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ANNUAL REPORT 1997
Year Ended March 31, 1997

Table of contents

  • Page 1
    ANNUAL REPORT 1997 Year Ended March 31, 1997

  • Page 2
    ... ...62 Investor Information ...63 At a Glance ...10 Review of Operations Video Equipment ...12 Audio Equipment ...15 Televisions ...18 Other Products ...21 Music Group ...24 Pictures Group ...27 Concerned for the Environment ...30 Statements made in this annual report with respect to Sony's plans...

  • Page 3
    .../1996 Dollars in thousands except per share amounts 1997 OPERATING RESULTS FOR THE YEAR Sales and operating revenue ...Operating income ...Income before income taxes ...Net income ...Per share: Net income ...Cash dividends ...AT YEAR-END Stockholders' equity ...Total assets ...Number of employees...

  • Page 4
    ... digital camcorders, MiniDisc systems, and other digital products climbed sharply. Our home video game business continued to expand worldwide and made a significant contribution to consolidated results. Falling sales prices impacted the performance of personal computer-related semiconductors and CD...

  • Page 5
    Sony Corporation Annual Report 1997 Nobuyuki Idei President and Chief Operating Officer Norio Ohga Chairman and Chief Executive Officer by adjusting the size of the Board as appropriate. By establishing the position of corporate executive officer, we intend to strengthen Sony's ability to manage...

  • Page 6
    ...how our products are designed. Superior designs contribute directly to enhanced brand recognition. How do you plan to expand the scope of Sony's business domains? Selling hardware and software has long been Sony's primary business. Rapid progress in digital and network technologies is opening up new...

  • Page 7
    ... of Sony's digital technology in the production of movies. I think today's movie industry depends too heavily on the United States. We need to establish more global distribution channels. Once we reach the point where we can provide a steady supply of movies, video software, TV programs, and...

  • Page 8
    ... products. In 1982, we introduced the world's first CD player and were first with a MiniDisc system in 1992. A digital camcorder joined our digital line-up in 1995. With the introduction of a DVD video player in March 1997, Sony continues to be a leader in the development of new digital technologies...

  • Page 9
    ...equipment and PCs. The first Sony product adopting this standard is already available: a home-use Digital Handycam camcorder with an IEEE 1394 terminal. Sony envisions interactivity between audiovisual equipment and PCs as the gateway to a new world. Here, people can obtain audio or video selections...

  • Page 10
    ...and children's TV programming, listen to music samplings, and access many other services. Building a Base of Digital-Ready Content Sony began marketing DVD-Video players and software during the year. The next few years will see the proliferation of digital satellite broadcasting. One point is clear...

  • Page 11
    9

  • Page 12
    ...(Billion ¥) 928 841 1,035 899 905 Encompasses MD systems, CD players, headphone stereos, personal component stereos, hi-fi components, radio-cassette tape recorders, tape recorders, digital audio tape (DAT) recorders/players, IC recorders, radios, headphones, car stereos, car navigation systems...

  • Page 13
    Sony Corporation Annual Report 1997 ENTERTAINMENT Music Group Music Group sales increased 14.0 percent to ¥585 billion ($4,717 million), representing 10.3 percent of consolidated sales. Recordings by Celine Dion, Fugees, Mariah Carey, Oasis, Jamiroquai, Michael Jackson, Pearl Jam, Julio Iglesias,...

  • Page 14
    ...VHS video decks that allow timer programming by telephone. All these new products were popular among consumers. In the United States and Europe, Sony began selling a home theater model that combines a VHS video deck and an AV amplifier. « Digital Video Decks » Digital video decks bring picture and...

  • Page 15
    ...memory that holds up to 108 digital still images. Pictures can be Sony's DVD-Video player went on sale in the spring of 1997. It incorporates sophisticated video processing and audio surround technology to deliver outstanding picture and sound quality. viewed on an ordinary TV or downloaded to a PC...

  • Page 16
    ...picture quality is required. The company reinforced this market leadership during the year as sales of Digital Betacam VTRs climbed worldwide, particularly in Europe. In January 1997, Sony received a significant order for a digital video production system from ERTU, the national broadcaster of Egypt...

  • Page 17
    ...of brightness. MiniDisc (MD) System Sales of MD systems rose substantially as Sony expanded product lines in all player and recorder categories. Sony unveiled new MD Walkman units, MD decks, stereo systems incorporating MD decks, and car MD players. These innovative products helped stimulate growth...

