). In the event that GSN’s audited financial statements for the most recent completed calendar year are not available on April 1, the Trigger Window shall commence on the day when GSN’s audited financial statements are delivered to the Current Investor. As of May 31, 2012, GSN’s audited financial statements for the year ended December 31, 2011 have not been delivered to the Current Investor. 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. Sony’s call right is exercisable only if the put is not exercised, and may be exercised for 60 business days immediately after the last put window has expired. The exercise price of the call is calculated using the same formula as the put with a minimum price of 234 million U.S. dollars. A buy/sell provision also applies to the equity interests in GSN owned by Sony and the Current Investor and may be exercised annually for a 60 business day window beginning April 1, 2015.

Prior to the March 2011 acquisition, Sony’s interest in GSN was accounted for under the equity method of accounting. As a result of Sony obtaining a controlling interest in GSN, Sony consolidated GSN using the acquisition method of accounting and recorded the fair value of the identifiable assets, liabilities assumed, redeemable noncontrolling interest, noncontrolling interest and residual goodwill of GSN. In accordance with the accounting guidance for business combinations achieved in stages, Sony remeasured the 35% equity interest in GSN that it owned prior to the acquisition at a fair value of 33,940 million yen which resulted in the recognition of a gain of 26,991 million yen recorded in other operating (income) expense, net.

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The following table summarizes the preliminary and final fair values assigned to the assets and liabilities of GSN that were recorded in the Pictures segment. Due to the fact that the acquisition closed in March 2011, certain areas of the purchase price allocation were not yet finalized as of the fiscal year ended March 31, 2011, including the fair value of certain tangible assets and liabilities acquired, the valuation of intangible assets acquired, income taxes and residual goodwill. The measurement period adjustments did not have a significant impact on Sony’s results of operations and financial position and, therefore, Sony has not retrospectively adjusted the consolidated financial statements.


	Yen in millions
	Acquired assets and liabilities recorded at fair value as of acquisition date (Preliminary)		Measurement period Adjustments			Acquired assets and liabilities recorded at fair value as of acquisition date (Final)
Cash and cash equivalents		4,039					4,039
Notes and accounts receivable, trade		3,089					3,089
Prepaid expenses and other current assets		395					395
Film costs		4,178					4,178
Property, plant and equipment		220					220
Intangibles		46,749		574			47,323
Goodwill		46,432		(527	)		45,905
Other noncurrent assets		38					38

Total assets		105,140		47			105,187

Notes and accounts payable, trade		970					970
Accounts payable, other and accrued expenses		4,131					4,131
Other current liabilities		59					59
Other noncurrent liabilities		1,683		47			1,730

Total liabilities		6,843		47			6,890

Redeemable noncontrolling interest		18,779					18,779
Noncontrolling interest		40,728					40,728

Total		38,790					38,790

The portion of the noncontrolling interest that can be put to Sony is accounted for as redeemable securities because redemption is outside of Sony’s control. As such, the redeemable noncontrolling interest is reported in the mezzanine equity section in the consolidated balance sheets. The fair value of the noncontrolling interest was calculated using a combination of a discounted cash flow model and market comparables of similar transactions and companies. A lack of control discount was not applied in determining the fair value of the noncontrolling interest as the cash flows attributable to the noncontrolling interest holder are expected to be proportional to the cash flows attributable to the controlling interest holder.

No value was allocated to in-process research and development in this acquisition. Goodwill represents unidentifiable intangible assets, such as future growth from new revenue streams and synergies with Sony’s existing assets and businesses, and is calculated as the excess of the purchase price over the estimated fair value of the net tangible and intangible assets acquired and is not deductible for tax purposes. The goodwill recorded in connection with this acquisition is included in the Pictures segment.

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The intangible assets are comprised of the following:


	Yen in millions		Years
	Acquired intangibles recorded at fair value		Weighted-average amortization period
Intangibles subject to amortization
Television carriage agreements (broadcasting agreements)		33,698		20
Other		4,736		3
Intangible having an indefinite life
Trademarks		8,889		—

Total intangibles		47,323

The results of operations of GSN are included in the Pictures segment after the acquisition date. The following unaudited supplemental pro forma financial information presents the combined results of operations of Sony and GSN as though the acquisition had occurred as of the beginning of the fiscal years ended March 31, 2010 and 2011:


	Yen in millions, except per share data
	Fiscal year ended March 31
	2010			2011
	(Unaudited)
Net sales		6,313,222			6,325,310
Operating income		60,685			199,445
Net loss attributable to Sony Corporation’s stockholders		(33,655	)		(259,731	)
Basic EPS		(33.54	)		(258.81	)
Diluted EPS		(33.54	)		(258.81	)

The unaudited supplemental pro forma financial information is based on estimates and assumptions, which Sony believes are reasonable and is not intended to represent or be indicative of what Sony’s consolidated net loss attributable to Sony Corporation’s stockholders would have been had the acquisition been completed at the beginning of each of these periods and should not be taken as indicative of Sony’s future consolidated net loss attributable to Sony Corporation’s stockholders. The unaudited supplemental pro forma financial information includes a gain from remeasurement of the previously owned equity interest and incremental intangible asset amortization, net of the related tax effects.

(2)

Sony Ericsson acquisition

On February 15, 2012, Sony acquired Ericsson’s 50% equity interest in Sony Ericsson, resulting in Sony Ericsson becoming a wholly-owned subsidiary of Sony. The transaction also provided Sony with a broad intellectual property cross-licensing (“IP cross-licensing”) agreement and ownership of five essential patent families relating to wireless handset technology. The total consideration consisted of 107,174 million yen (1,050 million euros) of cash. The agreement with Ericsson also provided for contingent consideration depending on the level of certain specified costs. Based on the estimated level of the specified costs, no amounts were expected to be paid under this arrangement and therefore no amounts were recorded as additional consideration. This acquisition will integrate Sony Ericsson, renamed Sony Mobile, into Sony’s platform of network-connected consumer electronics products with the aim of accelerating convergence.

Prior to the acquisition, Sony’s interest in Sony Ericsson was accounted for under the equity method of accounting. As a result of Sony obtaining a controlling interest in Sony Ericsson, Sony consolidated Sony Ericsson using the acquisition method of accounting and recorded the fair value of the identifiable assets, liabilities assumed, noncontrolling interest and residual goodwill of Sony Ericsson. In accordance with the

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accounting guidance for business combinations achieved in stages, Sony remeasured the 50% equity interest in Sony Ericsson that it owned prior to the acquisition at a fair value of 71,449 million yen which resulted in the recognition of a gain of 102,331 million yen recorded in other operating (income) expense, net. Sony elected not to record a deferred tax liability corresponding to the difference between the financial reporting basis which was remeasured to fair value upon an acquisition of a controlling interest in a foreign entity and the tax basis in the previously held ownership interest. In addition, accumulated translation adjustments of 11,690 million yen remained as a component of accumulated other comprehensive income.

The following table summarizes the fair values assigned to the assets and liabilities of Sony Ericsson that were recorded in the Sony Mobile segment and the IP cross-licensing that was assigned to Corporate for segment reporting purposes.


	Yen in millions
	Acquired assets and liabilities recorded at fair value as of the acquisition date
Cash and cash equivalents		35,331
Notes and accounts receivable, trade		54,522
Inventories		54,095
Prepaid expenses and other current assets		28,618
Property, plant and equipment		18,075
Intangibles		123,097
Goodwill		128,522
Other noncurrent assets		22,463

Total assets		464,723
Notes and accounts payable, trade		66,522
Accounts payable, other and accrued expenses		61,467
Other current liabilities		136,938
Other noncurrent liabilities		7,126

Total liabilities		272,053
Noncontrolling interest		14,047

Total		178,623

No value was allocated to in-process research and development in this acquisition as no material amounts were identified; however, certain significant research and development activities were substantially completed as of the acquisition date and included within acquired intangible assets as developed technology. Goodwill represents unidentifiable intangible assets, such as future growth from new revenue streams, increased market share particularly in emerging markets and the U.S., synergies with existing Sony assets and businesses and an assembled workforce, and is calculated as the excess of the purchase price over the estimated fair value of the net tangible and intangible assets acquired and is not deductible for tax purposes. The goodwill recorded in connection with this acquisition is included in the Sony Mobile segment.

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The intangible assets are comprised of the following:


	Yen in millions		Years
	Acquired intangibles recorded at fair value		Weighted-average amortization period
Intangibles subject to amortization
IP cross-licensing		60,834		6
Developed technology		24,599		9
Customer relationships		19,597		14
Trademarks		14,086		7
Other		3,981		7

Total intangibles		123,097

The following unaudited supplemental pro forma financial information presents the combined results of operations of Sony and Sony Ericsson as though the acquisition had occurred as of the beginning of the fiscal year ended March 31, 2011:


	Yen in millions, except per share data
	Fiscal year ended March 31
	2011			2012
	(Unaudited)
Net sales		6,901,151			5,941,131
Operating income (loss)		231,895			(187,725	)
Net loss attributable to Sony Corporation’s stockholders		(226,038	)		(654,833	)
Basic EPS		(225.24	)		(652.50	)
Diluted EPS		(225.24	)		(652.50	)

The unaudited supplemental pro forma financial information is based on estimates and assumptions, which Sony believes are reasonable and is not intended to represent or be indicative of what Sony’s consolidated net loss attributable to Sony Corporation’s stockholders would have been had the acquisition been completed at the beginning of the fiscal year ended March 31, 2011 and should not be taken as indicative of Sony’s future consolidated net loss attributable to Sony Corporation’s stockholders. The unaudited supplemental pro forma financial information includes:

•

the elimination of equity in net income (loss) and consolidation of Sony Ericsson;

•

the gain from remeasurement of the previously owned equity interest;

•

incremental intangible asset amortization, net of the related tax effects;

•

certain royalty adjustments; and

•

additional debt issuance costs and interest expense, incurred in connection with the acquisition.

(3)

Sony Semiconductor acquisition

On April 1, 2011, Sony Semiconductor Kyushu Corporation, a wholly-owned subsidiary of Sony Corporation, acquired from Toshiba Corporation (“Toshiba”) for 57,451 million yen semiconductor fabrication equipment and certain related assets. Sony Semiconductor Kyushu Corporation has subsequently changed its name to Sony Semiconductor Corporation, effective November 1, 2011. Sony’s goal in acquiring the assets is to further strengthen its production capacity for CMOS image sensors.

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The assets were operated by Nagasaki Semiconductor Manufacturing Corporation (“NSM”), a joint venture among Toshiba, Sony Corporation and Sony Computer Entertainment Inc., a wholly-owned subsidiary of Sony Corporation. Subsequent to the acquisition, Sony entered into a three year sale and leaseback transaction regarding certain of the acquired machinery and equipment with its equity interest affiliate, SFI Leasing Company, Limited, and received proceeds of 50,537 million yen based on the amounts recorded at fair value in the acquisition. These transactions are included within other in the investing activities section of the consolidated statements of cash flows.

