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Annual Report 1998
Year Ended March 31, 1998

Table of contents

  • Page 1
    Annual Report 1998 Year Ended March 31, 1998

  • Page 2
    ... [16] Electronics [26] Game [28] Music [30] Pictures [32] Insurance Topics Environmental Activities at Sony Management Financial Review Quarterly Financial and Stock Information Five-Year Summary of Selected Financial Data Composition of Sales and Operating Revenue by Business and Geographic Segment...

  • Page 3
    ...presentation. Sales and Operating Revenue (Billion ¥) 3,744 3,991 4,593 5,663 6,755 Net Income (Loss) (Billion ¥) 15 (293) 54 139 222 Net Income (Loss) per Share* (¥) 41 (785) 134 309 483 94 95 96 97 98 94 95 96 97 98 94 95 96 97 98 *Diluted Annual Report 1998 Sony Corporation...

  • Page 4
    ... of Japan's first tape recorder and transistor radio, as well as Sony's Trinitron color TV. These breakthroughs formed the foundation for today's Sony. Mr. Ibuka's vision went beyond existing technology. He created entirely new products and markets by following a unique research and development path...

  • Page 5
    [above] Masaru Ibuka [ left ] Masaru Ibuka was awarded many honors. This photo was taken when he received the Order of Culture in 1992. [ right ] The Founding Prospectus of Tokyo Tsushin Kogyo Kabushiki Kaisha, the former name of Sony Corporation. Annual Report 1998 Sony Corporation [3]

  • Page 6
    ... a number of hit products. Among them were MiniDisc systems, home-use digital camcorders, Wega color TVs featuring flat-surface cathode ray tubes, VAIO notebook PCs, digital cellular phones, and electronic components such as optical pickups. A weakening PC market, however, brought down growth rates...

  • Page 7
    ... systems for digital satellite broadcasts and digital TV, and network-related businesses. In April 1998, we created Corporate IS Solutions, a new organization whose task is to drastically realign and upgrade our information network systems including construction of Sony's global supply chain...

  • Page 8
    ... a growth strategy to guide us into new fields of business. Our competitive strategy aims to add more value to products through the digitization of audiovisual equipment, our core business, and the fusion of this equipment with information technology. Reinforcing our supply chain, from development...

  • Page 9
    Sony's growth strategy entails much more than merely selling electronics products and content. We also need to expand opportunities to earn profits by building a new value chain, where we receive a steady stream of revenues following each sale. During the year under review, we invested in Japan Sky ...

  • Page 10
    digital content dream [8] Sony Corporation Annual Report 1998

  • Page 11
    ... merging of content, hardware, and technology, which Sony is uniquely qualified to accomplish as a world leader in each of these areas. for making digital dreams come true Even in today's digital age, people seek out the same kinds of entertainment they have always enjoyed, such as great music...

  • Page 12
    digital tools dream [10] Sony Corporation Annual Report 1998

  • Page 13
    ... studies to determine everything from easy-to-use, sophisticated designs to the desired performance and functions of each product. ✦ During the year under review, Sony launched a series of products including: Digital Handycam camcorders, MD Walkman models, and CD Walkman portable CD players...

  • Page 14
    digital linkage dream [12] Sony Corporation Annual Report 1998

  • Page 15
    ...products. The Digital Handycam camcorders and VAIO home-use PCs are two examples. In May 1998, Sony, along with seven major Japanese and European electronics companies, formulated the core specifications of HAVi (Home Audio Video interoperability) for audiovisual equipment that can connect to a home...

  • Page 16
    ... Video, Televisions, Information and communications, and Electronic components and other. Sales to Customers (Billion ¥) 2,792 3,027 3,283 3,930 4,377 94 95 96 97 98 Audio Audio encompasses MD systems, CD players, headphone stereos, personal component stereos, hi-fi components, radio-cassette...

  • Page 17
    ... Sony/ATV Music Publishing; Sony Classical; Sony Music International; and associated labels. Sales to Customers (Billion ¥) 462 481 506 570 660 94 95 96 97 98 Pictures Motion picture and television business is conducted mainly through Sony Pictures Entertainment (SPE); and theatre operations...

