1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
F O R M 2 0 - F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF l9341934
For the fiscal year ended March 31, l9961997
Commission file number 1-6439
SONY KABUSHIKI KAISHA
(Exact name of registrant as specified in its charter)
SONY CORPORATION
(Translation of registrant's name into English)
JAPAN
(Jurisdiction of incorporation or organization)
7-35, KITASHINAGAWA 6-CHOME, SHINAGAWA-KU, TOKYO
141, JAPAN
(Address of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act.
Title of each class Name of each exchange
on which registered
American Depositary Shares* New York Stock Exchange
Pacific Stock Exchange
Chicago Stock Exchange
Common Stock** New York Stock Exchange
Pacific Stock Exchange
Chicago Stock Exchange
* American Depositary Shares evidenced by American Depositary
Receipts.
Each American Depositary Share represents one share of Common
Stock.
** Par value 50 Japanese yen per share.
Not for trading, but only in connection with the listing of
American Depositary Shares pursuant to the requirements of the
relevant exchanges.
Securities registered pursuant to Section l2(g)12(g) of the Act.
None
----------------
(Title of Class)
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Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act.
None
----------------
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
Outstanding as of
March 31, l996 March 28, l996
Title of Class (Tokyo Time) (New York Time)
---------------- ------------ ---------------
Common Stock 374,067,706
American Depositary Shares 10,797,185
Outstanding as of
March 31, 1997 March 28, 1997
Title of Class (Tokyo Time) (New York Time)
-------------- ------------ ---------------
Common Stock 384,185,043
American Depositary Shares 13,322,505
Indicate by check mark whether the registrant (l)(1) has filed all reports required
to be filed by Section l313 or 15(d) of the Securities Exchange Act of l9341934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----------
Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 Item 18 X
----- -----
In this document, Sony Corporation is referred to as the "Company" and the
Company and its consolidated subsidiaries are together referred to as "Sony.""Sony".
Also, sales and operating revenue is referred to as "sales" in the narrative
description except in Consolidated Financial Statements.
The noon buying rate for yen in New York City as certified for customs purposes
by the Federal Reserve Bank of New York on August 30, 199629, 1997 was 108.70 yen=120.65 yen = U.S.
1 dollar.
As of March 31, 1996,1997, the Company had 9881,074 consolidated subsidiaries. It has
applied the equity accounting method in respect to its 3526 affiliated companies.
Cautionary Statement With Respect to Forward-Looking Statements
Statements made in this annual report with respect to Sony's plans, strategies
and beliefs and other statements whichthat are not historical facts are
forward-looking statements, which involve risks and uncertainties. Potential
risks and uncertainties include, without limitation, general economic conditions
in Sony's markets, particularly levels of consumer spending; exchange rates,
particularly between the yen and the U.S. dollar, in which Sony makes
significant sales; and Sony's ability to continue to win acceptance of its
products, which are offered in highly competitive markets characterized by
continual new product introductions, rapid developments in technology
(particularly in the Electronics Business), and subjective and changing consumer
preferences (particularly in the Entertainment Business).
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PART I
Item 1. Description of Business
General
The Company was established in Japan in May l9461946 as Tokyo Tsushin Kogyo
Kabushiki Kaisha. In January l958,1958, it changed its name to Sony Kabushiki Kaisha
(Sony Corporation in English).
Sony is engaged in the development, manufacture, and sale of various
kinds of electronic equipment, instruments, and devices. Sony's principal
manufacturing facilities are located in Japan, the U.S., Europe, and Asia, and
its products are marketed by sales subsidiaries and unaffiliated local
distributors throughout the world. In addition to internationalizing its
production operations, Sony has promoted the transfer of research and
development activities and management functions overseas to bring its overseas
operations in even closer contact with local communities.
Sony is also engaged worldwide 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. These activities are carried on principally
through Sony Music Entertainment Inc. (SMEI), Sony Music Entertainment (Japan)
Inc. (SMEJ), and Sony Pictures Entertainment (SPE).
In addition, Sony conducts insurance and financing business mainly in
Japan.
