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Annual Report 2002
year ended March 31, 2002

Table of contents

  • Page 1
    Annual Report 2002 year ended March 31, 2002

  • Page 2
    .... 6. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." Sony adopted SAB No. 101 in the fourth quarter ended March 31, 2001 retroactive to April 1, 2000. As a result, a one-time non-cash cumulative...

  • Page 3
    Sony Corporati on A nnual Report 2002 Contents To Our Shareholders ... 2 Message from Top Management ... 5 At a Glance ... 20 Sony World ... 24 Research and Development ... 48 Corporate Social Responsibility ... 51 Management ... 54 Financial Section ... 57 Stock Information ... 76 New ...

  • Page 4
    ...for our mobile phone handset business, and we announced our decision to take Aiwa Co., Ltd. private in October 2002. These and other actions made the 2001 Fiscal Year a year in which we responded to many concerns raised by shareholders and investors. Sony Group's Management Strategy Sony is working...

  • Page 5
    To Our Shareholders Nobuyuki Idei Chairman and Chief Executive Officer Kunitake Ando President and Chief Operating Officer 3

  • Page 6
    ... of a new business model for the broadband era. In order to build a close cooperative relationship between the Electronics, Game and Content sectors, and to create a platform for this cooperation to expand, in April 2002, we established the Network Application and Content Service Sector (NACS...

  • Page 7
    ... 11, the Group reached a consensus to accelerate restructuring activities, and we were able to take decisive action. Furthermore, we took steps to deal with issues raised by analysts and shareholders such as Aiwa Corporation's large losses, losses from our mobile phone business, justification for...

  • Page 8
    ... standard, Ericsson is known as a company with a high level of vanguard technology and is the best in the world when it comes to the technology used for mobile communication base stations. Sony's strength lies in its ability to create new products, particularly in the crucial product-planning and...

  • Page 9
    ...were the main theme, particularly for the production of TV programs. Largely due to the striking growth in the DVD market, we were able to raise operating income in this segment more than seven-fold. In the Financial Services business, an increase in policyholders led to higher life insurance income...

  • Page 10
    ... and content businesses, we formed the Network Application and Content Service Sector (NACS) in April 2002. The president of NACS is Masayuki Nozoe, an executive who spent approximately four years in Los Angeles at Sony Pictures Entertainment. By using his experience in our hardware business and in...

  • Page 11
    ... also in management. These three key words collectively describe Sony's distinctive corporate culture. As these characteristics become further integrated, new business opportunities will present themselves and Sony will become a 21st century manufacturer - a manufacturer built on knowledge - and new...

  • Page 12
    ... of our mobile phone business. One more central goal for management is making Sony number one in network electronics. We have been laying the groundwork for quite some time and, in 2002, a number of highly competitive products will join our lineup. Q u e s t i o n : Sony has strategies to both...

  • Page 13
    ...important points about Sony's growth strategy? Ando COO The success of our growth strategy depends above all on accelerating our network strategy. Sony sells four network gateway products: TVs, PCs, mobile devices such as mobile phones, and PS2. We supply many other electronics products that connect...

  • Page 14
    ... result is a contact-free IC card named FeliCa, which is used in Suica®, now being used by East Japan Railway Company. This same technology is also suited to settlements of distribution-related network transactions and many other applications. In April 2002, Sony Finance International started...

  • Page 15
    ...Top Management Game Business Strategy Q u e s t i o n: To start with, would you give us your thoughts on the performance of the Game business in the year ended March 31, 2002? Kutaragi CEO, SCE During the year under review, the PlayStation 2 (PS2) business finally entered a harvest stage with sales...

  • Page 16
    ... enjoying music and games along with many other people via networks, combining broadcasting and networking, and communicating over phones with images instead of just voice. I believe that, in such an environment, home-use game machines that are easy to use and always connected to televisions around...