In connection with the acquisition, Toshiba and Sony terminated their NSM joint venture relationship. Sony also entered into a supply arrangement to manufacture and supply system LSIs to Toshiba for one year following the acquisition.

The following table summarizes the fair values assigned to the assets acquired at the acquisition date.


	Yen in millions
	Acquired assets recorded at fair value
Inventories		4,370
Other current assets		82
Machinery and equipment		51,083
Intangibles		1,223
Other noncurrent assets		693

Total		57,451

As the purchase price was fully allocated to identifiable tangible and intangible assets and no liabilities were assumed, there was no goodwill recorded as part of the acquisition. The unaudited supplemental pro forma results of operations have not been presented because the effect of the acquisition was not material.

(4)

Other acquisitions

During the fiscal year ended March 31, 2010, Sony completed acquisitions for total consideration of 17,616 million yen, of which 1,420 million yen was contingent consideration. The remaining consideration was paid primarily in cash. As a result of the acquisitions, Sony recorded 13,425 million yen of goodwill and 3,708 million yen of intangible assets. A portion of the contingent consideration was subsequently reversed into income during the fiscal year ended March 31, 2012 as it was determined that the operating targets that needed to be achieved for the contingent consideration to be paid would not be met. The reversal of the accrued contingent consideration resulted in income of 896 million yen which was recorded in other operating (income) expense, net in the consolidated statements of income for the fiscal year ended March 31, 2012.

During the fiscal year ended March 31, 2011, Sony completed other acquisitions for total consideration of 2,884 million yen which was paid primarily in cash and there was no material contingent consideration subject to future change. As a result of the acquisitions, Sony recorded 1,415 million yen of goodwill and 1,227 million yen of intangible assets.

During the fiscal year ended March 31, 2012, Sony completed other acquisitions for total consideration of 7,914 million yen which was paid primarily in cash and there was no material contingent consideration subject to future change. As a result of the acquisitions, Sony recorded 5,853 million yen of goodwill and 3,345 million yen of intangible assets.

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No significant amounts have been allocated to in-process research and development and all of the entities described above have been consolidated into Sony’s results of operations since their respective acquisition dates. Pro forma results of operations have not been presented because the effects of Sony Semiconductor and the other acquisitions, individually and in aggregate, were not material.

25.

Divestitures

(1)

HBO Latin America and HBO Central Europe

In March 2010, Sony sold a portion of its investment and certain ancillary rights, which was included in the Pictures segment, in its HBO Latin America venture, which owns and operates certain premium pay television businesses in Latin America, to the venture’s majority shareholder (“Majority Shareholder”). Sony accounted for this sale in accordance with the accounting guidance for transfers and servicing. Prior to this transaction, Sony owned approximately 29% of this venture, which was accounted for under the equity method, and, as a result of this transaction, Sony owned approximately 8% of this venture (the “Retained Interest”), which was accounted for under the cost method.

As consideration for the transaction, Sony received cash proceeds of 19,424 million yen and received a put option valued at 1,371 million yen and the sale resulted in a gain of 18,035 million yen for the fiscal year ended March 31, 2010. In November 2010, Sony notified the Majority Shareholder that Sony intended to exercise the put option. The purchase of the Retained Interest by the Majority Shareholder was completed in March 2011 which resulted in cash proceeds of 5,285 million yen and a gain of 3,329 million yen for the fiscal year ended March 31, 2011.

In January 2010, in a separate transaction, Sony sold its entire investment, which was included in the Pictures segment, in its HBO Central Europe joint venture, which owns and operates a premium pay television business in Central Europe, to an affiliate of the Majority Shareholder. The sale resulted in cash proceeds of 7,660 million yen and a gain of 3,957 million yen for the fiscal year ended March 31, 2010.

The above mentioned transactions and the other transactions which were not material individually and in aggregate were recorded in other operating (income) expense, net due to either the nature of the transaction or in consideration of factors including the relationship to Sony’s core operations.

(2)

Small- and medium-sized TFT LCD business

In March 2012, Sony sold the small- and medium-sized TFT LCD business, which was included in the Professional, Device & Solutions segment, to Japan Display Inc. The sale proceeds are subject to the finalization of certain post-closing conditions and adjustments. In connection with the sale, Sony will transfer legal ownership of a certain subsidiary within the former small- and medium-sized TFT LCD business to Japan Display Inc. during the fiscal year ended March 31, 2013. As of March 31, 2012, this entity is a VIE, although Sony is not the primary beneficiary and therefore does not consolidate the entity after the sale. Refer to Note 23. During the fiscal year ended March 31, 2012, Sony recorded an impairment loss of 19,187 million yen in other operating (income) expense, net in the consolidated statements of income, as the disposal group was classified as held for sale and recorded at the lesser of carrying value or fair value. Following the sale, Sony purchased an equity interest in Japan Display Inc. which Sony accounts for under the cost method.

(3)

S-LCD Corporation

In the fiscal year ended March 31, 2012, Sony sold all of its shares of S-LCD, the LCD panel manufacturing joint venture. Refer to Note 5.

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(4)

Chemical products business

During the fiscal year ended March 31, 2012, Sony entered into a memorandum of understanding with a third-party to sell the chemical products business, which is included in the Professional, Device & Solutions segment. Sony classified certain assets and liabilities related to the business as held for sale as of March 31, 2012, and anticipates completing the divestiture during the fiscal year ending March 31, 2013. No impairment loss was recognized as a result of the held for sale classification. The assets and liabilities held for sale are comprised of 14,756 million yen of current assets including accounts receivable and inventories, 29,182 million yen of goodwill, 19,028 million yen of other noncurrent assets including property, plant and equipment, 17,554 million yen of current liabilities including accounts payable and accrued expenses, and 2,657 million yen of noncurrent liabilities. The current and noncurrent assets and liabilities were reclassified to prepaid expenses and other current assets, other assets, other current liabilities and other liabilities in the consolidated balance sheets.

26.

Collaborative arrangements

Sony’s collaborative arrangements primarily relate to arrangements entered into, through a subsidiary in the Pictures segment, with one or more active participants to jointly finance, produce and/or distribute motion picture or television product under which both the subsidiary and the other active participants share in the risks and rewards of ownership. These arrangements are referred to as co-production and distribution arrangements.

Sony typically records an asset for only the portion of the motion picture or television product it owns and finances. Sony and the other participants typically distribute the product in different media or markets. Revenues earned and expenses incurred for the media or markets in which Sony distributes the product are typically recorded on a gross basis. Sony typically does not record revenues earned and expenses incurred when the other participants distribute the product. Sony and the other participants typically share in the profits from the distribution of the product in all media or markets. For motion picture product, if Sony is a net receiver of (1) Sony’s share of the profits from the media or markets distributed by the other participants less (2) the other participants’ share of the profits from the media or markets distributed by Sony then the net amount is recorded as net sales. If Sony is a net payer then the net amount is recorded in cost of sales. For television product, Sony records its share of the profits from the media or markets distributed by the other participants as sales, and the other participants’ share of the profits from the media or markets distributed by Sony as cost of sales.

For the years ended March 31, 2010, 2011 and 2012, 4,687 million yen, 4,866 million yen and 10,990 million yen, respectively, were recorded as cost of sales for amounts owed to the other participants and 9,936 million yen, 10,244 million yen and 14,625 million yen, respectively, were recorded as net sales for amounts due from the other participants in these collaborative arrangements.

27.

Commitments, contingent liabilities and other

(1)

Commitments:

A.	Loan commitments

Subsidiaries in the Financial Services segment have entered into loan agreements with their customers in accordance with the condition of the contracts. As of March 31, 2012, the total unused portion of the lines of credit extended under these contracts was 20,051 million yen. The aggregate amounts of future year-by-year payments for these loan commitments cannot be determined.

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B. Purchase commitments and other

Purchase commitments and other outstanding at March 31, 2012 amounted to 276,016 million yen. The major components of these commitments are as follows:

In the ordinary course of business, Sony makes commitments for the purchase of property, plant and equipment. As of March 31, 2012, such commitments outstanding were 35,725 million yen.

Certain subsidiaries in the Pictures segment have entered into agreements with creative talent for the development and production of motion pictures and television programming as well as agreements with third parties to acquire completed motion pictures, or certain rights therein, and to acquire the rights to broadcast certain live action sporting events. These agreements cover various periods mainly within 5 years. As of March 31, 2012, these subsidiaries were committed to make payments under such contracts of 117,187 million yen.

Certain subsidiaries in the Music segment have entered into long-term contracts with recording artists and companies for the production and/or distribution of prerecorded music and videos. These contracts cover various periods mainly within 5 years. As of March 31, 2012, these subsidiaries were committed to make payments of 41,853 million yen under such long-term contracts.

The schedule of the aggregate amounts of year-by-year payment of purchase commitments during the next five years and thereafter is as follows:


Fiscal year ending March 31	Yen in millions
2013		141,236
2014		55,209
2015		35,330
2016		23,281
2017		13,310
Later years		7,650

Total		276,016

In addition to the above, Sony has other commitments as follows:

On November 11, 2011, an investor group including Sony (collectively the “Group”) executed a definitive agreement with Citigroup, Inc. (“Citi”) whereby the Group will acquire EMI Music Publishing from Citi for total consideration of 2.2 billion U.S. dollars. The transaction is subject to certain closing conditions, including regulatory approvals. Upon the receipt of all necessary regulatory approvals and the resolution of all other closing conditions, Sony expects to invest approximately 325 million U.S. dollars and own approximately 38% of the newly formed entity that will ultimately acquire EMI Music Publishing from Citi, with an ability to increase the investment and ownership up to 40%.

During the fiscal year ended March 31, 2012, there was a receipt of an advance payment from a commercial customer. As a result, as of March 31, 2012, Sony recorded 15,173 million yen in other current liabilities and 35,404 million yen in other long-term liabilities based on anticipated delivery dates. The advance payment is subject to reimbursement under certain contingent conditions of the contract, including a downgrade of Sony’s credit rating by either S&P (lower than “BBB”) or Moody’s (lower than “Baa2”). The advance payment amounts will be reduced at the time of future product sales to the commercial customer.

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(2)

Contingent liabilities:

Sony had contingent liabilities, including guarantees given in the ordinary course of business, which amounted to 78,743 million yen at March 31, 2012. The major components of these contingent liabilities are as follows:

As discussed in Note 23, Sony has agreed to repay the outstanding principal plus accrued interest up to a maximum of 303 million U.S. dollars to the creditor of the third-party investor of Sony’s U.S. based music publishing subsidiary should the third-party investor default on its obligation. The obligation of the third-party investor is collateralized by its 50% interest in Sony’s music publishing subsidiary. Should Sony have to make a payment under the terms of the guarantee, Sony would assume the creditor’s rights to the underlying collateral. At March 31, 2012, the fair value of the collateral exceeded 303 million U.S. dollars.

In May 2011, Sony Corporation’s U.S. subsidiary, Sony Electronics Inc., received a subpoena from the U.S. Department of Justice (“DOJ”) Antitrust Division seeking information about its secondary batteries business. Sony understands that the DOJ and one agency outside the United States are investigating competition in the secondary batteries market. Based on the current stage of the proceedings, it is not possible to estimate the amount of loss or range of possible loss, if any, that might result from adverse judgments, settlements or other resolution of this matter.