Products
For revenue reporting purposes, Sony classifies its business into three
segments: Electronics Business, which includes Video Equipment, Audio Equipment,
Televisions, and Other Products; Entertainment Business, which includes Music
Group and Pictures Group; and Insurance and Financing.
The following table sets forth Sony's sales by business group for the
periods indicated.
Year ended March 31
............................................................
1994* 1995*------------------------------------------------------------
1995 1996 ................. ................ .................1997
----------------- ---------------- -----------------
(Millions of yen)
Video Equipment 668,537 691,116 731,097 (17.9)816,582
(17.3) (15.9) (14.4)
Audio Equipment 840,723 898,507 905,441 (22.4)1,034,769
(22.5) (19.7) (18.3)
Televisions 617,901 708,574 794,767 (16.5)1,036,010
(17.8) (17.3) (18.3)
Other Products 713,743 777,031 1,098,849 (19.1)1,500,378
(19.5) (24.0) ................. ................ .................(26.5)
----------------- ---------------- -----------------
Total Electronics Business 2,840,904 3,075,228 3,530,154 (75.9)4,387,739
(77.1) (76.9) ................. ................ .................(77.5)
----------------- ---------------- -----------------
Music Group 461,752 494,931 512,908 (12.3)584,960
(12.4) (11.2) (10.3)
Pictures Group 327,748 281,677 318,305 ( 8.8) ( 7.0)438,505
(7.0) (6.9) ................. ................ .................(7.8)
----------------- ---------------- -----------------
Total Entertainment Business 789,500 776,608 831,213 (21.1)1,023,465
(19.4) (18.1) ................. ................ .................(18.1)
----------------- ---------------- -----------------
Insurance and Financing 113,881 138,747 231,198 (3.0)251,930
(3.5) (5.0) ................. ................ .................(4.4)
----------------- ---------------- -----------------
Sales and operating revenue 3,744,285 3,990,583 4,592,565 5,663,134
================= ================ =================
Figures in parentheses indicate percentage of sales and operating revenue.
* Sales and operating revenue for the fiscal years ended March 31, 1994 and
1995 have been reclassified to conform with the presentation for the fiscal
year ended March 31, 1996.
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Video Equipment:
Video Equipment offered by Sony offersincludes a wide range of video equipment, includingproducts, such
as 8mm, VHS, Beta, and Consumer-Use Digital VCR Specifications (DV format) home-use videotape
recorders (VTRs), laserdisc (LD)DVD-Video players, video CD players, digital still cameras,
broadcast- and industrial-use video equipment, Japanese high-definition TV standard
(Hi-Vision)-related equipment, and videotapes.
In September 1995,the spring of 1997, Sony launched Digital Handycam camcorders based on
the DV-format and mini DV cassettesits first DVD-Video player in
Japan and the U.S., and Europe.
Audio Equipment:
Audio Equipment offered by Sony includes MiniDisc (MD) systems, CD
players, headphone stereos, personal component stereos, hi-fi components,
radio-cassette tape recorders, tape recorders, digital audio tape (DAT)
recorders/players, radio-cassette tape recorders,
tapeIC recorders, radios, headphones, car stereos, car navigation
systems, professional-use audio equipment, audiotapes, and blank MDs.
Sony is working to expand the markets for its extensivenew MD system lineup, which includes MD
Walkman models, MD decks, and compact stereo systems that incorporate MD decks.
Televisions:
Televisions offered by Sony include color TVs, Hi-Vision (Japanese
high-definition TV standard) TVs, projection TVs, flat display panels, personal
liquid crystal display (LCD) monitors, satellite broadcasting reception systems,
computer displays, professional-use monitors/projectors, and large color video
display systems.
Sony's computer displays equipped withIn June 1997, Sony introduced in Japan a new series of wide-screen TVs
incorporating newly developed FD Trinitron cathode ray tubes (CRTs) that are
well regarded worldwide for their excellent qualityflat in both the horizontal and high
resolution.vertical axes.