  • Page 17
    ..., Sony Group's content and services will have more business opportunities, and we should be creating and suggesting various ways to add value. One way is by connecting consoles through the network to Sony electronics products with leading-edge technologies. Another way is to share key components...

  • Page 18
    ...international offices and the build-out of a state-of-the-art digital asset management system. In addition, SPE and SMEI have participated in Project USA efficiency initiatives implemented across the Sony Corporation of America divisions, including media buying consolidation, integrated supply chain...

  • Page 19
    ... the secure digital download of films via the Internet. SPE plans to launch this service, along with four other major studios, in late 2002. Sony's electronics and games devices provide key distribution outlets for our services. For instance, Sony Music's joint venture pressplay online music service...

  • Page 20
    ... films, and downloadable ringtones from Sony Music's and Sony/ATV Music Publishing's top artists and writers. A new phone will also feature two games - Men in Black and Charlie's Angels - created by Sony Pictures Digital Entertainment. The Sony Group's Financial Strategy Q u e s t i o n : Would you...

  • Page 21
    ... same time, we will retain a balanced approach, channeling resources as needed to create new corporate value over the long term. Every member of the Sony Group is dedicated to meeting the expectations of shareholders and reinforcing our position as a company that customers can admire. May 2002 19

  • Page 22
    Sony Corporation Annual Report 2002 At a Glance BUSINESS AREAS Electronics business consists of Audio, Video, Televisions, Information and communications, Semiconductors, Components and other. SALES AND REVENUE, OPERATING INCOME (Billion Â¥) 5,310 -8 5,473 247 4,671 99 â- Sales â- Operating ...

  • Page 23
    ... connectivity to provide a new form of entertainment such as online games Continue to supply strong new releases Improve profitability through further implementation of restructuring initiatives Create business models that secure profit from digital distribution â- â- â- â- Sales increased...

  • Page 24
    ... VIDEO TELEVISIONS SALES TO CUSTOMERS (Billion ¥) 733 756 747 665 791 806 704 636 748 00 01 02 00 01 02 00 01 02 MAJOR PRODUCTS Home audio, portable audio, car audio, and car navigation systems Video cameras, digital still cameras, video decks, and DVD-Video players/recorders...

  • Page 25
    ...equipment Sales decreased 7% because sales of mobile phones decreased as a result of quality issues in Japan and the fact that business was transferred to SEMC from October 1st. Sales of CRTbased computer displays decreased significantly in Europe and the U.S., although sales in the U.S. of VAIO PCs...

  • Page 26
    Sony S o n y Corporation Cor p o r a t i o n A Annual n n u al R Report ep o r t 2 2002 002 Welcome to Sony World 24

  • Page 27
    ... the Sony Group with more than 230 companies supporting the Memory Stick format as of March 2002. A wide variety of electronic devices are now equipped with Memory Stick slots. These include not only PCs, video cameras, digital still cameras and PDAs, but also color TVs, DVD players, car navigation...

  • Page 28
    Sony Corporation Annual Report 2002 HDCAM/CineAlta Sony is the world's preeminent supplier of audio and video equipment for the professional and broadcast markets. Sony's HDCAM format is used in Japan by NHK, the national broadcasting system, and has an overwhelming majority of the country's 123 ...

  • Page 29
    .... In addition, we partnered with other studios in Movielink, a service launching in late 2002 to distribute films over the Internet and in a venture to promote development and deployment of digital cinema technology. http://www.sonypictures.com/start.html America's Sweethearts A Knight's Tale...

  • Page 30
    Sony Corporation Annual Report 2002 Sony Music Entertainment Overview Sony Music Entertainment Inc. (SMEI) sold more than 340 million units worldwide during the year under review, maintaining its standing as the number two music company worldwide with a 17% market share. Global multimillion ...