  • Page 18
    ... Nakagawa Personal & Mobile Communication Company Katsumi Ihara Home A&V Products Company Yoshihide Nakamura Computer Peripherals & Components Company Sony is aggressively expanding its operations outside Japan, developing and manufacturing products and providing customer services in the markets...

  • Page 19
    This MD deck permits editing and the input of song titles on a PC. Annual Report 1998 Sony Corporation [17]

  • Page 20
    ... business. During the year, units combining CD and MD players posted strong sales in Japan. MD players also performed well, with particularly strong sales growth in the United States and Europe. « Video » Home-Use Video Equipment Sony extended its leading position in the home-use camcorder market...

  • Page 21
    ... camcorders, Sony is aggressively developing models with extended operating times and compact size. A newly introduced Digital Handycam (left) has an 8-hour continuous recording capability, and another new Digital Handycam is only as long and wide as a passport. Annual Report 1998 Sony Corporation...

  • Page 22
    ... Wega series has contributed to growth in Sony's TV sales and market share in Japan. Sony introduced these TVs in Europe and Asia during the year, generating an extremely favorable response. Sony is promoting these models worldwide, including a model that can receive digital terrestrial broadcasts...

  • Page 23
    During the year, Sony added a 32-inch Hi-Vision model to the lineup of Wega home-use color TVs in Japan. The simulated picture shows a scene from Sony Pictures Entertainment's hit film As Good As It Gets. Annual Report 1998 Sony Corporation [21]

  • Page 24
    ... PC and the VAIO notebook PC were launched in July 1997. The mini-tower PC makes it easy to create video CDs and utilize digital photos and still images captured from digital video. A new ultra-slim VAIO notebook PC was an enormous hit when it came on the market in Japan in November 1997. This model...

  • Page 25
    The VAIO Compo PC launched in Japan in March 1998 skillfully incorporates a design that is both compact and fitting for audiovisual components. Noise from the main unit is kept down by sound suppression technology. Annual Report 1998 Sony Corporation [23]

  • Page 26
    ... design, development, and production. In the low-temperature, Poly-Si TFT LCD field, in which demand is expected to increase for applications such as monitors on camcorders and information-related equipment, Sony has succeeded as one of the first companies to bring such products to market. Sales for...

  • Page 27
    ... from the right] High-performance single chip MPEG2 AV decoder and video encoder Interface LSI for connections between digital AV equipment and PCs High-resolution color CCD for digital still cameras (1/2-inch, 1.45 million pixels) [back line from the right] High-transparency LCD for data projectors...

  • Page 28
    ... Entertainment (SCE) has actively promoted its business in Japan, North America, and Europe. As of March 31, 1998, cumulative production shipments to markets worldwide have reached 32.82 million consoles and 236 million software units. Large-Scale and Flexible Production Capabilities A new model...

  • Page 29
    PlayStation home-use game console Annual Report 1998 Sony Corporation [27]

  • Page 30
    ... Hendrix. Sony Music Entertainment (Japan) Inc. (SMEJ) During the year, SMEJ reviewed its management decision-making processes and reformed its internal organizations primarily in the production and promotion divisions. These steps are aimed at constructing a new system for artist development. In...

  • Page 31
    Celine Dion's Falling Into You and Let's Talk About Love were the biggest selling albums in the world released in 1996 and 1997. Annual Report 1998 Sony Corporation [29]

  • Page 32
    ... the globe. International revenues from licensing films and programming from the studio's library of more than 3,500 motion pictures and 40,000 television episodes have increased 72% during the past two years. Theatre Operations Loews Theatres added new locations and expanded existing locations to...

  • Page 33
    ... in history. Walkman flash in a pocket before has it been to that dynamic MD sound. the micro cassette recorder This MD Walkman flash in a pocket with sase. Never before has it been so easy to enjou dynamic MD sound. This MD Walkman flash in a pocket with ease. Annual Report 1998 Sony Corporation...