Beginning earlier in 2011, the network services of PlayStation^®Network, Qriocity™, Sony Online Entertainment LLC and websites of other subsidiaries came under cyber-attack. As of May 31, 2012, Sony has not received any confirmed reports of customer identity theft issues or misuse of credit cards from the cyber-attacks. However, in connection with certain of these matters, Sony has received inquiries from authorities in a number of jurisdictions, including orders for reports issued by the Ministry of Economy, Trade and Industry of Japan as well as the Financial Services Agency of Japan, formal and/or informal requests for information from Attorneys General from a number of states in the United States and the U.S. Federal Trade Commission, various U.S. congressional inquiries and others. Additionally, Sony Corporation and/or certain of its subsidiaries have been named in a number of purported class actions in certain jurisdictions, including the United States. Based on the stage of these inquiries and proceedings, it is not possible to estimate the amount of loss or range of possible loss, if any, that might result from adverse judgments, settlements or other resolution of these matters.

In October 2009, Sony Corporation’s U.S. subsidiary, Sony Optiarc America Inc., received a subpoena from the DOJ seeking information about its optical disk drive business. Sony understands that the DOJ and agencies outside the United States are investigating competition in optical disk drives. Subsequently, a number of purported class action lawsuits were filed in certain jurisdictions, including the United States, in which the plaintiffs allege that Sony Corporation and certain of its subsidiaries violated antitrust laws and seek recovery of damages and other remedies. Based on the current stage of these proceedings, it is not possible to estimate the amount of loss or range of possible loss, if any, that might result from adverse judgments, settlements or other resolution of all of these matters.

In addition, Sony Corporation and certain of its subsidiaries are defendants or otherwise involved in other pending legal and regulatory proceedings. However, based upon the information currently available, Sony currently believes that the outcome of such legal and regulatory proceedings would not have a material effect on Sony’s consolidated financial statements.

(3)

Redeemable noncontrolling interest:

As discussed in Note 24, in connection with the GSN transaction, Sony granted a put right to the Current Investor for an additional 18% interest in GSN. The put right is exercisable during three windows starting on April 1 of 2012, 2013 and 2014 and lasting for 60 business days (each such period, a “Trigger Window”). In the event that GSN’s audited financial statements for the most recently completed calendar year are not available on

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April 1, the Trigger Window will commence on the day when the GSN audited financial statements are delivered to the Current Investor. As of May 31, 2012, GSN’s audited financial statements for the year ended December 31, 2011 have not been delivered to the Current Investor. 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 redeemable securities because redemption is outside of Sony’s control and is reported in the mezzanine equity section in the consolidated balance sheets at March 31, 2012.

(4)

Product warranty liabilities:

The changes in product warranty liability for the fiscal years ended March 31, 2010, 2011 and 2012 are as follows:


	Yen in millions
	Fiscal year ended March 31
	2010			2011			2012
Balance at beginning of the fiscal year		57,922			50,856			54,940
Additional liabilities for warranties		46,686			48,610			60,073
Settlements (in cash or in kind)		(45,218	)		(36,537	)		(39,954	)
Changes in estimate for pre-existing warranty reserve		(7,649	)		(4,802	)		(4,397	)
Translation adjustment		(885	)		(3,187	)		(2,802	)

Balance at end of the fiscal year		50,856			54,940			67,860

28.

Business segment information

The reportable segments presented below are the segments of Sony for which separate financial information is available and for which operating profit or loss amounts are evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. The CODM does not evaluate segments using discrete asset information. Sony’s CODM is its Chairman, Chief Executive Officer and President.

Sony realigned its reportable segments from the first quarter of the fiscal year ended March 31, 2012, to reflect modifications to the organizational structure as of April 1, 2011, primarily repositioning the operations of the previously reported Consumer, Professional & Devices (“CPD”) and Networked Products & Services (“NPS”) segments. In connection with this realignment, the operations of the former CPD and NPS segments are included in two newly established segments, namely the Consumer Products & Services (“CPS”) segment and the Professional, Device & Solutions (“PDS”) segment.

The CPS segment includes televisions, home audio and video, digital imaging, personal and mobile products, and the game business. The equity results of S-LCD are also included within the CPS segment. The PDS segment includes professional solutions, semiconductors and components. The Pictures segment is engaged in the development, production and acquisition, manufacture, marketing, distribution and broadcasting of image-based software, including motion picture, home entertainment and television products. The Music segment includes SME, SMEJ and a 50% owned U.S. based joint venture in the music publishing business, Sony/ATV Music Publishing LLC. The Financial Services segment primarily represents individual life insurance and non-life insurance businesses in the Japanese market, a credit financing business and a bank business in Japan. On February 15, 2012, Sony acquired Ericsson’s 50% equity interest in Sony Ericsson, which changed its name to Sony Mobile Communications upon becoming a wholly-owned subsidiary of Sony. Accordingly, the Sony Ericsson segment that had been presented as a separate segment was renamed the Sony Mobile segment in the fourth quarter. The Sony Mobile segment includes Sony’s equity in net income (loss) of Sony Ericsson through

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February 15, 2012 and sales, operating revenue and operating income (loss) from February 16, 2012 through March 31, 2012, as well as a gain of 102,331 million yen recorded on the remeasurement of Sony’s 50% equity interest in Sony Ericsson at fair value upon obtaining control through the acquisition of Ericsson’s 50% equity interest in Sony Ericsson. Refer to Note 24. All Other consists of various operating activities, including a mobile phone OEM business in Japan, So-net Entertainment Corporation, an Internet-related service business subsidiary operating mainly in Japan and the disc manufacturing business. Sony’s products and services are generally unique to a single operating segment. In connection with the realignment, all prior period amounts in the segment disclosures have been restated to conform to the current fiscal year’s presentation.

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Sales and operating revenue:


	Yen in millions
	Fiscal year ended March 31
	2010			2011			2012
Sales and operating revenue:
Consumer Products & Services —
Customers		3,638,137			3,771,610			3,061,214
Intersegment		74,228			78,223			75,543

Total		3,712,365			3,849,833			3,136,757
Professional, Device & Solutions —
Customers		1,080,984			1,066,574			967,603
Intersegment		438,002			436,690			346,168

Total		1,518,986			1,503,264			1,313,771
Pictures —
Customers		705,237			599,654			656,097
Intersegment		—			312			1,624

Total		705,237			599,966			657,721
Music —
Customers		511,097			457,771			430,751
Intersegment		11,519			12,972			12,038

Total		522,616			470,743			442,789
Financial Services —
Customers		838,300			798,495			868,971
Intersegment		13,096			8,031			2,924

Total		851,396			806,526			871,895
Sony Mobile —
Customers		—			—			77,732
Intersegment		—			—			—

Total		—			—			77,732
All Other —
Customers		379,862			377,822			378,071
Intersegment		80,904			70,004			64,598

Total		460,766			447,826			442,669
Corporate and elimination		(557,368	)		(496,885	)		(450,122	)

Consolidated total		7,213,998			7,181,273			6,493,212

CPS intersegment amounts primarily consist of transactions with All Other.

PDS intersegment amounts primarily consist of transactions with the CPS segment.

The Sony Mobile segment includes sales and operating revenue from February 16, 2012 through March 31, 2012.

All Other intersegment amounts primarily consist of transactions with the Pictures segment, the Music segment and the CPS segment.

Corporate and elimination includes certain brand and patent royalty income.

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Segment profit or loss:


	Yen in millions
	Fiscal year ended March 31
	2010			2011			2012
Operating income (loss):
Consumer Products & Services		(101,403	)		10,817			(229,807	)
Professional, Device & Solutions		(35,435	)		27,650			(20,194	)
Pictures		42,814			38,669			34,130
Music		36,513			38,927			36,887
Financial Services		162,492			118,818			131,421
Sony Mobile		(34,514	)		4,155			31,407
All Other		(4,976	)		7,116			(3,546	)

Total		65,491			246,152			(19,702	)
Corporate and elimination		(33,719	)		(46,331	)		(47,573	)

Consolidated operating income (loss)		31,772			199,821			(67,275	)
Other income		43,834			44,966			23,478
Other expenses		(48,694	)		(39,774	)		(39,389	)

Consolidated income (loss) before income taxes		26,912			205,013			(83,186	)

Operating income (loss) is Sales and operating revenue less Costs and expenses, and includes Equity in net income (loss) of affiliated companies.

The Sony Mobile segment includes Sony’s equity in net loss for Sony Ericsson of 57,680 million yen through February 15, 2012 and the operating income (loss) from February 16, 2012 through March 31, 2012, as well as a gain of 102,331 million yen recorded on the remeasurement of Sony’s 50% equity interest in Sony Ericsson at fair value upon obtaining control through the acquisition of Ericsson’s 50% equity interest in Sony Ericsson.

Corporate and elimination includes headquarters restructuring costs and certain other corporate expenses, including the amortization of certain intellectual property assets such as the cross-licensing intangible assets acquired from Ericsson at the time of the Sony Mobile acquisition, which are not allocated to segments.

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Other significant items:


	Yen in millions
	Fiscal year ended March 31
	2010			2011			2012
Equity in net income (loss) of affiliated companies:
Consumer Products & Services		387			7,214			(64,078	)
Professional, Device & Solutions		(1,034	)		(130	)		(198	)
Pictures		4,347			2,483			(516	)
Music		(80	)		(265	)		(372	)
Financial Services		(1,345	)		(1,961	)		(1,252	)
Sony Mobile		(34,514	)		4,155			(57,680	)
All Other		2,004			2,566			2,399

Consolidated total		(30,235	)		14,062			(121,697	)

Depreciation and amortization:
Consumer Products & Services		100,710			68,579			69,717
Professional, Device & Solutions		142,411			122,057			124,956
Pictures		8,427			7,996			10,825
Music		13,427			12,166			10,789
Financial Services, including deferred insurance acquisition costs		56,531			62,077			56,322
Sony Mobile		—			—			869
All Other		22,452			20,805			16,656

Total		343,958			293,680			290,134
Corporate		27,046			31,686			29,460

Consolidated total		371,004			325,366			319,594

The Sony Mobile segment includes Sony’s equity in net income (loss) in Sony Ericsson through February 15, 2012 and the equity in net income (loss) of Sony Mobile from February 16, 2012 through March 31, 2012.

The Sony Mobile segment includes the depreciation and amortization from February 16, 2012 through March 31, 2012.

F-98

SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

The following table includes a breakdown of sales and operating revenue to external customers by product category in the CPS and PDS segments. The CPS and PDS segments are each managed as a single operating segment by Sony’s management.