  • Page 31
    ...can build personal collections, duplicate them on a second computer, share play lists and access the AllMusicGuide and Billboard charts. pressplay is marketed through relationships with MSN, MP3.com, Roxio and Yahoo! Music, and offers tracks from Sony Music, Universal Music Group, EMI Recorded Music...

  • Page 32
    ... efforts to increase productivity have helped decrease PS2 production costs. Through the close cooperation of Sony's Semiconductor Network Company and Sony Semiconductor Kyushu Corporation, a variety of synergistic effects are being felt across the Sony Group such as the sharing of semiconductor...

  • Page 33
    ... of Liberty-by Konami Computer Entertainment Japan, Inc., and Dragon Quest IV from ENIX Corporation were all hits. In Europe and the U.S., major hits included Grand Theft Auto 3 from Take-Two Interactive Software, Inc.; Electronic Arts Inc.'s Madden NFL 2002, FIFA Football 2002 and Harry Potter and...

  • Page 34
    ...the market for televisions with flatsurface cathode ray tubes (CRTs). Wega commands a healthy share of the 100 million unit annual global CRT television market. Large-screen Wega TVs, in particular, benefit from a strong brand image. During the year under review, more than 80% of televisions sold by...

  • Page 35
    ... panel LCD monitor linked to a base station by wireless connection. This innovative entertainment system allows users to watch television, surf the internet, check e-mail and view images from video devices, all from any location in the home. Pictured here is the latest airboard model, which features...

  • Page 36
    ... card is in its holder. This service uses a contact-free IC technology known as FeliCa, which was developed by Sony. Sony delivered 6.5 million cards to JR East. In addition to high speed processing and outstanding security, FeliCa cards are not susceptible to the contact problems that often result...

  • Page 37
    ...to take digital still photos with a 100,000 pixel CMOS sensor, and then view them instantly or send them over the Internet. During the year under review, global demand for PDAs exceeded 11.6 million units. By adding entertainment capabilities to what is traditionally used as a business tool, Sony is...

  • Page 38
    ... LCDs for use both internally and for sale to other companies, and it has a high share of the global market. Sony began shipping these panels in the spring of 2002 from Sony Semiconductor Kyushu Corporation's Kumamoto Technology Center, which began operations in the year under review. The center is...

  • Page 39
    ...home. The market for home theater systems has continued to grow in recent years thanks to the proliferation of 5.1 channel DVD recordings and Super Audio CD formats. The year under review was no exception. At the heart of the audio system is Sony's small, yet powerful, S-Master all-digital amplifier...

  • Page 40
    ... Annual Report 2002 Net MD A popular product in Japan, the Net MD Walkman, pictured here, enables the copyright-secured, high-speed transfer to an MD of music data stored on a PC hard drive - data which may have originated from a CD or an electronic music distribution service. By increasing...

  • Page 41
    ... products in Europe, Africa, the Middle East, Asia Pacific, the Americas, and in Japan, it is clear that SEMC has taken off. With its application-based focus featuring "imaging", "entertainment", and "connectivity", SEMC is set to generate further excitement in the global mobile phone industry. http...

  • Page 42
    ... albums online, without connecting to a PC. CCDs Sony meets a high percentage of the global demand for CCDs (charge-coupled devices), a component that functions as an "electronic eye." Most often used in video cameras and digital still cameras, CCDs are now increasingly employed in mobile phones...

  • Page 43
    ... sale of automobile insurance to customers by telephone and over the Internet. Policies are structured to target specific categories of risk. Growth in Sony Assurance policyholders and net insurance premiums continued in the year under review due to the company's ability to offer superior services...

  • Page 44
    ...Corporation Annual Report 2002 Sony Life Insurance What is "quality" life insurance? At Sony Life, quality means providing optimal policies tailored to the specific insurance needs of each customer. Everyone has a unique set of circumstances and this is true of people and companies alike. Offering...

