13.

Fair value measurements

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

(1)

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

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

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

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

Derivatives

Exchange-traded derivatives valued using quoted prices are classified within level 1 of the fair value hierarchy. However, few classes of derivative contracts are listed on an exchange; thus, the majority of Sony’s derivative positions are valued using internally developed models that use as their basis readily observable market parameters — i.e., parameters that are actively quoted and can be validated to external sources, including industry pricing services. Depending on the types and contractual terms of derivatives, fair value can be modeled using a series of techniques, such as the Black-Scholes option pricing model, which are consistently applied. Where derivative products have been established for some time, Sony uses models that are widely accepted in the financial services industry. These models reflect the contractual terms of the derivatives, including the period to maturity, and market-based parameters such as interest rates, volatility, and the credit rating of the counterparty. Further, many of these models do not contain a high level of subjectivity as the techniques used in the models do not require significant judgment, and inputs to the model are readily observable from actively quoted markets. Such instruments are generally classified within level 2 of the fair value hierarchy.

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

The fair value of Sony’s assets and liabilities that are measured at fair value on a recurring basis at March 31, 2012 and 2013 are as follows:


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

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

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

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


	Yen in millions
	March 31, 2013
									Presentation in the consolidated balance sheets
	Level 1		Level 2		Level 3		Total		Marketable securities		Securities investments and other		Other current assets/ liabilities		Other noncurrent assets/ liabilities
Assets:
Trading securities		278,575		252,212		—		530,787		530,787		—		—		—
Available-for-sale securities
Debt securities
Japanese national government bonds		—		1,220,608		—		1,220,608		24,335		1,196,273		—		—
Japanese local government bonds		—		67,195		—		67,195		61		67,134		—		—
Japanese corporate bonds		—		209,950		2,214		212,164		40,359		171,805		—		—
Foreign corporate bonds		—		422,022		20,752		442,774		96,896		345,878		—		—
Other		—		25,036		—		25,036		98		24,938		—		—
Equity securities		132,447		78		—		132,525		—		132,525		—		—
Other investments*¹		6,742		3,126		76,892		86,760		—		86,760		—		—
Derivative assets*²		—		21,862		—		21,862		—		—		20,713		1,149

Total assets		417,764		2,222,089		99,858		2,739,711		692,536		2,025,313		20,713		1,149

Liabilities:
Derivative liabilities*²		—		41,998		—		41,998		—		—		20,322		21,676

Total liabilities		—		41,998		—		41,998		—		—		20,322		21,676

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

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

Transfers into level 1 were 2,169 million yen and 1,612 million yen for the fiscal years ended March 31, 2012 and 2013 respectively, as quoted prices for certain trading securities became available in an active market. Transfers out of level 1 were 7,221 million yen and 2,417 million yen for the fiscal years ended March 31, 2012 and 2013 respectively, as quoted prices for certain trading securities were not available in an active market.

The changes in fair value of level 3 assets and liabilities for the fiscal years ended March 31, 2012 and 2013 are as follows:


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

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

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



	Yen in millions
	Fiscal year ended March 31, 2013
	Assets
	Available-for-sale securities									Other investments
	Debt securities
	Japanese corporate bonds			Foreign corporate bonds			Other
Beginning balance		1,513			15,291			309			73,451
Total realized and unrealized gains (losses):
Included in earnings*¹		—			12			—			5,765
Included in other comprehensive income (loss)*²		(2	)		2,086			(9	)		1,984
Purchases		—			4,701			—			1,836
Settlements		—			(4,100	)		—			(2,982	)
Transfers into level 3*³		703			4,906			—			—
Transfers out of level 3*⁴		—			(2,244	)		(300	)		—
Other		—			100			—			(3,162	)

Ending balance		2,214			20,752			—			76,892

Changes in unrealized gains (losses) relating to instruments still held at reporting date:
Included in earnings*¹		—			(14	)		—			5,765

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

*2	Unrealized gains (losses) are included in unrealized gains (losses) on securities in the consolidated statements of comprehensive income.