	Yen in millions
	Fiscal year ended March 31
	2010		2011		2012
Sales and operating revenue:
Consumer Products & Services
Televisions		1,005,773		1,200,491		840,359
Home Audio and Video		302,678		285,297		241,885
Digital Imaging		664,502		642,570		497,957
Personal and Mobile Products		809,369		828,375		722,301
Game		840,711		798,405		744,285
Other		15,104		16,472		14,427

Total		3,638,137		3,771,610		3,061,214
Professional, Device & Solutions
Professional Solutions		295,360		287,394		280,645
Semiconductors		299,715		358,396		375,891
Components		476,097		410,090		297,108
Other		9,812		10,694		13,959

Total		1,080,984		1,066,574		967,603
Pictures		705,237		599,654		656,097
Music		511,097		457,771		430,751
Financial Services		838,300		798,495		868,971
Sony Mobile		—		—		77,732
All Other		379,862		377,822		378,071
Corporate		60,381		109,347		52,773

Consolidated total		7,213,998		7,181,273		6,493,212

The Sony Mobile segment includes sales and operating revenue from February 16, 2012 through March 31, 2012.

F-99

SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES

Geographic Information:

Sales and operating revenue attributed to countries based on location of external customers for the fiscal years ended March 31, 2010, 2011 and 2012 and property, plant and equipment, net as of March 31, 2011 and 2012 are as follows:


	Yen in millions
	Fiscal year ended March 31
	2010		2011		2012
Sales and operating revenue:
Japan		2,099,297		2,152,552		2,104,669
United States		1,595,016		1,443,693		1,211,849
Europe		1,644,698		1,539,432		1,268,258
China		485,512		562,048		495,101
Asia-Pacific		708,061		726,364		636,489
Other Areas		681,414		757,184		776,846

Total		7,213,998		7,181,273		6,493,212


	Yen in millions
	March 31
	2011		2012
Property, plant and equipment, net:
Japan		684,031		699,647
United States		95,157		82,914
Europe		39,602		55,192
China		39,936		39,388
Asia-Pacific		46,894		37,060
Other Areas		19,248		16,797

Total		924,868		930,998

Geographic information for the fiscal years ended March 31, 2010 and 2011 in the tables above has been restated to reflect the change in geographic classification.

Major areas in each geographic segment excluding Japan, United States and China are as follows:


(1) Europe:		United Kingdom, France, Germany, Russia, Spain and Sweden
(2) Asia-Pacific:		India, South Korea and Oceania
(3) Other Areas:		The Middle East/Africa, Brazil, Mexico and Canada

There are not any individually material countries with respect to the sales and operating revenue and property, plant and equipment, net included in Europe, Asia-Pacific and Other Areas.

Transfers between reportable business segments or geographic areas are made at amounts which Sony’s management believes approximate as arms-length transactions.

There were no sales and operating revenue with any single major external customer for the fiscal years ended March 31, 2010, 2011 and 2012.

F-100

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES


	Yen in millions
	Balance at beginning of period		Additions charged to costs and expenses		Deductions (Note 1)			Other (Note 2)			Balance at end of period
Fiscal year ended March 31, 2010:
Allowance for doubtful accounts and sales returns		110,383		59,987		(61,577	)		(4,318	)		104,475

Fiscal year ended March 31, 2011:
Allowance for doubtful accounts and sales returns		104,475		50,345		(55,106	)		(9,183	)		90,531

Fiscal year ended March 31, 2012:
Allowance for doubtful accounts and sales returns		90,531		33,441		(49,509	)		(3,454	)		71,009

Notes:

1.	Reversal including amounts written off.

2.	Translation adjustment.


	Balance at beginning of period (Note 1)		Additions (Note 2)		Deductions			Other (Note 3)			Balance at end of period (Note 1)
Fiscal year ended March 31, 2010:
Valuation allowance — Deferred tax assets		120,512		48,372		(40,210	)		(2,421	)		126,253

Fiscal year ended March 31, 2011:
Valuation allowance — Deferred tax assets		126,253		381,837		(28,736	)		(5,641	)		473,713

Fiscal year ended March 31, 2012:
Valuation allowance — Deferred tax assets		473,713		469,788		(22,904	)		(52,364	)		868,233

Note:

As discussed in Note 21 of the consolidated financial statements, the presentation of deferred income taxes in the consolidated balance sheets have been revised to conform with the presentation as of March 31, 2012, which impacted the presentation of the valuation allowance for the previous fiscal years.

2.	Including a valuation allowance against deferred tax assets which Sony Ericsson had prior to its acquisition during the fiscal year ended March 31, 2012. Refer to Note 21 of the consolidated financial statements.

3.	Translation adjustment and the effect of changes in statutory tax rate.

F-101

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SONY MOBILE COMMUNICATIONS

Consolidated Financial Statements of Sony Mobile Communications AB

A-1

[THIS PAGE IS INTENTIONALLY LEFT BLANK]

A-2

SONY MOBILE COMMUNICATIONS

Table of contents


Consolidated Income Statements			A-4
Consolidated Balance Sheets			A-5
Consolidated Cash Flow			A-6
Notes to the Consolidated Financial Statements			A-7

A-3

SONY MOBILE COMMUNICATIONS

Consolidated Income Statements

January 1 - December 31, TEUR


	Notes	2011			2010			2009
Net sales	C2		5,212,295			6,293,782			6,788,152

Cost of sales			(3,734,983	)		(4,440,285	)		(5,781,797	)


GROSS PROFIT			1,477,312			1,853,497			1,006,355

Selling expenses			(510,761	)		(479,150	)		(583,412	)
General and Administration expenses	C24		(389,211	)		(413,474	)		(442,543	)
Research and Development expenses			(815,014	)		(839,570	)		(1,045,784	)
Other operating revenues	C3		31,781			38,181			48,053
Other operating expenses	C3		(135	)		—			(523	)


OPERATING PROFIT (LOSS)	C6,C7,C15 C16,C22,C23		(206,028	)		159,484			(1,017,854	)
Interest income and similiar profit items	C4		18,990			17,798			21,324
Interest expense and similiar loss items	C4		(55,854	)		(29,981	)		(46,146	)


NET PROFIT (LOSS) BEFORE TAXES			(242,892	)		147,301			(1,042,676	)

Income taxes for the year	C5		18,859			(48,326	)		235,569

Minority interest			(23,127	)		(8,508	)		(28,720	)

NET PROFIT (LOSS) FOR THE YEAR			(247,160	)		90,468			(835,827	)

A-4

SONY MOBILE COMMUNICATIONS

Consolidated Balance Sheets

December 31, TEUR


	Notes	2011			2010
*ASSETS*
Non-current assets
Intangible assets	C6		75,495			12,211
Tangible assets	C7		157,306			135,334
Financial assets	C8		889,201			655,868
Total non-current assets			1,122,002			803,413
Current assets
Inventories	C9		446,732			460,357
Accounts receivable	C10		691,862			835,949
Other current assets	C11		379,999			295,046
Other short-term cash investments	C12		270,443			276,168
Cash and bank			171,600			328,516
Total current assets			1,960,636			2,196,036
Total assets			3,082,638			2,999,449
*SHAREHOLDERS’ EQUITY AND LIABILITIES*
Shareholders’ equity	C13
Restricted equity
Share capital			100,000			100,000
Restricted reserves			479,752			467,998
Total restricted equity			579,752			567,998
Unrestricted equity
Non-restricted reserves			(23,282	)		(126,741	)
Net profit (loss) for the year			(247,160	)		90,468
Total unrestricted equity			(270,442	)		(36,273	)
Total equity			309,310			531,725
Minority interest			58,098			42,286

Provisions
Post-employment benefits	C16		35,699			24,466
Other provisions	C14		449,358			391,370
Total provisions			485,057			415,836
*LIABILITIES*
Long-term liabilities
Liabilities to financial institutions	C17,C26		—			100,000
Other long-term liabilities	C17		8,649			7,838
Total long-term liabilities			8,649			107,838
Current liabilities
Liabilities to financial institutions	C26		745,427			133,081
Advances from customers			7,419			2,668
Accounts payable			675,336			768,747
Income tax liabilities			36,830			51,751
Other current liabilities	C18		756,512			945,517
Total current liabilities			2,221,524			1,901,764
Total shareholders’ equity and liabilities			3,082,638			2,999,449
Assets pledged as collateral	C19		160			27
Contingent liabilities	C20		8,383			3,603

A-5

SONY MOBILE COMMUNICATIONS

Consolidated Cash Flow

January 1 - December 31, TEUR


	Notes	2011			2010			2009
OPERATING ACTIVITIES
Net profit (loss) for the year			(247,160	)		90,468			(835,827	)
Depreciation			71,725			76,452			105,760
Adjustment to reconcile net income to cash	C21		(130,896	)		(231,527	)		(217,828	)
			(306,331	)		(64,607	)		(947,895	)
Change in inventories			7,790			(75,724	)		171,563
Change in accounts receivable			141,757			56,990			812,827
Change in other receivables			(79,209	)		98,095			226,105
Change in accounts payable			(103,761	)		(142,732	)		(133,490	)
Change in other liabilities			(197,906	)		(119,227	)		(456,846	)
Cash flow from operating activities			(537,660	)		(247,205	)		(327,736	)
INVESTING ACTIVITIES
Investments in intangible assets			(45,416	)		(4,685	)		(4,247	)
Sales of intangible assets			130			144			164
Investments in tangible assets			(81,610	)		(57,059	)		(54,379	)
Sales of tangible assets			2,180			22,142			6,975
Change in temporary investments			—			35,000			(35,000	)
Cash flow from investing activities			(124,716	)		(4,458	)		(86,487	)
FINANCING ACTIVITIES
Borrowing			1,457,674			560,463			260,428
Repayment of debt			(953,334	)		(597,683	)		(53,919	)
Dividend to minority			(8,442	)		(22,693	)		(35,603	)
Cash flow from financing activities			495,898			(59,913	)		170,906
Net change in cash			(166,478	)		(311,576	)		(243,317	)
Cash, beginning of period			604,684			878,119			1,124,877
Translation difference in Cash			3,838			38,141			(3,441	)
Cash, end of period			442,044			604,684			878,119

A-6

SONY MOBILE COMMUNICATIONS

Notes to the Consolidated Financial Statements


Contents
C1.	Accounting Principles	A-8
C2.	Net sales by market area	A-12
C3.	Other operating revenues and other operating expenses	A-13
C4.	Financial income and expenses	A-13
C5.	Taxes	A-13
C6.	Intangible assets	A-15
C7.	Tangible assets	A-16
C8.	Financial assets	A-17
C9.	Inventory	A-17
C10.	Accounts receivable	A-17
C11.	Other current assets	A-17
C12.	Short term cash investments	A-17
C13.	Shareholders’ equity	A-18
C14.	Provisions	A-18
C15.	Restructuring costs	A-19
C16.	Post-employment benefits	A-19
C17.	Long-term liabilities	A-20
C18.	Other current liabilities	A-20
C19.	Assets pledged as collateral	A-21
C20.	Contingent liabilities	A-21
C21.	Adjustments to reconcile net income to cash	A-21
C22.	Leasing	A-21
C23.	Wages, salaries and social security expenses	A-22
C24.	Fees to auditors	A-23
C25.	Financial risks	A-23
C26.	Liabilities to financial institutions	A-24
C27.	Group companies	A-25
C28.	Post-closing events	A-25
C29.	Reconciliation to accounting principles generally accepted in the United States	A-25

A-7

SONY MOBILE COMMUNICATIONS

C1. Accounting Principles

The consolidated financial statements of Sony Mobile Communications AB and its subsidiaries are prepared in accordance with accounting principles generally accepted in Sweden, applying the Swedish Annual Accounts Act (ÅRL), the Swedish Accounting Standards Board’s recommendations (Bokföringsnämnden, BFN) and the Recommendation of the Swedish Financial Accounting Standards Council, RR 29 Remunerations to employees. The accounting principles are unchanged since last year. Figures in parentheses in the disclosures refer to 2010.