  • Page 45
    Sony World Music Composers & Writers Sony Classical composer, Tan Dun, won a Grammy® and Academy Award® for his Crouching Tiger, Hidden Dragon soundtrack, Sony Classical's fourth consecutive Academy Award®, and The Producers cast album and DVD each won a Grammy® Award. Yo-Yo Ma's Silk Road ...

  • Page 46
    ...player online game, Star Wars Galaxies, later in 2002. SPDE also launched Screenblast, a software service that helps online enthusiasts create and share video sequences over the Internet. Star Wars Galaxies SoapCity DVD Players The global market for DVD players surged during the year under review...

  • Page 47
    ... optical zoom lens. These stick-shaped cameras became an immediate hit in Japan. Sony is expanding its network services such as the download of images to PCs and the easy transfer of photos, together with text messages, to mobile phones. In addition to the Cybershot line, the Mavica line of digital...

  • Page 48
    ...Corporation Annual Report 2002 VAIO The VAIO W, shown to the right, represents a new concept in PCs: a computer as easy to use as a home appliance. The innovative design, including the choice between black or white color schemes, integrates the main unit, LCD monitor, and keyboard. The wide screen...

  • Page 49
    ... Internet music distribution service in 1999, posted strong sales due to advances in broadband infrastructure and Net MD compatibility. And, as a model for the future of broadband entertainment, "morrich," a service offering streaming video content, started in June 2001. In addition, in April 2002...

  • Page 50
    ... to new forms of entertainment and lifestyles. â- Broadband Applications Laboratories Development of application architecture technology for broadband networks that will differentiate Sony's next generation businesses and create applications and services to produce new value. â- Networked CE...

  • Page 51
    ... of creating new markets and life styles, combined with the development of original storage technologies. â- Display Technology Laboratories Development of key core devices for future core high-resolution display products, along with R&D in display technologies that offer new lifestyles. In...

  • Page 52
    ... in the broadband network era. The new laser is essential to the commercialization of the Blu-ray Disc, a large-capacity optical disc video recording format established in February 2002. The foundations for this achievement were laid in April 1999, when Sony's Central Research Center assigned a team...

  • Page 53
    ... to new lifestyles, Sony aims to contribute to the construction of an environmentally sustainable society and is striving to provide opportunities to create and bring to life the dreams of a myriad of people: shareholders, customers, employees, business partners and the members of the communities in...

  • Page 54
    Sony Corporation Annual Report 2002 Music Group (Japan) companies and 73 non-manufacturing sites in North America earned the certification. Occupational health and safety management system certification was earned by Sony Electronics (M) Sdn. Bhd. and a number of other manufacturing sites, mainly ...

  • Page 55
    ... manufacturing, sales and service activities but also effective programs to collect and recycle endof-life products. In April 2001, Japan enacted a law mandating the recycling of specified home appliances. TVs are the only audio and visual products covered by this law. Sony had already developed its...

  • Page 56
    Sony Corporation Annual Report 2002 Management Directors Norio Ohga Chairman of the Board, Director Nobuyuki Idei Chairman and Chief Executive Officer, Representative Director Kunitake Ando President and Chief Operating Officer, Representative Director Teruhisa Tokunaka Executive Deputy ...

  • Page 57
    ...Europe. With the aim of maximizing shareholder value, Board members deliberated and authorized policies and strategies regarding management of the Sony Group's business plans, important asset acquisitions and divestments, business alliances, and matters relating to organizational structure and human...

  • Page 58
    Sony Corporation Annual Report 2002 Corporate Executive Officers Chairman & CEO Corporate Executive Vice President Corporate Senior Vice President Corporate Vice President Nobuyuki Idei President & COO Takeo Eguchi Corporate Senior Vice President Ryoji Chubachi Corporate Vice President Teruaki...

  • Page 59
    ... Financial and Stock Information ...Five-Year Summary of Selected Financial Data ...Segment Information ...Fact Sheet ... 58 60 62 64 67 68 69 72 U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥133=U.S.$1, the approximate Tokyo foreign exchange market rate...