  • Page 34
    ... expanded its business with efficient provision of policies that were tailor-made to match the requirements of each customer. During the year under review, Sony Life's net increase in individual life insurance-in-force was highest among all 44 life insurers operating in Japan. Sales System Sony Life...

  • Page 35
    ...can accurately evaluate and analyze all aspects of a customer's requirements, present and future. By utilizing this information along with sophisticated computer software, planners conduct studies from many perspectives to formulate a plan for each customer. Annual Report 1998 Sony Corporation [33]

  • Page 36
    ...of specific programs. This new DVD-Video player was introduced in Japan and the United States. During the year, Sony supplied NTT DoCoMo in Japan with a new PDC digital cellular phone that is easy to handle, lightweight and compact. Recording images on 3.5-inch floppy disks, Sony's Digital Mavica...

  • Page 37
    ... Actor and Helen Hunt as Best Actress. Music Titanic has become the biggest selling original score album in history. Wheel of Fortune remains the most popular game show in the world and, underscoring the global appeal of Sony Pictures Entertainment's programming, is shown in 49 countries on six...

  • Page 38
    ...Sony products from the planning and design stages by the year 2000. The project aims to reduce materials with a high environmental impact and promote ways to conserve energy and resources. Among the Sony products launched since this program began are easily dismantled color TVs and VAIO notebook PCs...

  • Page 39
    ... the year under review, Sony introduced many products such as a personal component stereo that needs less than 3 watts of power in the standby mode. In the United States, Sony Electronics Inc. became a partner in the Energy Star Buildings Program and the Green Lights Program, both being promoted by...

  • Page 40
    ...Director (Chairman of Goldman Sachs (Japan) Ltd.) [Corporate Auditors] Standing Statutory Auditors [Corporate Executive Officers] Corporate Executive Vice Presidents Corporate Vice Presidents [Group Executive Officers... John Calley (As of May 7, 1998) [38] Sony Corporation Annual Report 1998

  • Page 41
    ...administrative expenses of the year under review. Therefore, the estimate does not take into account the effect of foreign exchange fluctuations on prices of products and production and sales costs in each region of the world. Sales and Operating Revenue by Business Segment (Percent of Consolidated...

  • Page 42
    ... the year grew by 40.5% to ¥520.2 billion ($3,941 million). Despite an increased operating loss in the Other segment, higher operating income in the Electronics, Music, Pictures, and Insurance segments, and particularly strong results in the Game segment, contributed to overall growth. Sales and...

  • Page 43
    ...to Consolidated Financial Statements). Business Segment Information Year ended March 31 Sales and operating revenue (Yen in billions) 1997 1998 percent change 1998/1997 Electronics ...Game ...Music ...Pictures ...Insurance ...Other ...Elimination ...Consolidated ...Operating income (loss) (Yen in...

  • Page 44
    ...in PC markets, sales in the "Information and communications" category increased 17.0% to ¥894.8 billion ($6,779 million), boosted by the popularity of new VAIO notebook PCs in Japan, and expansion of digital cellular phone sales in Japan, the United States, and Europe. In the "Electronic components...

  • Page 45
    ... to slow in Japan. Also, conditions in semiconductor markets are not expected to improve in the near-term. The Game business is forecast to experience a decline in profitability due to factors including an increase in R&D expenses. In the Other segment, new business areas such as digital satellite...

  • Page 46
    ... this merger, Sony owns 11.375% of shares of the combined company, known as Japan Digital Broadcasting Services Inc. Sony also invested a total of approximately ¥4.2 billion in broadcast programming companies relating to the digital communications satellite broadcasting business during the year. In...

  • Page 47
    ... the broadcast- and professional-use product field, Sony is continuing to deal with each customer in resolving the Year 2000 issue, and expects completion by the end of March 1999. The external cost to modify all internal information systems for compliance with the Year 2000 issue is estimated to be...

  • Page 48
    ...course of business are continuously exposed to fluctuations in markets, such as currency exchange rates, interest rates, and stock prices of investments. In applying a consistent risk management strategy in order to remove adverse effects caused by market fluctuations in the cash flow value of these...