Other Products:
Other Products offered by Sony include semiconductors, LCDs, electronic
components, CRTs, data storage systems,personal computers (PCs), computer peripherals,
telecommunications equipment, home video game system,consoles and software, batteries, and factory
automation (FA) systems.
Following its launchSony began marketing a new series of home-use PCs in the U.S. in
September 1996, and in Japan in December 1994, the 32-bit home video
game system PlayStation was introduced into the U.S. and Europe in September
1995.July 1997.
Music Group:
SMEI and SMEJ produce, manufacture, market, and distribute CDs, MDs,
LDs,DVDs, laserdiscs (LDs), records, and pre-recorded audio and video cassettes, and
produce and manufacture CD-ROMs. They hold contracts with many top artists
worldwide in all musical genres.
Sony has a leading CD production capacity, with plants in Australia,the U.S.,
Austria, Japan, Brazil, Australia, Canada, Hong Kong, Japan, Mexico, and the U.S. A new optical
disc manufacturing facility in Springfield, Oregon became operational in
summer 1995.Mexico.
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Pictures Group:
Pictures Group's global operations encompass motion picture production
and distribution, television programming and syndication, theatrical exhibition,
home video distribution, development and implementation of new entertainment
technologies, operation of studio facilities, and distribution of filmed
entertainment worldwide.
SPE's motion picture arm, the Columbia TriStar Motion Pictures
Companies,Group, includes Columbia Pictures, TriStar Pictures, Sony Pictures Classics, Triumph Films,
Sony Pictures Releasing, and Columbia TriStar Film Distributors International,
SPE's international theatrical business.
SPE's Columbia TriStar Television Group Sony Television Entertainment, is comprised of Columbia
TriStar Television, Columbia TriStar Television Distribution, and Columbia
TriStar International Television, SPE's international television business.
SPE's home video operations are conducted through Columbia TriStar Home
Video.
SPE also manages two studio facilities, Sony Pictures Studios and The
Culver Studios, both of which are located at SPE's world headquarters in Culver
City, California.
ThroughCurrently, through Sony Retail Entertainment's SonyLoews Theatres
division, Sony currently operates 9291,018 motion picture screens in 148 locations.142 locations in the
U.S.
Insurance and Financing:
Insurance and Financing consists principally of the individual life
insurance business operated in Japan by Sony Life Insurance Co., Ltd. and
certain consumer financing and leasing businesses conducted by Sony Finance
International, Inc. in Japan.
Sales and Distribution
The following table shows Sony's sales in each of its major markets for
the periods indicated.
Year ended March 31
...........................................................
1994* 1995*-----------------------------------------------------------
1995 1996 ................. ................ ................1997
----------------- ---------------- ----------------
(Millions of yen)
Japan 1,033,273 1,105,152 1,379,804 (27.6)1,590,820
(27.7) (30.0) (28.1)
United States 1,154,454 1,152,081 1,259,926 (30.8)1,639,334
(28.9) (27.4) (29.0)
Europe 832,751 905,416 1,054,010 (22.3)1,304,491
(22.7) (23.0) (23.0)
Other Areas 723,807 827,934 898,825 (19.3)1,128,489
(20.7) (19.6) ================= ================ ================(19.9)
----------------- ---------------- ----------------
Sales and operating revenue 3,744,285 3,990,583 4,592,565 5,663,134
================= ================ ================
Figures in parentheses indicate percentage of sales and operating revenue.
*Sales and operating revenue for the fiscal years ended March 31, 1994 and
1995 have been reclassified to conform with the presentation for the fiscal
year ended March 31, 1996.
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Electronics Business
Sony's electronic products are sold throughout the world under the
trademark "Sony,""Sony", which has been registered in 190193 countries and territories.
In most cases, sales of Sony's electronic products are made to
subsidiaries of the Company located in diverse geographical areas, and these
subsidiaries sell to local distributors and dealers. In some locations, the
Company sells directly to local distributors.