During 2011 Sony Mobile Communications was a joint venture between Sony Corporation (“Sony”) and Telefonaktiebolaget LM Ericsson (“Ericsson”). In October 2011, Sony agreed with Ericsson to acquire Ericsson’s 50 percent equity interest in Sony Mobile Communications, making the joint venture a wholly-owned subsidiary of Sony. The equity transaction was completed in February 2012 and the company’s name was changed from Sony Ericsson Mobile Communications AB to Sony Mobile Communications AB.

Principle of Consolidation

The consolidated financial statements include the accounts of the Parent Company and all subsidiaries in which the company has a voting majority. The intercompany transactions and internal profit have been eliminated. The consolidated financial statements have been prepared in accordance with the purchase method, whereby consolidated stockholders’ equity includes equity earned only after acquisition. Minority interest in net earnings is reported in the consolidated income statement. Minority interest in the equity of subsidiaries is reported as a separate item in the consolidated balance sheet.

Translation of financial statements in foreign currency

Sony Mobile Communications’ results are presented in EUR which is the reporting currency and the functional currency of the parent company. The group has sales and cost of sales in a large number of currencies. For all companies, including subsidiary companies, the functional (business) currency is the currency in which the companies primarily generate and expend cash. Their financial statements plus goodwill related to such companies are translated to EUR by translating assets and liabilities at the closing rate on the balance sheet day and income statement items at average exchange rates, during the year, with translation adjustments reported directly in consolidated equity.

Revenue recognition

Sales revenue is recorded upon the delivery of products according to contractual terms and represents amounts realized, excluding value-added tax, and is net of goods expected to be returned, trade discounts and allowances. Sales revenue is recognized with reference to all significant contractual terms when the product has been delivered, when the revenue amount is fixed or determinable and when collection is reasonably assured.

Accruals for sales bonuses and similar items such as quarterly and yearly bonuses, quality bonus, co-op advertising and stock protection are shown as deductions from gross sales to arrive at net sales.

For product and equipment sales, revenue recognition generally does not occur until the products or equipment have been shipped, risk of loss has transferred to the customer, and objective evidence exists that customer acceptance provisions, if any, have been met. The Company records revenue when allowances for discounts, price protection, returns and customer incentives can be reliably estimated. Recorded revenues are reduced by these allowances. The Company bases its estimates on historical experience taking into consideration the type of products sold, the type of customer, and the type of transaction specific in each arrangement.

Costs related to shipping and handlings are included in cost of sales in the Consolidated Income Statement.

A-8

SONY MOBILE COMMUNICATIONS

Research and development costs

Research and development costs are charged to expenses as incurred. Expenses related to the third party development of new platforms for mobile phones are capitalized as other non-current asset and are amortized when the platforms are put into commercial use. Such costs are capitalized as intangible assets when technological feasibility has been established and when future economic benefits can be demonstrated.

Hedge accounting

The Group applies hedge accounting, by electing the fair value option in accordance with the Swedish Annual Accounts Act 4:14, for financial instruments intended to hedge foreign currency exposures having a future impact on results.

At the point in time at which the contract is established, the relationship between the hedging instrument and the hedged item is documented, as well as the purpose of this risk management and the strategy for taking various hedging measures. The company also documents its assessment, both when the contract is entered into and on an ongoing basis, as to whether the derivative used in the hedging transaction is effective in counteracting changes in fair value or income statement effects, in terms of the hedged items in question.

The hedging is designed in such a manner as to ensure, to the greatest degree possible, its effectiveness. The changes in fair value for those derivative instruments which do not meet the conditions for hedge accounting are reported directly in the income statement.

Future foreign currency exposures are hedged primarily by forward cover agreements but also via currency options. The effective portion of changes in the fair value of hedging instruments is recognized in equity. Any gain or loss relating to the ineffective portion is recognized in the income statement. Amounts accumulated in equity are recycled in the income statement in the periods in which the hedged item affects profit or loss, for example, when the forecasted sale which is hedged takes place.

Intangible and tangible fixed assets

Intangible and tangible fixed assets are stated at cost less accumulated depreciation and impairment losses as well as write-ups. Annual depreciation is reported as plan depreciation, generally using the straight line method with estimated useful lives ranging from 3 years up to 10 years for machineries and equipments. Intangible assets are amortized over a period ranging from 3 years up to 5 years or based on the contract’s economic reality. Land improvements are amortized over 20 years. The costs of computer software developed or obtained for internal use are capitalized as intangible assets when technological feasibility has been established and when future economic benefits can be demonstrated.

Tooling

Tooling owned by Sony Mobile Communications but used in its manufacturing partners operations is capitalized and amortized over the useful life of the tools.

Financial assets

Financial assets that are intended for long-term holding are accounted at acquisition value and impairment is made if a permanent decrease in the value can be stated. These assets include strategic long-term investments in private companies over which Sony Mobile Communications does not have the ability to exercise significant influence.

A-9

SONY MOBILE COMMUNICATIONS

Impairment test of assets

Impairment tests are performed on a regular basis whenever there is an indication of possible impairment. An impairment loss is determined based on the amount by which the carrying value exceeds the fair value of those assets.

Leases

Leases on terms in which Sony Mobile Communications assumes substantially all the risks and rewards of ownership are classified as finance leases, i.e. the leased object is recognized as a non-current asset and the future obligations for lease payments are recognized as current and non-current liabilities in the Balance Sheet. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset, although the depreciation period would not exceed the lease term.

Leasing agreements which are not classified as financial leases are classified as operational leases, and the leased assets under such contracts are not recognized in the balance sheet. Costs under operating leases are recognized in the Income Statement on a straight-line base over the term of the lease. Lease incentives received are recognized as an integral part of the total lease expense, over the term of the lease. Sony Mobile Communications has not identified any material financial leases for the reported periods.

Income tax

Reported income tax includes tax, which is to be paid or received, regarding the current year, adjustments concerning the previous years’ current taxes and changes in deferred taxes.

All income tax liabilities and receivables are valued at their nominal amount according to the tax regulations and are measured at the tax rate that is expected to be applied to the temporary differences when they are reversed, based on the tax laws that have been enacted or substantively enacted by the reporting date. An adjustment of deferred tax asset/liability balances due to a change in the tax rate is recognized in the income statement unless it relates to a temporary difference earlier recognized directly in equity, in which case the adjustment is also recognized in equity.

In the case of items reported in the income statement, the related tax effects are also reported in the income statement. The tax effects of items that are accounted for directly against equity are also reported directly against equity.

Deferred tax is calculated according to the balance sheet method on all temporary differences arising between the reported value and the tax value of the assets and liabilities.

Deferred tax assets are recognized to the extent that is likely that future taxable profit will be available, against which the temporary difference can be utilized.

Receivables

Receivables with maturities greater than 12 months after balance sheet date are reported as fixed assets, and other receivables as current assets. Receivables are reported in the amounts at which they are expected to be received, on the basis of individual assessment.

Accounts Receivable

Accounts receivable are reported as current assets in the amounts at which they are expected to be received net of individual bad debt assessment.

A-10

SONY MOBILE COMMUNICATIONS

Inventories

Inventories, which include the cost of materials, labor and overheads, are measured at the lower of cost or net realizable value on a first-in, first-out (FIFO) basis. Risk of obsolescence has been measured by estimating market value based on future customer demand and customer acceptance of new products.

Borrowings

Borrowings are reported initially at fair value, net of transaction costs incurred. If the reported amount differs from the amount to be repaid at maturity date, then the difference is allocated as interest expense or interest income over the tenor of the loan. In this manner, the initial amount reported agrees, at maturity date, with the amount to be repaid.

Financial liabilities first cease to be reported when they have been settled on the basis of repayment or when repayment has been waived.

All transactions are reported on settlement date.

Provisions

Provisions are made when there are legal or constructive obligations as a result of past events and when it is probable that an outflow of resources will be required to settle the obligations and the amounts can be reliably estimated. However, the actual outflow as a result of the obligation may differ from such estimate.

Warranty provisions include provisions for faulty products based on estimated return rates and costs. The best estimate is based on sales, contractual warranty periods and historical failure data of products sold.

Post-employment benefits

The Group has both defined benefit and defined contribution plans.

A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions. The contributions are recognized as employee benefit expenses when they are due.

A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee or former employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The Group is responsible for the fulfillment of the pension obligation.

The schemes are both funded and unfunded.

The liability or receivable recognized in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets, unrecognized actuarial gains and losses and unrecognized past service cost.

Independent actuaries using the Projected Unit Credit Method calculate the defined benefit obligations and expenses annually. This method indicates that past-service costs are amortized on a straight-line basis over the vesting period. The present value of the defined benefit obligation is determined by discontinuing the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability.

Actuarial gains and losses, arising from experience adjustments and changes in actuarial assumptions, to the extent theses exceed 10% of the pension obligations’ present value or the fair value of plan assets are charged or credited to income over the employees’ expected average remaining period of service.

A-11

SONY MOBILE COMMUNICATIONS

The principle described above for defined benefit plans is applied in the consolidated financial statements. The Parent Company has pension commitments in Sweden for white collar workers secured through an insurance solution with the insurance company Alecta. According to a statement issued by the Swedish Financial Reporting Board (UFR 3), this constitutes a multi-employer plan and should be accounted for as a defined benefit plan, as prescribed in RR 29 and UFR 6. Alecta cannot, however, provide the information required for the accounting of a defined benefit plan, as described in UFR 6. The Alecta plan is therefore accounted for as a defined contribution plan as prescribed in UFR6.

Contingent liabilities

The Group records a Contingent liability when there is a possible obligation arising from past events, and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity. Contingent liabilities are also reported when there is a present obligation arising from past events but are not recognized, as it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation, or when the amount of the obligation cannot be measured with sufficient reliability.

Statement of Cash Flow

Foreign subsidiaries’ transactions are translated at the average exchange rate of the period. Subsidiaries purchased and/or sold, net of cash acquired/sold, are reported as cash flow from investment activities and do not affect reported cash flow from operations. Cash and cash equivalents consist of cash and bank and short term cash investments with a maturity less than three months. Bank deposits with an initial maturity over three months are not included in cash and cash equivalents. The statement of Cash Flow for 2009, 2010 and 2011 complies with International Accounting Standards (IAS) No. 7.

Related party transactions

Transactions and balances related to Sony and Ericsson are classified as external items.

