Consolidated Financial Results for the Third Quarter Ended December 31, 2011

TOKYO--(BUSINESS WIRE)--

Sony Corporation
1-7-1 Konan, Minato-ku
Tokyo 108-0075 Japan

No. 12-017E
3:00 P.M. JST, February 2, 2012

Consolidated Financial Results for the Third Quarter Ended December 31, 2011

Tokyo, February 2, 2012 -- Sony Corporation today announced its consolidated results for the third quarter ended December 31, 2011 (October 1, 2011 to December 31, 2011).

• Consolidated sales decreased significantly year-on-year primarily due to the impact of the floods in Thailand, deterioration in market conditions in developed countries, and unfavorable foreign exchange rates.
• Consolidated operating loss was recorded compared to income in the same quarter of the previous fiscal year, primarily due to a significant deterioration in equity in net income (loss) of affiliated companies, in addition to the above-mentioned factors.
• The deterioration in equity in net income (loss) of affiliated companies was primarily due to an impairment loss on the shares of S-LCD, which were sold in January 2012, and the recording of a valuation allowance on deferred tax assets at Sony Ericsson.

	(Billions of yen, millions of U.S. dollars, except per share amounts)
	Third quarter ended December 31
	2010	2011		Change in yen		2011*
Sales and operating revenue	¥2,206.2	¥1,822.9		-17.4	%	$23,370
Operating income (loss)	137.5	(91.7	)	-		(1,176	)
Income (loss) before income taxes	131.5	(105.9	)	-		(1,358	)
Net income (loss) attributable to  Sony Corporation’s stockholders	72.3	(159.0	)	-		(2,038	)
Net income (loss) attributable to  Sony Corporation’s stockholders  per share of common stock:
- Basic	¥72.08	¥(158.40	)	-		$(2.03	)
- Diluted	71.96	(158.40	)	-		(2.03	)

Unless otherwise specified, all amounts are presented on the basis of Generally Accepted Accounting Principles in the U.S. (“U.S. GAAP”).

Supplemental Information

In addition to operating income (loss), Sony’s management also evaluates Sony’s performance using non-U.S. GAAP adjusted operating income. Operating income, as adjusted, which excludes equity in net income (loss) of affiliated companies, restructuring charges and LCD television asset impairment is not a presentation in accordance with U.S. GAAP, and is presented to enhance investors’ understanding of Sony’s operating income (loss) by providing an alternative measure that may be useful to understand Sony’s historical and prospective operating performance.

	(Billions of yen, millions of U.S. dollars)
	Third quarter ended December 31
	2010	2011		Change in yen		2011*
Operating income (loss)	¥137.5	¥(91.7	)	-	%	$(1,176	)
Less: Equity in net income (loss) of affiliated companies**	2.6	(108.8	)	-		(1,395	)
Add: Restructuring charges recorded within operating expenses***	16.0	4.5		-72.0		58
Add: LCD television asset impairment****	-	2.1		-		27
Operating income, as adjusted	¥150.9	¥23.7		-84.3	%	$304

Sony’s management uses this measure to review operating trends, perform analytical comparisons and assess whether its structural transformation initiatives are achieving their objectives. This supplemental non-U.S. GAAP measure should be considered in addition to, not as a substitute for, Sony’s operating income in accordance with U.S. GAAP.

* U.S. dollar amounts have been translated from yen, for convenience only, at the rate of 78 yen=1 U.S. dollar, the approximate Tokyo foreign exchange market rate as of December 31, 2011.

** Equity in net loss of affiliated companies for the third quarter ended December 31, 2011 includes an impairment loss of 63.4 billion yen (813 million U.S. dollars) on Sony’s shares of S-LCD Corporation (“S-LCD”), which were sold in January 2012 (for further details, see page 4). Also included is a 33.0 billion yen (424 million U.S. dollars) valuation allowance (50% of the 654 million euro valuation allowance which Sony Ericsson Mobile Communications AB (“Sony Ericsson”) recorded under U.S. GAAP against certain of its deferred tax assets) (for further details, see page 7).

