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Sony 6-K 2012

Documents found in this filing:

  1. 6-K
  2. Graphic
  3. Graphic
Unassociated Document
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of June 2012
Commission File Number: 001-06439
SONY CORPORATION
(Translation of registrant’s name into English)
7-1, KONAN 1-CHOME, MINATO-KU, TOKYO 108-0075, JAPAN
(Address of principal executive offices)
The registrant files annual reports under cover of Form 20-F.
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F,
Form 20-F þ                    Form 40-F o
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934, Yes  o   No  þ
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):82-                    
 
 


 
 
 
 

 

 
 
 
 
 
 
 
 

Consolidated Financial Statements>
For the fiscal year ended March 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOKYO, JAPAN
 
 
 
 
 

 
  
Contents
 
 
 
 
1

 
 
 
Sony’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934.  Sony’s internal control over financial reporting is 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 in the United States of America.  Sony’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 Sony;
 
(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 Sony are being made only in accordance with authorizations of management and directors; and
 
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Sony’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.
 
Sony’s management excluded from its assessment of the effectiveness of Sony’s internal control over financial reporting as of March 31, 2012, an assessment of internal control over financial reporting of Sony Mobile Communications AB, which became a wholly owned subsidiary of Sony on February 15, 2012. Sony Mobile Communications AB had total assets of 347.0 billion yen and total sales and operating revenue of 77.7 billion yen for the period from February 16, 2012 to March 31, 2012 that were reflected in Sony’s consolidated financial statements as of and for the fiscal year ended March 31, 2012.
  
Sony’s management evaluated the effectiveness of Sony’s internal control over financial reporting as of March 31, 2012 based on the criteria established in “Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  Based on the evaluation, management has concluded that Sony maintained effective internal control over financial reporting as of March 31, 2012.
  
Sony’s independent registered public accounting firm, PricewaterhouseCoopers Aarata, has issued an audit report on Sony’s internal control over financial reporting as of March 31, 2012, presented on page 3.
 
 
2

 
 
 
To the Board of Directors and Stockholders of Sony Corporation (Sony Kabushiki Kaisha)
 
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, cash flows and stockholders’ equity 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.  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, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting.  Our responsibility is to express opinions on these financial statements 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
 
 
3

 
 
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
 
   
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.)                
 
 
 
4

 
 
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
Consolidated Balance Sheets (Continued)
 
   
Yen in millions
   
2011
   
2012
 
LIABILITIES
           
Current liabilities:
           
Short-term borrowings
    53,737       99,878  
Current portion of long-term debt
    109,614       310,483  
Notes and accounts payable, trade
    793,275       758,680  
Accounts payable, other and accrued expenses
    1,013,037       1,073,241  
Accrued income and other taxes
    87,396       63,396  
Deposits from customers in the banking business
    1,647,752       1,761,137  
Other
    430,488       463,166  
Total current liabilities
    4,135,299       4,529,981  
Long-term debt
    812,235       762,226  
Accrued pension and severance costs
    271,320       309,375  
Deferred income taxes
    306,227       284,499  
Future insurance policy benefits and other
    2,924,121       3,208,843  
Policyholders’ account in the life insurance business
    1,301,252       1,449,644  
Other
    204,766       240,978  
Total liabilities
    9,955,220       10,785,546  
Redeemable noncontrolling interest
    19,323       20,014  
Commitments and contingent liabilities
               
EQUITY
               
Sony Corporation’s stockholders’ equity:
               
Common stock, no par value –
               
2011– Shares authorized: 3,600,000,000, shares issued: 1,004,636,664
    630,921          
2012– Shares authorized: 3,600,000,000, shares issued: 1,004,638,164
            630,923  
Additional paid-in capital
    1,159,666       1,160,236  
Retained earnings
    1,566,274       1,084,462  
Accumulated other comprehensive income –
               
Unrealized gains on securities, net
    50,336       64,882  
Unrealized losses on derivative instruments, net
    (1,589 )     (1,050 )
Pension liability adjustment
    (152,165 )     (186,833 )
Foreign currency translation adjustments
    (700,786 )     (719,092 )
      (804,204 )     (842,093 )
Treasury stock, at cost
               
Common stock
               
2011– 1,051,588 shares
    (4,670 )        
2012– 1,061,803 shares
            (4,637 )
      2,547,987       2,028,891  
Noncontrolling interests
    388,592       461,216  
Total equity
    2,936,579       2,490,107  
Total liabilities and equity
    12,911,122       13,295,667  
The accompanying notes are an integral part of these statements.                
 
 
 
5

 
 
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
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.)                        
 
 
 
6

 
 
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
Consolidated
Statements of Income (Continued)
 
   
Yen
   
2010
   
2011
   
2012
 
Per share data:
                 
Common stock
                 
Net loss attributable to Sony Corporation’s stockholders
                 
– Basic
    (40.66 )     (258.66 )     (455.03 )
– Diluted
    (40.66 )     (258.66 )     (455.03 )
                         
Cash dividends
    25.00       25.00       25.00  
The accompanying notes are an integral part of these statements.    
 
