15.

Pension and severance plans

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

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

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

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

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

Japanese plans:


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

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

Foreign plans:


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

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

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

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


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

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

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

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

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


Amounts recognized in the consolidated balance sheets consist of:

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

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

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


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

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

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

Japanese plans

Foreign plans

Yen in millions

March 31

2011

2012

2011

2012

Accumulated benefit obligations

731,666

786,679

183,954

189,360

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


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

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


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

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

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


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

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

Sony reviews these assumptions for changes in circumstances.

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

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

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

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


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

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


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

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

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

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

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

(d)	Includes primarily mortgage-backed securities.

(e)

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

(f)	Represents commodity futures funds.

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

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


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

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


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

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

(a)	Includes primarily foreign equity securities.

(b)	Includes primarily foreign government debt securities.

(c)	Includes primarily foreign corporate debt securities.

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

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

(f)	Includes primarily private real estate investment trusts.

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

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

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

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

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

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

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

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

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


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

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

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

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


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

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

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

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

*	Primarily consists of translation adjustments.

Sony makes contributions to its defined benefit pension plans as deemed appropriate by management after considering the fair value of plan assets, expected return on plan assets and the present value of benefit obligations. Sony expects to contribute approximately 18 billion yen to the Japanese plans and approximately 9 billion yen to the foreign plans during the fiscal year ending March 31, 2013. At the end of the fiscal year ended March 31, 2011, Sony had expected to contribute approximately 35 billion yen to the Japanese plans. However, Sony actually contributed 16 billion yen to the plans in the fiscal year ended March 31, 2012.

The expected future benefit payments are as follows:


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