  • Page 18
    ... of its many possible applications. IC Recorders Sony began selling an IC recorder during the year, adding a new dimension to its line of audio recording products. Available in Japan and overseas markets, the company's IC recorder stores sound in a flash memory chip. The chip can store 8 minutes of...

  • Page 19
    ...CD player and cassette deck, and Consumers can assemble a home theater system that offers high-quality DVD pictures and sound by combining Sony's Dolby digital processor (above) and AV amplifier with a DVDVideo player and large-screen TV. models with both an MD and a CD player had strong sales. Car...

  • Page 20
    Sony Corporation Annual Report 1997 Review of Operations Televisions Electronics Color TVs In December 1996, Sony introduced a 28-inch wide-screen TV incorporating a newly developed Super Flat Trinitron cathode ray tube (CRT). This is the first TV for the home with a CRT that is flat over both ...

  • Page 21
    ... l R e por t 1997 Wide-screen televisions incorporating the Super Flat Trinitron CRT, which is flat over its entire surface, generate text, multi-screen images, and other pictures without distortion. The simulated picture shows a scene from Sony Pictures Entertainment's hit film Jumanji. ©1995...

  • Page 22
    ...Monitor Sony introduced the Glasstron personal LCD monitor in Japan in June 1996. The compact, lightweight unit fits easily on the head. Images can be supplied from a VTR, video CD player, and any other video source. Users are thrilled by a picture that is comparable to a 52-inch A WebTV set-top box...

  • Page 23
    ... to the digitization, downsizing, energy efficiency, and versatility of electronic products of all types. Demand patterns of the year demonstrated the wisdom of this focus. Higher resolution CCDs and LSI devices for MiniDisc (MD) systems and home video game systems posted strong sales gains. Sony is...

  • Page 24
    Sony Corporation Annual Report 1997 Displayed on the screen is a simulated picture from Sony Computer Entertainment's hit title PARAPPA THE RAPPER . Personal Computers Sony's home-use PCs went on sale in the United States in September 1996. These PCs combine Sony's expertise in digital ...

  • Page 25
    ... from leading U.S. telecommunications firms. In Japan, Sony's PDC (Personal Digital Cellular) handsets with jog dial control continued to perform well. In Europe, Sony introduced an ultra-compact GSM (Global System for Mobile Communications) handset with jog dial. Scheduled to hit the U.S. market in...

  • Page 26
    Sony Corporation Annual Report 1997 Review of Operations Music Group Entertainment Sony Music Entertainment Inc. (SMEI) SMEI had the most successful year in its history, with all operating divisions exceeding the prior year's results. New and continuing global bestsellers, worldwide local ...

  • Page 27
    ... Hayes, Ty Herndon, Rick Trevino, Patty Loveless, Collin Raye, and Ricochet. Patty Loveless was named Top Female Vocalist by the Academy of Country Music and Female Vocalist of the Year by the Country Music Association. International Growth Sony Music International (SMI) increased sales throughout...

  • Page 28
    Sony Corporation Annual Report 1997 Martin (Mexico), Meja (Sweden), CoCo Lee, Mindy Quah, and Harlem Yu (Taiwan), and Jamiroquai (UK). A worldwide licensing and distribution agreement was signed with the new UK label Independiente, and SMI's expansion into new territories continued with the start-...

  • Page 29
    Sony Corporation Annual Report 1997 Review of Operations Pictures Group Entertainment In November 1996, Sony Pictures Entertainment (SPE) named a new senior management team led by President and Chief Operating Officer John Calley, one of Hollywood's most highly respected and experienced ...

  • Page 30
    ...of motion pictures and television programming through its investments in more than a dozen new channels in Europe, Asia, Latin America, and Australia. SPE's filmed entertainment now reaches more than a billion viewers around the globe through its co-production and distribution ventures. The value of...

  • Page 31
    ... The Young & the Restless and Days of Our Lives. In February 1997, SPE joined forces with Procter & Gamble, another daytime programming leader, to produce new serials for the U.S. market as well as SPE's growing array of international channels. Metreon, a Sony entertainment center in San Francisco...

  • Page 32
    ...'s Energy Star Buildings Program. This requires that the company promote greater energy efficiency at all its offices and plants as well as undertake full-scale Designed using fewer parts, this color TV is energy efficient and easy to disassemble. recycling efforts. In Europe, Sony International...

  • Page 33
    ..., this annual education trip to Japan has provided 50 U.S. high school students with cross-cultural experiences. Advancing Social Welfare and Medicine In Japan, Sony Corporation helps disabled people become self-sufficient by donating video editing systems to work centers and sending employees to...