  • Page 49
    ...96.2 78.8 New York Stock Exchange price per American Depositary Share: High ...$ 66 5 /8 $ 88 7/8 $ 66 1/4 $103 11/16 Low ...59 5/8 69 1/2 61 1/2 85 1/16 $ 67 7/8 58 7/8 $ 98 7/16 74 1 /2 1 $ 74 1/4 $ 97 3/16 63 3/8 82 5/16 * Including amortization of deferred insurance acquisition costs Notes...

  • Page 50
    ... Data ] Sony Corporation and Consolidated Subsidiaries Year ended March 31 • Yen in millions except per share amounts 1994 1995 1996 1997 1998 Dollars in thousands except per share amounts 1998 FOR THE YEAR Sales and operating revenue ...Operating income (loss) ...Income (loss) before income...

  • Page 51
    ... to the 1998 presentation. 2. The above table is a breakdown of Electronics sales and operating revenue to customers by product category. The Electronics business is managed as a single operating segment by the company's management. However, the company believes that the information in this table...

  • Page 52
    ... and cash equivalents (Notes 6 and 12) ...Time deposits (Note 12) ...Marketable securities (Note 9) ...Notes and accounts receivable, trade (Notes 8 and 12) ...Allowance for doubtful accounts and sales returns ...Inventories (Note 7) ...Deferred income taxes (Note 14) ...Prepaid expenses and other...

  • Page 53
    ...765 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 and other (Note 11) ...Other ... 1,099,765 146,289 173,951 579,263 154,912 2,154,180 1,104,420 186,871 147,116 713...

  • Page 54
    ... Statements of Income and Retained Earnings ] Sony Corporation and Consolidated Subsidiaries Year ended March 31 • Yen in millions 1996 1997 1998 Dollars in thousands (Note 3) 1998 Sales and operating revenue: Net sales (Note 8) ...Insurance revenue ...Other operating revenue ...Costs...

  • Page 55
    ... of deferred insurance acquisition costs ...227,316 266,532 Accrual for pension and severance costs, less payments ...9,604 19,521 Loss on disposal of fixed assets ...9,429 13,411 Deferred income taxes ...5,070 (5,490) Changes in assets and liabilities: Increase in notes and accounts receivable...

  • Page 56
    ...in the development, design, manufacture, and sale of various kinds of electronic equipment, instruments, and devices for consumer and industrial markets. The company's principal manufacturing facilities are located in Japan, the United States, Europe, and Asia, and its products are marketed by sales...

  • Page 57
    ... gains and losses are determined on the average cost method and are reflected in income. Inventories Inventories in electronics, game and music are valued at cost, not in excess of market, cost being determined on the "average cost" basis except for the cost of finished products carried by certain...

  • Page 58
    ... are directly charged to retained earnings, net of tax, in the accompanying consolidated financial statements as the Japanese Commercial Code prohibits charging such stock issue costs to capital accounts which is the prevailing practice in the United States of America. [56] Sony Corporation Annual...

  • Page 59
    ... is effective for financial statements for fiscal years beginning after December 15, 1998, provides guidance on accounting for the costs of computer software developed or obtained solely to meet the company's internal needs. At this stage, it is not possible to estimate the impact of adoption on...

  • Page 60
    ...trade ...Accounts payable, trade ... ¥13,232 89 Yen in millions ¥9,425 945 $71,402 7,159 Dollars in thousands Year ended March 31 1996 1997 1998 Year ended March 31, 1998 Sales ...Purchases ... ¥123,623 2,647 ¥96,183 733 ¥27,419 3,199 $207,720 24,235 [58] Sony Corporation Annual Report...

  • Page 61
    ... in unrealized gain or loss on trading securities that has been included in earnings during the years ended March 31, 1996, 1997 and 1998 was insignificant. In the ordinary course of business, the company maintains long-term investment securities, included in securities investments and other, issued...