Disposition of earnings

Each year the Board of Directors assesses the parent company and the group’s results and financial position in order to determine the appropriate disposition of earnings. This disposition, including any payment of dividends, is based on a number of factors including: the latest profit and loss account, the parent company’s equity, the parent company’s and the group’s cash flows, the equity ratio and liquidity of the parent company and the group after the proposed dividend in relation to the industry standards in which the parent company and the group conducts its business, and both the parent company’s and the group’s ability to fulfill both their short and long-term obligations. The Board of Directors resolved that the accumulated deficit, EUR -327,246,174, whereof net loss for the year EUR -215,631,869, will be carried forward.

C2. Net sales by market area


	2011		2010		2009
Europe, Middle East & Africa		1,970,358		3,218,638		3,744,278
Americas		664,495		851,203		849,577
Asia Pacific		2,577,442		2,223,941		2,194,297

Total		5,212,295		6,293,782		6,788,152

A-12

SONY MOBILE COMMUNICATIONS

C3. Other operating revenues and other operating expenses


	2011			2010		2009
Other operating revenues
Gains on sales of intangible and tangible assets		231			4,731		146
Commissions, license fees and other operating		31,550			33,450		47,907

Total other operating revenues		31,781			38,181		48,053
Other operating expenses
Losses on sales of intangible and tangible assets		(135	)		—		(523	)

Total other operating expenses		(135	)		—		(523	)

C4. Financial income and expenses


	2011			2010			2009
Interest income and similar profit items
Interest income external		14,631			13,498			16,909
Foreign exchange gains		3,193			1,824			2,363
Other financial income		1,166			2,477			2,052

Total		18,990			17,798			21,324
Interest expense and similar loss items
Interest expenses external		(45,568	)		(25,820	)		(36,264	)
Foreign exchange losses		(7,065	)		(1,935	)		(2,954	)
Other financial expenses		(3,221	)		(2,226	)		(6,929	)

Total		(55,854	)		(29,981	)		(46,146	)
Financial Net		(36,864	)		(12,183	)		(24,822	)

C5. Taxes

Income statement

The following items are included in income taxes for the year:


	2011			2010			2009
Current income taxes for the period		(205,993	)		(79,657	)		(32,075	)
Deferred tax income/ (-expense) related to temporary differences and tax loss carry forwards		224,852			31,331			267,645

Income taxes for the period		18,859			(48,326	)		235,569

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A reconciliation between actual tax income (-expense) for the year and the theoretical tax income (-expense) that would arise when applying statutory tax rate in Sweden, 26.3% on income before taxes is shown in the table:


	2011			2010			2009
Income before taxes		(242,892	)		147,301			(1,042,676	)
Tax rate in Sweden, 26.3%		63,881			(38,740	)		273,653
Effect of foreign tax rates		(14,517	)		(10,974	)		(8,938	)
Current income taxes related to prior years		(16,221	)		(79	)		(7,640	)
Tax effect of expenses that are non deductible for tax purpose		(19,884	)		(12,336	)		(16,942	)
Tax effect of income that are non-taxable for tax purpose		7,830			13,024			3,619
Tax effect of changes in tax rates		(2,230	)		779			(7,923	)
Change in valuation allowance		—			—			(260	)

Income taxes for the year		18,859			(48,326	)		235,569

Balance sheet

Tax effect of temporary differences, including tax loss carry forward, has resulted in deferred tax assets as follows:


	2011		2010
Deferred tax assets		853,276		628,687

Deferred tax assets relate to temporary differences due to certain provisions such as warranty and scrap liabilities and tax losses carry forwards. Deferred tax assets are amounts recognized in countries where we expect to be able to generate corresponding taxable income in the future to benefit from tax reductions.

TEUR 694,376 (TEUR 460,650) of the deferred tax assets refers to tax loss carry-forwards and has been tested against future earning capacity. The deferred tax asset is valued at the full amount, given that the company believes that there are strong indications that future taxable profits will be available. These indicators include the future business plan and expected effects from the change in ownership. The value of the future taxable profits may differ with regard to future business environment and earnings capacity or changes in tax law.

The vast majority of the tax loss carry-forwards are related to countries with long or indefinite periods of utilization, mainly Sweden where there is no limitation in time regarding tax loss carry forward.

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C6. Intangible assets


2011	Licenses, software trademarks and similar rights			Patents			Total
Accumulated acquisition costs
Opening balance January 1		111,244			3,978			115,222
Acquisitions		45,416			—			45,416
Sales/disposals		(14,668	)		—			(14,668	)
Translation difference for the year		3,287			—			3,287
Reclassification from other non current assets		24,480			—			24,480

Closing balance December 31		169,759			3,978			173,737

Accumulated depreciation
Opening balance January 1		(99,033	)		(3,978	)		(103,011	)
Depreciation		(6,705	)		—			(6,705	)
Sales/disposals		14,538			—			14,538
Translation difference for the year		(3,064	)		—			(3,064	)

Closing balance December 31		(94,264	)		(3,978	)		(98,242	)
Net carrying value		75,495			—			75,495


2010	Licenses, software trademarks and similar rights			Patents			Total
Accumulated acquisition costs
Opening balance January 1		130,979			3,978			134,957
Acquisitions		4,685			—			4,685
Sales/disposals		(32,866	)		—			(32,866	)
Translation difference for the year		8,446			—			8,446

Closing balance December 31		111,244			3,978			115,222

Accumulated depreciation
Opening balance January 1		(114,372	)		(3,978	)		(118,350	)
Depreciation		(10,248	)		—			(10,248	)
Sales/disposals		32,722			—			32,722
Translation difference for the year		(7,135	)		—			(7,135	)

Closing balance December 31		(99,033	)		(3,978	)		(103,011	)
Net carrying value		12,211			—			12,211

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C7. Tangible assets


2011	Land and buildings			Machinery			Other equipment			Total
Accumulated acquisition costs
Opening balance January 1		57,425			143,980			432,209			633,614
Acquisitions		5,767			26,898			48,945			81,610
Sales/disposals		(150	)		(8,750	)		(24,639	)		(33,539	)
Translation difference for the year		3,571			10,191			21,812			35,573

Closing balance December 31		66,613			172,319			478,327			717,258

Accumulated depreciation
Opening balance January 1		(17,952	)		(96,480	)		(364,704	)		(479,136	)
Depreciation		(7,154	)		(18,632	)		(39,234	)		(65,020	)
Sales/disposals		138			8,239			22,725			31,102
Translation difference for the year		(1,570	)		(6,438	)		(19,425	)		(27,433	)

Closing balance December 31		(26,538	)		(113,311	)		(400,638	)		(540,487	)

Accumulated revaluations
Opening balance January 1		(11,051	)		(4,752	)		(3,342	)		(19,145	)
Write down		—			(24	)		(94	)		(118	)
Sales/disposal		—			353			—			353
Translation difference for the year		(154	)		(402	)		—			(556	)

Closing balance December 31		(11,205	)		(4,825	)		(3,436	)		(19,465	)
Net carrying value		28,870			54,183			74,253			157,306


2010	Land and buildings			Machinery			Other equipment			Total
Accumulated acquisition costs
Opening balance January 1		53,911			149,756			399,631			603,298
Acquisitions		7,045			11,816			38,198			57,059
Sales/disposals		(8,392	)		(29,530	)		(54,555	)		(92,477	)
Translation difference for the year		4,861			11,938			48,935			65,734

Closing balance December 31		57,425			143,980			432,209			633,614

Accumulated depreciation
Opening balance January 1		(14,290	)		(94,395	)		(322,829	)		(431,514	)
Depreciation		(6,977	)		(18,696	)		(40,531	)		(66,204	)
Sales/disposals		4,690			25,518			40,926			71,134
Translation difference for the year		(1,374	)		(8,906	)		(42,270	)		(52,550	)

Closing balance December 31		(17,952	)		(96,480	)		(364,704	)		(479,136	)

Accumulated revaluations
Opening balance January 1		(10,139	)		(8,846	)		(3,124	)		(22,109	)
Write down		—			(2,180	)		(399	)		(2,578	)
Sales/disposal		—			3,742			191			3,933
Translation difference for the year		(912	)		2,532			(10	)		1,609

Closing balance December 31		(11,051	)		(4,752	)		(3,342	)		(19,145	)
Net carrying value		28,423			42,748			64,163			135,334

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C8. Financial assets


	2011		2010
Deferred tax assets		853,276		628,687
Other non-current assets		35,925		27,181

Total		889,201		655,868

The main part of other non-current assets is a non-current tax receivable. Previous year the main part of other non-current assets was prepaid licenses. The prepaid licenses have been reclassified as intangible assets.

C9. Inventory


	2011		2010
Raw material and manufacturing work in process		267,758		230,610
Finished products and goods for resale		178,974		229,747

Inventories, net		446,732		460,357

Reported amounts are net of obsolescence reserves by TEUR 81,646 (TEUR 64,219).

C10. Accounts receivable


	2011			2010
Commercial receivables		702,628			857,245
Provision for doubtful debts		(10,766	)		(21,296	)

Total		691,862			835,949

Provisions for doubtful debts have been estimated based on commercial risk evaluations and existing credit insurance agreements have been considered.

C11. Other current assets


	2011		2010
Prepaid expenses		34,025		54,323
Current tax assets		35,520		44,579
Prepaid tooling		12,363		5,675
VAT receivables		76,194		72,042
Other receivables		221,897		118,427

Total		379,999		295,046

C12. Short term cash investments


	2011		2010
Net book value		270,443		276,168
Market value		270,443		276,168

Short term cash investments are held in money-market funds.

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C13. Shareholders’ equity


	Share capital		Restricted reserves		Non- restricted reserves and net profit/loss for the year			Total shareholders’ equity
Shareholder’s equity December 31, 2009		100,000		442,576		(161,536	)		381,040
Changes in cumulative translation adjustments		—		25,266		26,514			51,780
Fair value reserve		—		—		8,437			8,437
Transfer between non-restricted and restricted reserves		—		156		(156	)		—
Net income for the year		—		—		90,468			90,468

Shareholder’s equity December 31, 2010		100,000		467,998		(36,273	)		531,725
Changes in cumulative translation adjustments		—		11,737		6,386			18,123
Fair value reserve		—		—		6,622			6,622
Transfer between non-restricted and restricted reserves		—		17		(17	)		—
Net income for the year		—		—		(247,160	)		(247,160	)

Shareholder's equity December 31, 2011		100,000		479,752		(270,442	)		309,310

Share capital consists of 100,000,200 shares at a quota value of EUR 1 per share.

Cumulative translation adjustments have been distributed among unrestricted and restricted stockholder’s equity.

The fair value reserve is related to the effective portion of changes in the fair value of hedging instruments that is recognized in equity. Amounts accumulated in equity are recycled in the income statement in the periods in which the hedged item affects profit or loss, for example, when the forecasted sale which is hedged takes place. The closing balance for fair value reserve after taxes is TEUR 19,025 (TEUR 12,403) and is part of non-restricted reserves.