  • Page 34
    ... Morita Tsunao Hashimoto President and Representative Director, Chief Operating Officer Nobuyuki Idei Executive Deputy Presidents and Representative Directors Minoru Morio Kozo Ohsone Yoshiyuki Kaneda Tamotsu Iba Senior Managing Directors Toshitada Doi Jakob J. Schmuckli Masayuki Takano Seiichi...

  • Page 35
    ...in Japan rose 15.3 percent to ¥1,590.8 billion ($12,829 million). Televisions and Other Products, which includes the home video game business, were the most important contributors. Sony's overseas sales were higher in both the Electronics Business and Entertainment Business. As a result, sales were...

  • Page 36
    ... and the value at settlement of these sales and imports. The rates used for settlement are primarily based on foreign exchange forward contracts and foreign currency option contracts that Sony employs to hedge risks from exchange rate fluctuations. During the year under review, the exchange rates of...

  • Page 37
    ... taxes as a percentage of income Capital Expenditures (Billion ¥) 298 percentage point to 6.3 percent. Strong results outside Japan were behind higher operating income in the Music Group. The Pictures Group also posted an increase in operating income, primarily due to strength in the home video...

  • Page 38
    ... by Operating Activities (Billion ¥) 723 previous year-end. One reason was the significantly lower value of the yen in relation to foreign currencies at the end of the year compared with the previous year-end. An increase in operating assets of Sony Life Insurance Co., Ltd., which recorded higher...

  • Page 39
    ... Stock Information Sony Corporation and Consolidated Subsidiaries (Unaudited) Year ended March 31 Dollars in millions except per share amounts 4th Quarter 1997 1st Quarter 1996 1997 Yen in billions except per share amounts 2nd Quarter 3rd Quarter 1996 1997 1996 1997 4th Quarter 1996 1997 Sales...

  • Page 40
    ... per share is computed based on the average number of common shares outstanding during each period after consideration of the dilutive effect of common stock equivalents. 3. During the fiscal year ended March 31, 1996, the Company changed its method of accounting for assessing the carrying values of...

  • Page 41
    ...Europe ...Other Areas ...Sales and operating revenue ...SALES AND OPERATING REVENUE BY BUSINESS GROUP Video Equipment ...Audio Equipment ...Televisions ...Other Products ...Total Electronics Business ...Music Group ...Pictures Group ...Total Entertainment Business ...Insurance and Financing ...Sales...

  • Page 42
    ..., trade (Notes 8 and 12) ...Allowance for doubtful accounts and sales returns ...Inventories (Note 7) ...Deferred income taxes (Note 14) ...Prepaid expenses and other current assets ...Total current assets ...Noncurrent inventories-film (Note 7) ...Investments and advances: Affiliated companies...

  • Page 43
    ... Long-term liabilities: Long-term debt (Notes 10, 12 and 17) ...Accrued pension and severance costs (Note 13) ...Deferred income taxes (Note 14) ...Future insurance policy benefits... stock, ¥50 par value - Authorized: 1,350,000,000 shares Issued: 1996-374,067,706 shares ...1997-384,185,043 shares ...

  • Page 44
    ... Income and Retained Earnings Sony Corporation and Consolidated Subsidiaries Year ended March 31 1995 Yen in millions 1996 1997 Dollars in thousands (Note 3) 1997 Sales and operating revenue: Net sales (Note 8) ...Insurance and financing revenue ...Other operating revenue ...Costs and expenses...

  • Page 45
    ... income and other taxes ...Increase in other current liabilities ...Increase in future insurance policy benefits and other ...Other ...Net cash provided by operating activities ...Cash flows from investing activities: Payments for purchases of fixed assets ...Proceeds from sales of fixed assets...

  • Page 46
    ... in the development, production, manufacture and distribution of recorded music, in all commercial formats and musical genres, and image-based software, including film, video, television and new entertainment technologies. Further, the company is engaged in insurance and financing activities...

  • Page 47
    ... revenue for a period relates to management's estimate of ultimate revenues. Unamortized film costs are compared with estimated net realizable value on an individual film basis and write-downs are recorded when indicated. Film costs for motion pictures and television programs that are expected to...

  • Page 48
    ... application of the provisions of EITF No. 95-2 did not have a material impact on the results of operations for the years ended March 31, 1996 and 1997. Net income (loss) per common share Net income (loss) per common share is computed based on the average number of shares of common stock outstanding...

  • Page 49
    ...the investment program contemplated during the second quarter of the year ended March 31, 1995, the company forecast total operating cash flows of ¥4,166,374 million. Based on such forecasts, the cumulative results of the Pictures Group's operating cash flows on a discounted net present value basis...