*** Sony is undertaking structural transformation initiatives to enhance profitability through implementation of various cost reduction programs as well as adoption of horizontal platforms. Sony defines restructuring initiatives as activities initiated by Sony, such as exiting a business or product category or implementing a headcount reduction program, which are designed to generate a positive impact on future profitability. Restructuring charges are recorded, depending on the nature of the individual items, in cost of sales, selling, general and administrative expenses as well as (gain) loss on sale, disposal or impairment of assets and other, net, in the consolidated statement of income. Sony includes losses due to long-lived asset impairments in restructuring charges when those impairments are directly related to Sony’s current restructuring initiatives.

**** The 2.1 billion yen (27 million U.S. dollars) asset impairment, a non-cash charge recorded within operating results, is primarily due to the estimated fair value of long-lived assets associated with the LCD television asset group being lower than net book value. The corresponding estimated future cash flows leading to the impairment charge reflect the continued deterioration in LCD television market conditions in Japan, Europe and North America, and unfavorable foreign exchange rates. Sony has not included this loss on impairment in restructuring charges. Sony also recorded impairment losses in the LCD television asset group of 27.1 billion yen for the fourth quarter of the fiscal year ended March 31, 2010 and 8.6 billion yen for the second quarter of the fiscal year ending March 31, 2012.

Sony realigned its reportable segments from the first quarter of the fiscal year ending March 31, 2012, to reflect modifications to the organizational structure as of April 1, 2011, primarily repositioning the operations of the previously reported Consumer, Professional & Devices (“CPD”) and Networked Products & Services (“NPS”) segments. In connection with this realignment, the operations of the former CPD and NPS segments are included in two newly established segments, namely the Consumer Products & Services (“CPS”) segment and the Professional, Device & Solutions (“PDS”) segment. The CPS segment includes televisions, home audio and video, digital imaging, personal and mobile products, and the game business. The equity results of S-LCD are also included within the CPS segment. The PDS segment includes professional solutions, semiconductors and components. For further details of new segments and categories, see page F-8.

In connection with this realignment, both the sales and operating revenue (“sales”) and operating income (loss) of each segment in the three and nine months ended December 31 of the previous fiscal year have been revised to conform to the current year’s presentation.

The Pictures, Music and Financial Services segments remain unchanged.

The equity earnings from Sony Ericsson continue to be presented as a separate segment. In October 2011, Sony and Telefonaktiebolaget LM Ericsson (“Ericsson”) announced that Sony had agreed to acquire Ericsson’s shares in Sony Ericsson and that as a result Sony Ericsson will become a wholly-owned subsidiary of Sony. The transaction is expected to close in February 2012, subject to customary closing conditions including regulatory approvals.

Consolidated Results for the Third Quarter Ended December 31, 2011

Sales were 1,822.9 billion yen (23,370 million U.S. dollars), a decrease of 17.4% compared to the same quarter of the previous fiscal year (“year-on-year”) primarily due to the impact of the floods in Thailand which began in October 2011 (“the Floods”), deterioration in market conditions in developed countries, and unfavorable foreign exchange rates. Sales decreased significantly, mainly in the CPS and PDS segments as discussed in the Operating Performance Highlights section below.

During the quarter ended December 31, 2011, the average rates of the yen were 76.4 yen against the U.S. dollar and 102.8 yen against the euro, which were 6.9% and 7.7% higher, respectively, than the previous fiscal year’s third quarter. On a local currency basis, sales decreased 12% year-on-year. For references to sales on a local currency basis, see Note on page 11.

Operating loss of 91.7 billion yen (1,176 million U.S. dollars) was recorded, compared to operating income of 137.5 billion yen in the same quarter of the previous fiscal year. This was primarily due to a significant deterioration in equity in net income (loss) of affiliated companies, deterioration in the cost of sales ratio, and a decrease in gross profit from significantly lower sales. For further details, see Operating Performance Highlights by Business Segment section below.

Restructuring charges, net, decreased 11.5 billion yen year-on-year to 4.5 billion yen (58 million U.S. dollars). CPS segment restructuring charges were 1.0 billion yen (13 million U.S. dollars) in the current quarter, compared with 3.6 billion yen in the same quarter of the previous fiscal year. PDS segment restructuring charges were 2.4 billion yen (31 million U.S. dollars) in the current quarter, compared with 8.4 billion yen in the same quarter of the previous fiscal year.