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Japan:
Consumer-useIn April 1997, the Company established Sony Marketing (Japan) Inc., by
consolidating its consumer products marketing divisions, seven domestic sales
subsidiaries and a sales administrative subsidiary. Sony Marketing (Japan) Inc.
currently operates marketing and sales of primarily Sony's consumer electronic
products are marketed through six sales
companies. Three of these companies sell the full lines of Sony products. The
other three companies specialize in selling car audio and electronic
products, recording media and batteries, and electronic products for
tourists. The six sales companies distribute Sony products to about 30,000
retail outlets throughout Japan.
For non-consumer electronic products, the Company has a sales companiescompany
in Tokyo and sales offices throughout the country which sell products to
wholesalers, manufacturers, and industrial and professional users. In addition,
the Company plans to transfer most of its non-consumer products marketing and
sales divisions in Japan to Sony Marketing (Japan) Inc. in April 1998.
North America:
Sony Electronics Inc. markets Sony's electronic products for both
consumer and non-consumer use in the U.S. This subsidiary has 1521 sales and
distribution branches and offices throughout the U.S. In Canada, Sony markets
its electronic products through Sony of Canada Ltd.
Europe:
In Europe, Sony's electronic products for both consumer and
non-consumer use are marketed through its12 sales subsidiaries, including Sony
United Kingdom Limited, Sony Deutschland G.m.b.H. and Sony France S.A.
Other Areas:
In overseas areas other than North America and Europe, Sony's
electronic products are marketed through 10 sales subsidiaries, including Sony
Corporation of Hong Kong Limited, Sony Gulf FZE in United Arab Emirates, and
Sony Comercio e Industria Ltda. in Brazil. In areas where the Company has no
subsidiary, it markets its products through local distributors.
Entertainment Business
Music Group:
SMEI and SMEJ market and distribute CDs, MDs, DVDs, LDs, records, and
pre-recorded audio and video cassettes.
SMEI conducts this business in the U.S. under the "Columbia," "Epic,""Columbia", "Epic",
"Sony Classical", and other labels. The Columbia House Company, a 50:50
partnership between SMEI and a subsidiary of Time Warner Inc., is engaged in
direct marketing of music and home-video products in the U.S. and Canada.
SMEI's affiliates located outside the U.S. conduct the aforesaid
business in countries other than the U.S. and Japan.
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Pictures Group:
SPE generally secures all rights relating to the worldwide distribution
of its internally produced motion pictures, including rights for theatrical
exhibition, home videocassette, DVD, and LD distribution, pay and free
television exhibition and other markets. SPE may also acquire distribution
rights to motion pictures produced by other companies, and these rights may be
limited to particular geographic regions or specific forms of media. SPE uses
its own distribution services business for the U.S. theatrical release of its
films and those acquired from and produced by others.
Outside the U.S., SPE generally distributes and markets the films
through one of its Columbia Tristar Film Distributors International
subsidiaries. However, in certain countries, SPE has joint distribution
facilities with other studios or arrangements with independent local
distributors.
The worldwide home video distribution of motion pictures, television
programs, and other video products of SPE (and those acquired or licensed from
others) is handled through Columbia TriStar Home Video.
SPE produces television programming and licenses it to network
television for prime timeprime-time or daytime broadcast and, in certain instances, for
first-run syndication or directly to cable services. SPE also licenses rights to
its library of television programming and motion pictures to network affiliates
and independent stations in the U.S. and to international television stations
and other broadcasters throughout the world.
The Pictures Group, through Sony Retail Entertainment's SonyLoews Theatres
division, exhibits its own and other motion picture companies' films. SPE also
distributes its films for theatrical exhibition in theatres operated by others.
Overseas Operations
Sony has actively expanded its overseas production capabilities
following a basic policy that products should be manufactured in the markets in
which they are sold. During the fiscal year under review,ended March 31, 1997, Sony continued to
enhance its overseas production capabilities, with an emphasis on Asia.set up
additional manufacturing facilities in such countries as Hungary, Slovakia,
Mexico, and China. As of March 31, 1996,1997, it operatesoperated 15 manufacturing facilities
in the U.S., 12 in Europe, and 3031 in other overseas areas. Sony intends to
further expand its overseas production to build a corporate structure less
susceptible to the negative impact of foreign exchange rate fluctuations. In
addition to internationalizing its manufacturing operations overseas, Sony
continued to promote the localization of R&D, design, materials and parts
procurement, and management functions to bring its overseas operations in even
closer contact with local communities.