 
7

 
 
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
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.)                        
 
 
8

 
 
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
Consolidated Statements of Cash Flows (Continued)
 
   
Yen in millions
   
2010
   
2011
   
2012
 
Cash flows from investing activities:
                 
Payments for purchases of fixed assets
    (338,050 )     (253,688 )     (382,549 )
Proceeds from sales of fixed assets
    15,671       18,743       22,661  
Payments for investments and advances by financial services business
    (1,581,841 )     (1,458,912 )     (1,028,150 )
Payments for investments and advances (other than financial services business)
    (41,838 )     (15,316 )     (28,021 )
Proceeds from sales or return of investments and collections of advances by financial services business
    1,128,500       874,031       474,466  
Proceeds from sales or return of investments and collections of advances (other than financial services business)
    54,324       30,332       93,165  
Proceeds from sales of businesses
    22,084       99,335       8,430  
Payment for Sony Ericsson acquisition, net of cash acquired
                (71,843 )
Other
    (4,854 )     (8,964 )     28,955  
Net cash used in investing activities
    (746,004 )     (714,439 )     (882,886 )
Cash flows from financing activities:
                       
Proceeds from issuance of long-term debt
    510,128       1,499       216,887  
Payments of long-term debt
    (144,105 )     (216,212 )     (112,043 )
Increase (decrease) in short-term borrowings, net
    (250,252 )     6,120       (26,158 )
Increase in deposits from customers in the financial services business, net
    276,454       229,327       211,597  
Dividends paid
    (25,085 )     (25,098 )     (25,078 )
Other
    (2,126 )     (5,748 )     (7,869 )
Net cash provided by (used in) financing activities
    365,014       (10,112 )     257,336  
Effect of exchange rate changes on cash and cash equivalents
    (1,098 )     (68,890 )     (13,825 )
Net increase (decrease) in cash and cash equivalents
    530,819       (177,196 )     (119,836 )
Cash and cash equivalents at beginning of the fiscal year
    660,789       1,191,608       1,014,412  
Cash and cash equivalents at end of the fiscal year
    1,191,608       1,014,412       894,576  
                         
Supplemental data:
                       
Cash paid during the fiscal year for –
                       
Income taxes
    60,022       116,376       127,643  
Interest
    19,821       20,583       20,276  
Non-cash investing and financing activities –
                       
Obtaining assets by entering into capital leases
    2,553       3,738       56,403  
Collections of deferred proceeds from sales of receivables –
          153,550       132,636  
The accompanying notes are an integral part of these statements.                        
 
 
9

 
 
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
 
   
Yen in millions
                     
Accumulated
         
Sony
             
         
Additional
         
other
   
Treasury
   
Corporation’s
             
   
Common
   
paid-in
   
Retained
   
comprehensive
   
stock, at
   
stockholders’
   
Noncontrolling
    Total  
   
stock
   
capital
   
earnings
   
income
   
cost
   
equity
   
interests
   
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.)    
 
 
10

 
 
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
Consolidated Statements of Changes in Stockholders’ Equity (Continued)

   
Yen in millions
                     
Accumulated
         
Sony
             
         
Additional
         
other
   
Treasury
   
Corporation’s
             
   
Common
   
paid-in
   
Retained
   
comprehensive
   
stock, at
   
stockholders’
   
Noncontrolling
    Total  
   
Stock
   
capital
   
earnings
   
income
   
cost
   
equity
   
interests
   
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  
(Continued on following page.)                                                                
 
 
 
11

 
 
SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
Consolidated
Statements of Changes in Stockholders’ Equity (Continued)

   
Yen in millions
                     
Accumulated
         
Sony
             
         
Additional
         
other
   
Treasury
   
Corporation’s
             
   
Common
   
paid-in
   
Retained
   
comprehensive
   
stock, at
   
stockholders’
   
Noncontrolling
    Total  
   
Stock
   
capital
   
earnings
   
income
   
cost
   
equity
   
interests
   
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.  
 
 
12

 
 
Sony Corporation and Consolidated Subsidiaries
 
Notes to Consolidated Financial Statements
 
Page
           
     
14
           
     
14
           
     
25
           
     
25
           
     
25
           
     
29
           
     
31
           
     
34
           
     
36
           
     
38
           
     
39
           
     
41
           
     
42
           
     
48
           
     
52
           
     
61
           
     
63
           
     
65
           
     
67
           
     
72
           
     
73
           
     
78
           
     
78
           
     
81
           
     
87
           
     
88
           
     
88
           
     
91
 
 
13

 
 
Sony Corporation and Consolidated Subsidiaries
 
 
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.
 
 
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 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 -