The transfer between non-restricted and restricted reserves is in accordance with the proposals of the respective companies’ boards of directors. In evaluating the consolidated financial position, it should be noted that earnings in foreign companies may be subject to taxation when transferred to Sweden and, in some instances, such transfer of earnings may be limited by currency restrictions.

C14. Provisions


	2011		2010
Warranty commitments		150,891		268,206
Restructuring expenses		115,489		70,957
Other provisions		182,978		52,207

Total		449,358		391,370

Warranty commitments include provisions for faulty products based on estimated return rates and costs. The best estimate is based on sales, contractual warranty periods and historical failure data of products sold.

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C15. Restructuring costs


	2011			2010			2009
Cost of sales		—			(31,842	)		(39,285	)
Selling expenses		(16,478	)		(3,025	)		(16,198	)
Administration expenses		(20,966	)		(13,761	)		(24,890	)
Research and development expenses		(55,376	)		6,542			(83,903	)

Total		(92,820	)		(42,086	)		(164,276	)
where of;
Write down of assets		—			(1,597	)		(26,325	)
Redundancy expenses		(91,467	)		(2,777	)		(87,947	)
Rental agreements		—			(6,317	)		(16,933	)
Supplier related expenses		—			(18,833	)		(31,168	)
Other		(1,353	)		(12,562	)		(1,903	)

Total		(92,820	)		(42,086	)		(164,276	)

The restructuring costs are related to cost saving programmes announced and launched during 2008, 2009 and 2011.

C16. Post-employment benefits

Sony Mobile Communications participates in local pension plans in countries in which we operate. There are principally two types of pension plans:

•

Defined contribution plans, where the Company’s only obligation is to pay fixed pension premiums into a separate entity (a fund or insurance company) on behalf of the employee. No provision for pensions is recognized in the balance sheet other than accruals for premium pensions earned, but not yet paid.

•

Defined benefit plans, where the Company’s undertaking is to provide pension benefits that the employees will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation.

In Sony Mobile Communications most of the companies have defined contribution plans and therefore no pension provisions on the balance sheet. The subsidiaries in Japan, Netherlands, Germany, UK and Mexico have defined benefit plans. In Sweden, the total pension benefits are accounted as defined contribution plans, even though the Financial Accounting Standards Council’s interpretations committee defined the ITP pension plan, financed through insurance with Alecta as a defined benefit plan. Alecta can, however, not provide the information required for the accounting of a defined benefit plan.

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Pension costs


2011	Sweden		Netherlands			Japan		UK		Other		Total
Pension cost Defined Benefit Plan		—		(159	)		7,819		10,211		1,354		19,225
Pension cost Defined Contribution Plan		27,307		218			—		159		10,021		37,705

Total		27,307		59			7,819		10,370		11,375		56,930

2010	Sweden		Netherlands			Japan		UK		Other		Total
Pension cost Defined Benefit Plan		—		(4,360	)		9,176		—		168		4,984
Pension cost Defined Contribution Plan		29,289		592			—		821		10,213		40,915

Total		29,289		(3,768	)		9,176		821		10,381		45,899

Provisions for post-employment benefits


2011	Sweden		Netherlands		Japan		UK		Other		Total
Provision for post employee benefits		—		726		20,024		9,992		4,020		34,762
Other employee benefits		—		—		—		—		937		937

Total		—		726		20,024		9,992		4,957		35,699

2010	Sweden		Netherlands		Japan		UK		Other		Total
Provision for post employee benefits		—		883		19,301		—		3,294		23,478
Other employee benefits		—		—		—		—		988		988

Total		—		883		19,301		—		4,282		24,466

The change in the UK is related a pension plan that could not previously be accounted for as a defined benefit plan, due to that the information needed was not available.

C17. Long-term liabilities

Maturity dates for the group long-term liabilities, TEUR 8,649 (TEUR 107,838), are within 1-5 years.

C18. Other current liabilities


	2011		2010
Accrued personnel related expenses		100,503		112,849
Accrued sales related expenses		323,402		485,634
Other accrued expenses		177,221		182,624
Other short term liabilities		155,386		164,410

Total		756,512		945,517

Accrued sales related expenses include sales bonuses, such as quarterly and yearly bonuses, quality bonus, co-op and stock protection.

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C19. Assets pledged as collateral


	2011		2010
Liabilities to financial institutions
Bank deposits		160		—
Other		—		27

Total		160		27

C20. Contingent liabilities


	2011		2010
Other contingent liabilities		8,383		3,603

Total		8,383		3,603

Other contingent liabilities mainly include guarantees for loans.

C21. Adjustments to reconcile net income to cash


	2011			2010			2009
Deferred tax		(224,852	)		(31,331	)		(267,645	)
Minority interest		23,127			8,508			28,720
Interest		597			2,102			960
Tax		110,034			41,255			(35,737	)
Change in provisions (note C14 & C16)		(82,582	)		(256,612	)		32,747
Write-down on non-current assets		118			2,578			17,376
Gains and losses on disposal of non-current assets		(96	)		(4,731	)		376
Other		42,758			6,704			5,375

Total		(130,896	)		(231,527	)		(217,828	)

C22. Leasing


	2011		2010		2009
Leasing costs		56,397		65,416		72,868

Future payments for operating leases and rents


2012			52,312
2013			45,027
2014			35,319
2015			29,163
2016			25,230
2016 and future			36,352

The purpose of leases mainly refers to rents and office equipment.

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C23. Wages, salaries and social security expenses

Wages and salaries


	2011		2010		2009
Wages and salaries		454,927		432,718		532,905
Social security expenses		143,169		124,898		133,504
Of which pension costs		57,253		45,899		44,988

Of which
CO compensation		1,755		1,571		1,433
CO pension costs		1,013		263		115
bonus & similar to CO		276		761		42

Severance pay

For the President and the Corporate Management the following applies:

Severance payments are not payable if an employee resigns voluntarily, or if the employment is terminated as a result of flagrant disregard of responsibilities. An exception to this is if the notice of termination given by the employee is due directly to significant structural changes or other events that affect the content of work or the condition of the position. In such an instance, the notice is treated as if it were given by the Company and severance payments are made to the individual. Upon termination of employment, severance pay amounting to one years’ salary is normally paid. The severance payments will be paid out during agreed severance period.

Pension

Sony Mobile Communications’ policy regarding pension is to follow the competitive practice in the home country of the executive. There are different supplementary pension plans for the President and the Corporate Management. As major pension arrangements, the total pension base salary consists of the annual base salary and the target pay out according to the short term incentive plan.

Long term incentive

Sony Mobile Communications has a long term incentive program for certain employees. The calculation of the long term incentives is based on the performance of the Group and payments for the units allocated are vested in three years. The size of the units is approved by the Shareholders’ Remuneration Advisory Group.

Number of employees


	2011				2010				2009
	Men		Women		Men		Women		Men		Women
Europe * and
Middle East & Africa		2,285		887		2,600		1,025		3,067		1,234
Americas		328		113		413		140		547		180
Asia Pacific		3,250		2,592		2,780		2,201		2,985		2,252

Total		5,863		3,592		5,793		3,366		6,599		3,665
* Of which Sweden		1,892		671		2,147		791		2,438		930
* Of which EU excl. Sweden		295		148		289		143		425		184

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Distribution of female/male for the Board of Directors and other persons in leading positions


	2011					2010					2009
	Number on balance day		whereof men			Number on balance day		whereof men			Number on balance day		whereof men
Consolidated (including subsidiaries)
Members of the board		90		95.6	%		87		96.6	%		95		97.9	%
Presidents and Executive Vice presidents		17		94.0	%		15		100.0	%		15		100.0	%

C24. Fees to auditors


	2011		2010		2009
PwC
Audit fees		1,565		1,668		1,427
Fees for audit services besides the audit assignment		27		—		—
Fees for tax services		181		102		267
Fees for other services		237		182		416

Total		2,010		1,952		2,110

The amount for audit fees to other than PwC is TEUR 251 (TEUR 212).

C25. Financial risks

Foreign exchange risk — Transaction exposure

Sony Mobile Communications’ results are presented in EUR, which is the functional currency for the group that exposures are hedged against. The main part of the net exposure is concentrated to the holding company. However, the group has sales and cost of sales in a large number of currencies. Approximately 81% of the group’s net exposure is made up of USD, JPY, GBP and SEK.

The group’s currency exposure is hedged up to 8 months using primarily forward contracts. The market value of derivatives not recycled to the Income Statement but booked as Other Comprehensive Income under equity by December 31, 2011 was EUR 26.7 millions, all of these derivatives were forward contracts.

Foreign exchange risk — Translation exposure

All equity in the group’s companies is translated in accordance with the “current method” hence the translation exposure is taken directly to equity in the balance sheet. This type of currency exposure is not hedged.

Interest rate risk

Sony Mobile Communications’ interest rate risk is primarily derived from cash, borrowing and short term deposits. Other balance sheet items are to a very small extent affected by shifts in the interest rate. Cash and short-term deposits, with an investment horizon shorter than twelve months, amounted to EUR 442 million at year end 2011. Short term borrowing amounted to EUR 742 million.

Credit risk

Credit risk is divided into two categories: credit risk in account receivables and financial credit risk.

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Credit risk in account receivables

The total value of outstanding accounts receivables were at year end EUR 692 million. Provisions for expected losses at year end were EUR 10.8 million. Account receivables trade toward countries with a country risk in the interval negligible to moderate, 1-2 on a scale of 4, amounted to 67%. Sony Mobile Communications applies insurance to a great extent, approximately 68% of the outstanding accounts receivables trade are insured against non-payment by the customer.

Financial credit risk

Financial instruments carry an element of risk in that counterparts may be unable to fulfill their payment obligations. These exposures arise in the investments of cash and cash equivalents and from derivative positions with positive unrealized result against banks and other counterparties. Sony Mobile Communications mitigates a major part of these risks by investing cash in governmental risk with high rating. Part of the liquidity is also deposited with a few chosen banks with the highest possible short-term rating. How much to be invested with each fund and bank is regulated in policy.

Liquidity risk

The liquidity risk is that Sony Mobile Communications is unable to meet its short term payment obligations due to insufficient or illiquid cash reserves. At year end Sony Mobile Communications’ cash was split between bank deposits of EUR 172 million and investments in liquid funds of EUR 270 million.

C26. Liabilities to financial institutions


	2011		2010
Liabilities to financial institutions, non-current		—		100,000
Liabilities to financial institutions, current		745,427		133,081

		745,427		233,081

The external borrowing increased during the year by Euro 512 million (excluding accrued interest) with an outstanding debt at the end December of Euro 742 million. The cash flow from operating activities for 2011 was negative Euro 538 million.

In 2011 Sony Mobile Communications secured additional external funding of Euro 300 million, all of which is utilized at the balance sheet date. The parent companies guaranteed Euro 350 million of the bank facilities on a 50/50 basis.