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

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

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

(2)

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

Sony also has assets and liabilities that are required to be recorded at fair value on a nonrecurring basis when certain circumstances occur. During the fiscal years ended March 31, 2012 and 2013, such measurements of fair value related primarily to the following:


	Fiscal year ended March 31, 2012
	Estimated fair value						Amounts included in earnings
	Level 1		Level 2		Level 3		Amounts included in earnings
Assets:
Remeasurement of previously owned equity interest in Sony Ericsson		—		—		71,449		102,331
S-LCD impairment		—		—		71,662		(60,019	)
Long-lived assets impairments		—		—		8,292		(59,583	)

								(17,271	)


	Fiscal year ended March 31, 2013
	Estimated fair value						Amounts included in earnings
	Level 1		Level 2		Level 3		Amounts included in earnings
Assets:
Remeasurement of retained investment in M3		128,289		—		—		117,216
Long-lived assets impairments		—		—		3,935		(14,494	)

								102,722

Remeasurement of previously owned equity interest in Sony Ericsson

During the fiscal year ended March 31, 2012, Sony remeasured to fair value the previously owned equity interest as part of Sony Ericsson acquisition. This measurement is classified as level 3 because significant unobservable inputs, such as projections of future cash flows and market comparables of similar transactions and companies were considered in the fair value measurement. Refer to Note 24.

S-LCD impairment

During the fiscal year ended March 31, 2012, Sony recorded other-than-temporary impairment loss on its share of S-LCD, including the reclassification to net income of foreign currency translation adjustments and the impact of the exchange rate fluctuations between the initial impairment loss and closing of the sale to Samsung. The measurement of the fair value of shares of S-LCD after impairment is classified as level 3 because significant unobservable inputs, primarily the estimate of the cash that would be received upon the sale to Samsung, were considered in the fair value measurement. Refer to Note 5.

Remeasurement of retained investment in M3

During the fiscal year ended March 31, 2013, Sony sold part of its shares in M3 and remeasured the remaining shares to fair value in accordance with the accounting guidance for deconsolidation of a subsidiary. This measurement is classified as level 1 because a quoted price for the shares of M3 is available on the Tokyo Stock Exchange. Refer to Note 5.

Long-lived assets impairments

Long-lived assets are measured at the lesser of carrying value or fair value if such assets are held for sale or when there is a determination that the asset is impaired. Sony’s determination of fair value was based on the comparable market values or estimated net cash flows which considered prices and other relevant information generated by market transactions involving comparable assets or cash flow projections based upon the most recent business plan. These measurements are classified as level 3 because significant unobservable inputs, such as the conditions of the assets or projections of future cash flows, were considered in the fair value measurements. Refer to Note 19.

(3)

Financial instruments:

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


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

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

Liabilities:
Long-term debt including the current portion		—		1,079,914		—		1,079,914		1,072,709
Investment contracts included in policyholders’ account in the life insurance business		—		338,589		—		338,589		340,600

Total liabilities		—		1,418,503		—		1,418,503		1,413,309

	Yen in millions
	March 31, 2013
	Estimated fair value								Carrying amount
	Level 1		Level 2		Level 3		Total		Total
Assets:
Housing loans in the banking business		—		947,276		—		947,276		860,330

Total assets		—		947,276		—		947,276		860,330

Liabilities:
Long-term debt including the current portion		—		1,221,174		—		1,221,174		1,094,716
Investment contracts included in policyholders’ account in the life insurance business		—		363,634		—		363,634		363,213

Total liabilities		—		1,584,808		—		1,584,808		1,457,929

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

Cash and cash equivalents, call loans and call money are classified in level 1. Time deposits, short-term borrowings, deposits from customers in the banking business are classified in level 2. Held-to-maturity securities, included in marketable securities and securities investments and other in the consolidated balance sheets, primarily include debt securities with quoted prices that are traded less frequently than exchange-traded instruments, such as the majority of government bonds and corporate bonds and are substantially all classified in level 2. The fair values of housing loans in the banking business, included in securities investments and other in the consolidated balance sheets, were estimated based on the discounted future cash flows using interest rates reflecting London InterBank Offered Rate base yield curve with a certain risk premium. The fair values of long-term debt including the current portion and investment contracts included in policyholders’ account in the life insurance business were estimated based on either the market value or the discounted future cash flows using Sony’s current incremental borrowing rates for similar liabilities.