  • Page 60
    Sony Corporation Annual Report 2002 Consolidated Balance Sheets Sony Corporation and Consolidated Subsidiaries - March 31 Yen in millions Dollars in millions 2001 ASSETS Current assets: Cash and cash equivalents Time deposits ...Â¥ 607,245 5,909 90,...

  • Page 61
    ...772 6,538 793 801 2,671 19,237 Deposits from customers in the banking business ...Other...Total current liabilities ... Long-term liabilities: Long-term debt ...Accrued pension and severance costs ...Deferred income taxes Other ...Future insurance policy benefits and other...843,687 220,787 175,148...

  • Page 62
    Sony Corporation Annual Report 2002 Consolidated Statements of Income Sony Corporation and Consolidated Subsidiaries - Year ended March 31 2000 Yen in millions 2001 2002 Dollars in millions 2002 Sales and operating revenue: Net sales ...Financial service revenue ...Other operating revenue ......

  • Page 63
    Consolidated Statements of Income 2000 Yen 2001 2002 Dollars 2002 Per share data: Common stock Income before cumulative effect of accounting changes - Basic ...- Diluted ...Cumulative effect of accounting changes - Basic ...- Diluted ...Net income - Basic ...- Diluted ...Cash dividends ......

  • Page 64
    ...decrease) in notes and accounts payable, trade...Increase (decrease) in accrued income and other taxes ...Increase in future insurance policy benefits and other ...Increase in deferred insurance acquisition costs ...Increase in marketable securities held in the insurance business for trading purpose...

  • Page 65
    ...for purchases of marketable securities ...Proceeds from sales of marketable securities ...Decrease in time deposits ...Net cash used in investing activities ...Cash flows from financing activities: Proceeds from issuance of long-term debt ...Payments of long-term debt ...Increase (decrease) in short...

  • Page 66
    Sony Corporation Annual Report 2002 Consolidated Statements of Changes in Stockholders' Equity Sony Corporation and Consolidated Subsidiaries - Year ended March 31 Yen in millions Accumulated other Retained comprehensive earnings income Common stock Additional Paid-in capital Treasury stock, at...

  • Page 67
    ... issue costs, net of tax ... (166) (22,992) (468) 22 ¥3,917 ¥472,189 ¥968,223 ¥1,209,262 ¥(275,593) 373 ¥(7,588) (166) (22,992) (468) 395 ¥2,370,410 Dividends declared ...Purchase of treasury stock ...Reissuance of treasury stock ...Balance at March 31, 2002 ... (Continued on following...

  • Page 68
    Sony Corporation Annual Report 2002 Dollars in millions Subsidiary tracking stock Additional paid-in capital Accumulated other comprehensive income Treasury stock, at cost Common stock Retained earnings Total Balance at March 31, 2001...Exercise of stock purchase warrants...Conversion of ...

  • Page 69
    .... 5. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements". Sony adopted SAB No. 101 in the fourth quarter ended March 31, 2001 retroactive to April 1, 2000. As a result, a one-time no-cash cumulative...

  • Page 70
    Sony Corporation Annual Report 2002 Five-Year Summary of Selected Financial Data Sony Corporation and Consolidated Subsidiaries - Year ended March 31 Dollars in millions except per share amounts Yen in millions except per share amounts 1998 FOR THE YEAR Sales and operating revenue ...Operating ...

  • Page 71
    ... breakdown of Electronics sales and operating revenue to customers by product category. The Electronics business is managed as a single operating segment by Sony's management. However, Sony believes that the information in this table is useful to investors in understanding the sales contributions of...

  • Page 72
    Sony Corporation Annual Report 2002 Profit or Loss by Business Segment Yen in millions Dollars in millions Year ended March 31 2000 2001 2002 Operating income (loss): Electronics ...Game ...Music ...Pictures ...Financial Services ...Other ...Total ...Elimination ...Unallocated amounts: Corporate ...