  • Page 50
    ...) for the years ended March 31, 1995, 1996 and 1997, respectively. 7. Inventories Inventories comprise the following: Yen in millions March 31 1996 1997 Dollars in thousands March 31, 1997 Current: Finished products ...Work in process ...Raw materials, purchased components and supplies ...Film...

  • Page 51
    ...the investments in nonpublic companies were ¥50,146 million and ¥62,346 million ($502,790 thousand) at March 31, 1996 and 1997, respectively. The corresponding fair values at those dates were not computed as such estimation was not readily determinable. 10. Short-term borrowings and long-term debt...

  • Page 52
    ... fixed coupon notes linked to the Yen/U.S. dollar rate of a consolidated subsidiary, due 2001 ...Secured 3.8% bonds of a consolidated subsidiary, due 2001, redeemable before due date ...Long-term capital lease obligations, 1.15% to 16.28% per annum, due 1997 to 2015 ...Guarantee deposits received...

  • Page 53
    ... furnished, pursuant to such agreements or otherwise, will be applicable to all present or future indebtedness to such banks. 11. Insurancerelated operations The company's stock life insurance subsidiary maintains accounting records as noted in Note 2 in accordance with the accounting principles...

  • Page 54
    ... approximate fair value. Short-term borrowings and long-term debt The fair values of short-term borrowings and total long-term debt including the current portion were estimated based on the discounted amounts of future cash flows using the company's current incremental borrowing rates for similar...

  • Page 55
    ... Estimated amount fair value At March 31, 1997 Cash and cash equivalents ...Time deposits ...Notes and accounts receivable, trade ...Short-term borrowings ...Notes and accounts payable, trade ...Long-term debt including the current portion ...Forward exchange contracts ...Interest rate and currency...

  • Page 56
    ...of the company's stockholders. The parent company and most subsidiaries in Japan have contributory funded defined benefit pension plans, which are pursuant to the Japanese Welfare Pension Insurance Law. The contributory pension plans cover a portion of the governmental welfare pension program, under...

  • Page 57
    ...the projected benefit obligation and unrecognized net gains and losses. The plan assets are invested primarily in interest bearing securities and listed equity securities. 14. Income taxes The company is subject to a number of different income taxes which, in the aggregate, indicate a statutory rate...

  • Page 58
    ... sale of stock of ¥61,544 million arising from the issuance of common stock of Sony Music Entertainment (Japan) Inc. in a public offering to third parties in November 1991, as the company does not anticipate any significant tax consequences on possible future disposition of its remaining investment...

  • Page 59
    ... in common stock and additional paid-in capital have resulted from the following: Number of shares Yen in millions Common Additional stock paid-in ... when the legal reserve equals 25% of stated capital. The amounts of statutory retained earnings of the parent company available for the payments ...

  • Page 60
    ... value of net minimum lease payments ...Less-Current obligations ...Long-term capital lease obligations ... ¥ 6,521 5,222 4,643 4,118 4,239 13,909 38,652 9,338 29,314 4,409 ¥24,905 $ 52,589 42,113 37,444 33,210 34,185 112,169 311,710 75,307 236,403 35,556 $200,847 Rental expenses under operating...

  • Page 61
    ... and are included in other expense. Certain subsidiaries in the music entertainment industry entered into long-term contracts with recording artists and companies for the production and/or distribution of prerecorded music and videos. These contracts cover various periods mainly through March 31...

  • Page 62
    ...millions Year ended March 31 1996 1997 Dollars in thousands Year ended March 31, 1997 1995 Sales and operating revenue: Electronics- Customers ...Intersegment ...Total ...Entertainment- Customers ...Intersegment ...Total ...Insurance and financing- Customers ...Intersegment ...Total ...Elimination...

  • Page 63
    ... the second quarter of the year ended March 31, 1995 Transfers between industry or geographic segments are made at arms-length prices. Operating income (loss) is sales and operating revenue less costs and operating expenses. Corporate expenses of the geographic segments include certain research and...

  • Page 64
    ... sheets and the related consolidated statements of income and retained earnings and of cash flows present fairly, in all material respects, the financial position of Sony Corporation and its consolidated subsidiaries at March 31, 1996 and 1997, and the results of their operations and their cash...

  • Page 65
    ...: (03) 5448-2244 Information If you have any questions or would like a copy of our Form 20-F annual report filed with the U.S. Securities and Exchange Commission or quarterly report to shareholders, please direct your request to: JAPAN Sony Corporation Investor Relations Phone: (03) 5448-2180...