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C27. Group companies


Company	Domicile		Percentage of ownership
Beijing SE Potevio Mobile Communications Company Ltd. (BMC)		China		51	%
Beijing Suohong Electronics Co. Ltd., (BSE)		China		100	%
LLC Sony Ericsson Mobile Communications Rus		Russia		100	%
Sony Ericsson Hungary Mobile Communications Ltd.		Hungary		100	%
Sony Mobile Communications S.A. de C.V.		Mexico		100	%
Sony Mobile Communications (China) Co., Ltd.		China		100	%
Sony Mobile Communications (India) Private Limited		India		100	%
Sony Mobile Communications (Thailand) Co., Limited		Thailand		100	%
Sony Mobile Communications (USA) Inc.		US		100	%
Sony Mobile Communications do Brazil Ltd.		Brazil		100	%
Sony Ericsson Mobile Communications Hellas S.A.		Greece		100	%
Sony Ericsson Mobile Communications Iberia, S.L.		Spain		100	%
Sony Mobile Communications Indonesia Ltd.		Indonesia		100	%
Sony Mobile Communications International AB		Sweden		100	%
Sony Mobile Communications Japan Inc.		Japan		100	%
Sony Mobile Communications Management Ltd		UK		100	%
Sony Ericsson Mobile Communications Nigeria Limited		Nigeria		100	%
Sony Mobile Communications S.p.A., Italy		Italy		100	%
Sony Servicios Moviles, S.A. de C.V		Mexico		100	%

C28. Post-closing events

Losses in the parent company (Sony Mobile Communications AB) have continued after the year end closing, resulting in the parent company having negative equity. As a result, Sony has issued a capital cover guarantee.

Subsequent to year end, Sony Mobile Communications recorded a valuation allowance on a deferred tax asset in the Brazilian subsidiary as a result of a revised budget.

C29. Reconciliation to accounting principles generally accepted in the United States

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Sweden for unlisted companies, applying the Swedish Annual Accounts Act (ÅRL), the Swedish Accounting Standards Board’s (Bokföringsnämnden, BFN) recommendations and the Recommendation of the Swedish Financial Accounting Standards Council, (RR29), Remunerations to employees, which differs in certain significant respects from the generally accepted accounting principles in the United States (“US GAAP”). Sony Mobile Communications has reconciled its net income / loss and equity under Swedish GAAP to the accounting principles according to generally accepted principles in the United States.

The principle differences between Swedish GAAP and US GAAP that affect our net income, as well as our stockholders equity relate to the treatment of business combinations (negative goodwill), synthetic option plan, restructuring costs and income tax.

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Business combinations — Negative Goodwill

Under both Swedish GAAP and US GAAP, when the fair value of net assets acquired exceeds total purchase price, the Company first assesses whether all acquired assets and assumed liabilities have been properly identified and valued. Under Swedish GAAP, negative goodwill is not subject to amortization and any excess remaining after reassessment is recognized in income statement immediately. During 2004, a negative goodwill amounted to TEUR 3,717 was identified by the Company in connection with the acquisition of Beijing SE Potevio Mobile Communications Co. Ltd (BMC), and it was recognized in income statement by the end of 2004.

Under US GAAP at the time of the acquisition, the Company must first reassess whether all acquired assets and assumed liabilities have been identified and properly valued. If an amount of negative goodwill still results after this reassessment, all acquired assets (including research and development assets) are then subject to pro rata reduction, except for (1) financial assets other than investments accounted for by the equity method, (2) assets to be disposed of by sale, (3) deferred taxes, (4) prepaid assets relating to pension and other postretirement benefit plans, and (5) any other current assets. If all eligible assets are reduced to zero and an amount of negative goodwill still remains, the remaining unallocated negative goodwill must be recognized immediately as an extraordinary gain. The remaining difference between Swedish GAAP and US GAAP as of December 31, 2009 was nil.

Provision for social security cost on synthetic option plan

Under Swedish GAAP, the Company accrues social security costs for the synthetic option plan during the vesting period. Under US GAAP, no social security cost is recorded until the options are exercised or matching of the options takes place, which increases net income by TEUR 228 in 2009. The synthetic options are all exercised and matched and the remaining difference between Swedish GAAP and US GAAP as of December 31, 2009 was nil.

Restructuring costs

Under Swedish GAAP a provision for severance pay is recognized when a constructive obligation to restructure arises which requires that a detailed formal plan has been communicated to those affected by it. The implementation needs to be planned to begin as soon as possible and to be completed in a timeframe that makes significant changes to the plan unlikely. Under US GAAP provisions for severance pay representing a one-time benefit is recognized over the remaining service period, if extended service period is required, when a company has a detailed formal plan which has been communicated to those affected. If an entity under Swedish GAAP has a contract that is onerous, the present obligation under the contract shall be recognized and measured as a provision. Under US GAAP, costs to terminate a contract before the end of its term should be recognized as a liability and measured at fair value when the entity terminates the contract in accordance with the contract terms or when the premises have been vacated. A liability for costs that will continue to be incurred under a contract for its remaining term without economic benefit to the entity should be recognized and measured at its fair value when the entity ceases to use the right conveyed by the contract. Sony Mobile Communications has identified a difference between US GAAP and Swedish GAAP of TEUR 15,905 (TEUR 3,742) related to leasehold property that has not yet been terminated or vacated and thus not qualified as provisions in accordance with US GAAP.

Post-employment benefits

To calculate the annual expenses for the defined benefit plans, Sony Mobile Communications uses the corridor method. The amount recognized in the income statement which is the difference to US GAAP is not material.

A-26

SONY MOBILE COMMUNICATIONS

Deferred Income Taxes

Deferred tax is calculated on US GAAP adjustments and the US GAAP balance sheet disclosure reflects the gross recognition of deferred tax assets and liabilities.

Valuation allowance

The income tax accounting guidance under US GAAP requires a valuation allowance to be applied to a deferred tax asset if realization of the underlying future tax benefits is not more likely than not. Under US GAAP, forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years. In those circumstances, US GAAP provides that the weight given to the potential effect of negative and positive evidence should be commensurate with the extent to which it can be objectively verified.

Sony Mobile Communications AB is in a three year cumulative loss position. There is however positive evidence as well: Sony Mobile Communications AB has never had any losses or tax credits expiring unused, the loss carry forward period in Sweden is unlimited, prior to 2008, Sony Mobile Communications had a strong history of a number of years with profits and management’s financial projections support the future realization of the net deferred tax assets.

Management has concluded under US GAAP, that Sony Mobile Communications AB’s deferred tax assets cannot be considered more likely than not to be realized in the future years.

Under Swedish GAAP more emphasis has been put on the fact that the loss carry forward period in Sweden is unlimited and that the financial projections, made by management, support the future realization of the net deferred tax assets and less emphasis is placed on the recent cumulative loss position. Although management expects positive impact on future earnings capacity when becoming a fully owned Sony subsidiary, it would not be enough to overcome the negative evidence under US GAAP.

Management has concluded, under Swedish GAAP, that Sony Mobile Communications AB’s deferred tax assets are probable to be utilized in the future years.

Non-current and current assets

Swedish GAAP requires deferred tax assets to be classified as non-current assets on the balance sheet. Under US GAAP, deferred tax liabilities and assets are classified as current or non-current based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carry forwards, shall be classified according to the expected reversal date of the temporary difference. The balance sheet shows a difference in non-current and current assets between Swedish GAAP and US GAAP which relates to the classification of deferred tax assets.

Adjustment of net income, comprehensive income, equity and balance sheet items

Application of US GAAP as described above would have had the following effects on consolidated net income.

A-27

SONY MOBILE COMMUNICATIONS

Adjustment of Net Income


	2011			2010			2009
Net income per Swedish GAAP		(247,160	)		90,468			(835,827	)

US GAAP adjustments before taxes:
Business Combination		—			—			763
Synthetic Option Plan		—			—			228
Restructuring		12,163			(9,131	)		(2,624	)
Tax effect of US GAAP adjustment		(5,287	)		2,412			595
Valuation allowance		(653,516	)		—			—

Net income in accordance with US GAAP		(893,801	)		83,749			(836,865	)

Adjustments of stockholders’ equity

Adjustments of stockholders’ equity


	2011			2010
Equity as reported per Swedish GAAP		309,310			531,725

US GAAP adjustments before taxes:
Restructuring		15,905			3,742
Deferred tax effect of US GAAP adjustment		(6,167	)		(880	)
Valuation allowance		(653,516	)		—

Stockholders’ equity in accordance with US GAAP		(334,468	)		534,587

Minority interest		58,098			42,286

Total equity in accordance with US GAAP		(276,370	)		576,873

Comprehensive income


	2011			2010			2009
Net income in accordance with US GAAP		(893,801	)		83,749			(836,865	)

Other comprehensive income
Gain/loss on cash flow hedges		9,070			11,373			1,409
Translation adjustment		(34,586	)		52,290			(1,409	)
Deferred tax		(2,448	)		(2,935	)		(355	)
Total other comprehensive income		(27,964	)		60,728			(355	)

Comprehensive income in accordance with US GAAP		(921,765	)		144,478			(837,220	)

A-28

SONY MOBILE COMMUNICATIONS

Balance sheet items according to Swedish GAAP and US GAAP


	Swedish GAAP				US GAAP
	Dec. 31 2011		Dec. 31 2010		Dec. 31 2011			Dec. 31 2010
Non-current assets		1,122,002		803,413		316,080			550,377
Current assets		1,960,636		2,196,036		2,106,874			2,448,191

Total Assets		3,082,638		2,999,449		2,422,954			2,998,569

Stockholders equity		309,310		531,725		(334,468	)		534,587
Minority interest		58,098		42,286		58,098			42,286
Provisions		485,056		415,836		469,151			412,094
Non-current liabilities		8,649		107,838		8,649			107,838
Current liabilities		2,221,524		1,901,764		2,221,524			1,901,764

Total stockholders’ equity and liabilities		3,082,638		2,999,449		2,422,955			2,998,569

A-29

Report of Independent Auditors

To the Shareholder of Sony Mobile Communications AB:

We have audited the accompanying consolidated balance sheets of Sony Mobile Communications AB and its subsidiaries (formerly known as Sony Ericsson Mobile Communication AB) as of December 31, 2011 and December 31, 2010 and the related consolidated statements of income and of cash flows for each of the three years in the period ended December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sony Mobile Communications AB and its subsidiaries at December 31, 2011 and December 31, 2010 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2011 in conformity with accounting principles generally accepted in Sweden.

Accounting principles generally accepted in Sweden vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note C29 to the consolidated financial statements.

/s/ PricewaterhouseCoopers AB

Malmo, Sweden

June 15, 2012

A-30

Item 19.

Exhibits

Documents filed as exhibits to this annual report:


12.1		302 Certification

12.2		302 Certification

13.1		906 Certification

15.1(a)		Consent of PricewaterhouseCoopers Aarata

101		Interactive Data Files (XBRL-related documents)

SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant hereby certifies that it meets all of the requirements for filing on Form 20-F/A and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.


SONY CORPORATION
(Registrant)

By:		/s/ MASARU KATO

		(Signature)
		Masaru Kato
		Executive Vice President and Chief Financial Officer

Date: July 20, 2012