XLON:SON Annual Report 20-F/A Filing - 3/31/2012

Effective Date 3/31/2012

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Table of Contents

 

 

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

or

 

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

For the fiscal year ended March 31, 2012

or

 

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

For the transition period from/to

or

 

¨ 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

 

 

 


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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.


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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.


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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


Table of Contents

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


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[THIS PAGE IS INTENTIONALLY LEFT BLANK]

 

 

 

 

 

F-3


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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


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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


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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.)

 

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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.

 

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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.)

 

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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.

 

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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.)

 

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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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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.

 

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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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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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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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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

 

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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

 

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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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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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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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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

 

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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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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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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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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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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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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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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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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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     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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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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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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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
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

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     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.

 

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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   
  

 

 

 

 

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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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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   

Other*3*5

    (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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*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.

 

*4 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.

 

*5 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 held for sale include 29,182 million yen of goodwill and it was reclassified to other assets in the consolidated balance sheets. Refer to Note 25.

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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(2) 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. Amortization charged to income for the fiscal years ended March 31, 2010, 2011 and 2012 amounted to 53,767 million yen, 59,249 million yen and 55,427 million yen, respectively.

 

(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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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   
  

 

 

    

 

 

 

 

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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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(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