  • Page 62
    ...all of these warrants and distributed such instruments at fair market value to the directors and selected employees of the company as a part of their remuneration or salary. At March 31, 1998, all warrants were outstanding and will expire on October 12, 2001. [60] Sony Corporation Annual Report 1998

  • Page 63
    ... and that any collateral furnished, pursuant to such agreements or otherwise, will be applicable to all present or future indebtedness to such banks. 11. Insurance-related operations The company's stock life insurance subsidiary maintains accounting records as noted in Note 2 in accordance with the...

  • Page 64
    ... of business, substantially all notes and accounts payable, trade, are to be paid currently and their carrying amounts 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...

  • Page 65
    ......52,518 Notes and accounts receivable, trade ...1,066,314 Short-term borrowings ...(117,801) Notes and accounts payable, trade ...(653,826) Long-term debt including the current portion ...(1,310,080) Forward exchange contracts ...997 Interest rate and currency swap agreements ...- Option contracts...

  • Page 66
    ... Benefits awarded under these plans are based primarily on current rate of pay and lengths of service. Net pension and severance costs and the related pension plans' funded status including the employees' contributory portion and rate assumptions are shown below: Japanese plans: Yen in millions Year...

  • Page 67
    ... prior service cost ...Adjustment required to recognize minimum pension liability ...Net pension liability recognized in the balance sheet ...Assumptions used in developing the pension obligation as of March 31: Discount rate ...Long-term rate of salary increase . . Long-term rate of return...

  • Page 68
    ... 31, 1998 Deferred tax assets: Operating loss carryforwards for tax purposes...Accrued pension and severance costs ...Warranty reserve and accrued expenses ...Inventory - intercompany profits and write-down ...Future insurance policy benefits ...Accrued enterprise taxes ...Other accrued employees...

  • Page 69
    ... 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 based on its tax planning strategies. The unrecognized...

  • Page 70
    ... Board of Directors, acquire and retire up to a total not exceeding 30 million outstanding shares of its common stock with its additional paid-in capital at prices in total not exceeding ¥400 billion ($3,030,303 thousand) and (b) the company may grant share subscription rights to directors and/or...

  • Page 71
    16. Research and development expenses and advertising costs Research and development expenses Research and development expenses charged to cost of sales for the years ended March 31, 1996, 1997 and 1998 were ¥257,326 million, ¥282,569 million and ¥318,044 million ($2,409,424 thousand), ...

  • Page 72
    ... activities primarily including customer financing and leasing business, and media-communication network businesses relating to broadcasting and information technology. The company's products and services are generally unique to a single operating segment. [70] Sony Corporation Annual Report 1998

  • Page 73
    Business segments Sales and operating revenue: Yen in millions Year ended March 31 1996 1997 1998 Dollars in thousands Year ended March 31, 1998 Sales and operating revenue: Electronics - Customers ...Intersegment ...Total ...Game - Customers ...Intersegment ...Total ...Music - Customers ......

  • Page 74
    ... Year ended March 31, 1998 Depreciation and amortization: Electronics ...Game ...Music ...Pictures ...Insurance, including deferred insurance acquisition costs ...Other ...Total ...Corporate ...Consolidated total ...Capital expenditures for segment assets: Electronics ...Game ...Music ...Pictures...

  • Page 75
    ... areas. Transfers between reportable business or geographic segments are made at arms-length prices. Operating income is sales and operating revenue less costs and operating expenses. Unallocated corporate assets consist primarily of cash and cash equivalents and marketable securities maintained for...

  • Page 76
    ... information in light of the disclosure requirement of the Japanese Securities and Exchange Law, which a Japanese public company is subject to. Yen in millions Year ended March 31 1996 1997 1998 Dollars in thousands Year ended March 31, 1998 Sales and operating revenue: Japan - Customers...

  • Page 77
    ... of their operations and their cash flows for each of the three years in the period ended March 31, 1998, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the company's management; our responsibility...

  • Page 78
    ... Price Waterhouse Tokyo, Japan 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 reports to shareholders, please direct your request to: JAPAN Sony Corporation Investor Relations Phone...

  • Page 79
    Printed on recycled paper

  • Page 80
    Sony Corporation Printed in Japan