Excluding equity in net income (loss) of affiliated companies, restructuring charges and the LCD television asset impairment, operating income on an as adjusted basis decreased by 127.2 billion yen year-on-year to 23.7 billion yen (304 million U.S. dollars).

Equity in net loss of affiliated companies, recorded within operating income (loss), was 108.8 billion yen (1,395 million U.S. dollars), compared to net income of 2.6 billion yen in the same quarter of the previous fiscal year. Sony recorded equity in net loss for S-LCD of 66.0 billion yen (846 million U.S. dollars), compared to equity in net income of 2.1 billion yen in the same quarter of the previous fiscal year. This was primarily due to the recording of the impairment loss of 63.4 billion yen (813 million U.S. dollars) on Sony’s shares of S-LCD, which were sold in January 2012. Equity in net loss for Sony Ericsson of 43.1 billion yen (552 million U.S. dollars) was recorded, compared to equity in net income of 0.4 billion yen in the same quarter of the previous fiscal year. This was primarily due to Sony Ericsson recording a valuation allowance under U.S. GAAP of 654 million euro against certain of its deferred tax assets. Sony reflected 50%, or 33.0 billion yen (424 million U.S. dollars), of this valuation allowance in equity in net loss of affiliated companies in Sony’s consolidated financial results; for further explanation, see “Sony Ericsson” on page 7. In addition, the current quarter’s results were negatively impacted by a change in product and geographic mix, intense smartphone price competition and restructuring charges.

As a result of direct damage from inundation of Sony’s Thai manufacturing facilities resulting from the Floods, Sony incurred expenses of 8.9 billion yen (114 million U.S. dollars) during the current quarter, including charges for the disposal or impairment of fixed assets and inventories and restoration costs (e.g., repair, removal and cleaning costs) directly related to the damages caused by the disaster. These expenses were substantially offset by the recording of anticipated insurance recoveries. In addition to the direct damage, due to the difficulty in procuring parts and components, production at several manufacturing facilities temporarily ceased. As a result, Sony recorded charges of 4.6 billion yen (59 million U.S. dollars) during the current quarter, consisting of idle facility costs at manufacturing sites and other additional expenses. Sony also saw a negative impact from the postponement of certain product launches caused by the temporary cessation of production at several manufacturing facilities, as well as significantly lower demand from commercial customers resulting from the Floods. Sony has insurance policies that cover certain damages and related costs associated with fixed assets and inventories, additional restoration costs, as well as business interruption costs, that include opportunity losses. Sony is currently examining the extent to which insurance will cover the business interruption costs, including opportunity losses, from the third quarter; no recoveries were recorded in the current quarter under this coverage.

The net effect of other income and expenses was an expense of 14.2 billion yen (182 million U.S. dollars) in the current quarter, compared to an expense of 6.0 billion yen in the same quarter of the previous fiscal year. This increase was primarily due to an increase in net foreign exchange losses.

Loss before income taxes was 105.9 billion yen (1,358 million U.S. dollars), compared to income of 131.5 billion yen in the same quarter of the previous fiscal year.

Income taxes: During the current quarter, Sony recorded 28.9 billion yen (371 million U.S. dollars) of income tax expense. Income tax expense was recorded despite the net loss before income taxes primarily due to Sony continuing to not recognize the tax benefit associated with losses at Sony Corporation and its national tax filing group in Japan which established a valuation allowance against certain deferred tax assets and equity in net loss of affiliated companies being reported net of income taxes. Partially offsetting these factors was a reduction in the corporate tax rate in Japan which resulted in a reduction of net deferred tax liabilities and a corresponding income tax benefit of 32.7 billion yen (420 million U.S. dollars). The majority of the tax benefit relates to the Financial Services segment.

Net loss attributable to Sony Corporation’s stockholders, which excludes net income attributable to noncontrolling interests, was 159.0 billion yen (2,038 million U.S. dollars), compared to net income of 72.3 billion yen in the same quarter of the previous fiscal year.

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