  • Page 73
    Segment Information Assets by Business Segment Yen in millions Dollars in millions 2000 Total assets: Electronics ...Game ...Music ...Pictures ...Financial Services ...Other ...Total ...Elimination ...Corporate assets ...Consolidated total ...Â¥3,067,835 446,085 742,678 807,033 1,668,789 151,079 ...

  • Page 74
    Sony Corporation Annual Report 2002 Fact Sheet Sales and operating revenue and operating income (Billion ¥) (Billion ¥) Cost of sales and selling, general and administrative expenses (SGA), as percentages of sales (%) (%) 8,000 7.6% 1,200 1,000 800 5.0% 75 74 73 72 25 24 23 22 21 20 6,000...

  • Page 75
    Fact Sheet Sales and operating income in the Electronics business (Billion ¥) (Billion ¥) Sales and operating income in the Game business (Billion ¥) (Billion ¥) 6,000 5,000 4,000 3,000 2,000 1,000 0 -0.2% 2.6% 2.1% 6.6% 4.5% 1,500 1,200 1,000 800 600 400 200 0 17.4% 11.8% 8.3% 300 200 100...

  • Page 76
    Sony Corporation Annual Report 2002 Net income and ROE (Billion ¥) (%) Net income per share (¥) 250 200 150 100 50 0 13.6% 9.8% 6.1% 0.7% 0.7% 25 20 15 10 5 0 300 200 100 0 98 Net income ROE 99 00 01 02 98 Basic Diluted 99 ...

  • Page 77
    Fact Sheet Stockholders' equity per share (¥) Cash flows (Billion ¥) 3,000 2,500 2,000 1,500 1,000 500 0 800 600 400 200 0 -200 -400 -600 -800 98 99 00 01 02 98 99 00 01 02 * As of March 31 * Restated to reflect the two-for-one stock split effective May 19, 2000 Cash flows from ...

  • Page 78
    ... March 31) 2002 Stock Price (¥) At year-end High Low Annual Increase/Decrease Number of Shares Issued at Year-end (thousands of shares) Market Capitalization at Year-end (trillion ¥) Per Share Data (¥) Cash Dividends Applicable to the Year Net Income (Diluted) Stockholders' Equity 5,650 6,350...

  • Page 79
    ...Audio Division, Audio Group, Sony Corporation Senior General Manager, Home Video Group, Sony Corporation Director, Sony Corporation Senior General Manager, Advertising & Marketing Communication Strategy Group, Sony Corporation Senior General Manager, Creative Communication Division, Sony Corporation...

  • Page 80
    ...Entered Sony Corporation Manager, PS Project, Video Disc Player Group, Sony Corporation Senior Director, Sony Computer Entertainment Inc. Executive President, Sony Computer Entertainment Inc. Director, Sony Corporation (to present) President & CEO, Sony Computer Entertainment Inc. (to present) Iwao...

  • Page 81
    ... 2001 2002 Entered Sony Shoji Co., Ltd. (Sony's domestic sales company) General Manager, Sony Overseas S.A. (Swiss entity) President and Chief Operating Officer, Sony of Canada Ltd. Deputy President, Sony Corporation of America Corporate Vice President, Sony Corporation Officer in Charge of Customer...

  • Page 82
    ... JAPANESE STOCK EXCHANGE LISTINGS Tokyo, Osaka, Nagoya, Fukuoka, and Sapporo stock exchanges NUMBER OF SHAREHOLDERS (As of March 31, 2002) SONY ON THE INTERNET Sony's Investor Relations Home Pages on the World Wide Web offer a wealth of corporate information, including the latest annual report and...

  • Page 83
    Printed on 100% recycled paper. Printed using VOC (volatile organic compound)-free vegetable oil based ink.

  • Page 84
    Sony Corporation Printed in Japan