After-sales Service
Sony maintains a policy of providing repair and servicing functions in
the countries where its electronic products are sold. In large markets such as
Japan, the U.S., and Europe, Sony provides these services through its own
service stations, authorized independent service stations and authorized
servicing dealers; other markets are mainly serviced by authorized servicing
dealers.
In line with industry practice, almost all of Sony's electronic
products sold in Japan carry a warranty for a period of generally one year from
the date of purchase for repairs, free of charge, for malfunctions occurring in
the course of ordinary use. Overseas warranties are generally provided for
various periods of time depending on the product and the country where it is
marketed.
To further ensure customer satisfaction, Sony maintains customer
information centers in each market.
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Competition
In each of its principal product lines, Sony encounters intense
competition throughout the world. Sony believes, however, that in the aggregate
it competes successfully and has a major position in all of the principal
product lines in which it is engaged, although the strength of its position
varies with products and markets. Sony believes that the high quality of its
products, its record of innovative product introductions and product
improvements, and its extensive marketing and servicing efforts are important
factors in maintaining its competitive position.
The success in the music entertainment business is dependent to a large
extent upon the artistic and creative abilities of its employees and outside
talent and is subject to the vagaries of public taste.
SPE faces intense competition from other major motion picture studios
and, to a lesser extent, from independent production companies for the attention
of the movie-going public. Competition in television production, distribution,
and syndication is also intense because available broadcast time is limited and
the audience is increasingly fragmented among broadcast, cable, and other
networks.
Research and Development
The Company restructured its R&D operations as part of an overall
corporate reorganization on April 1, 1996.1997. To meet the diverse product-related
needs of its various businesses, the Company actively carries out R&D at each of
its independent companies. Strategic R&D relating to the entire Sony Group,
especially that devoted to developingparticularly the development of new key technologies, is delegated to fivesix
corporate laboratories-thelaboratories, the Research Center, the Advanced DevelopmentProduction Laboratory,
the Architecture Laboratory, the Advanced Development Laboratory, the Media
Processing Laboratory, and the Systems Solutions Laboratory-asInformation Technology Laboratory, as well as the
D21 Laboratory. These facilities are located in Tokyo and Kanagawa prefecture in
Japan and directly controlled by corporate headquarters. The Company's R&D
agenda includeoperations are focusing on such fields as electronic materials technologies,
basic devices, next-generation systems and products that will be crucial to
business,semiconductor technologies, software and hardware architectures
for information and networkablenetwork products, system LSI (large-scale integration),optical discs and magnetic recording
technologies, signal processing technologies, and basiccomputer technologies, related to the Internet and computer
business, as well as
long-term R&D themes based on visions of the 21st century.
In the U.S., there are Research Laboratories, which specialize in such
R&D
fields such as semiconductors, digital signal processing, advanced TV, digital
satelliteDTV, telecommunications, broadcasting
systems, semiconductors, and telecommunicationsdisplay technology. There are additional
development centers in the U.K., Germany, Belgium, and Singapore.
R&D expenses were 229.9 billion yen in the fiscal year ended March 31,
1994; 239.2 billion yen in the fiscal year ended March 31,
1995; and 257.3 billion yen in the fiscal year ended March 31, 1996.1996; and 282.6
billion yen in the fiscal year ended March 31, 1997.
Sony believes R&D activities are vital to its long-term growth in
electronics. As a result ofThrough its R&D activities, Sony has recently developed:
- - A distributed,high-capacity optical disc which offers a single-sided storage
capacity of 12 Gigabytes (GB) on a 12 cm-diameter disc. This technology
allows the recording and playback of high-bit-rate video signals with a
high access rate.
- - Digital Reality Creation technology which creates a super-real four
times picture resolution from a standard television signal. This
technology allows very high resolution picture quality from
conventional TV broadcasts and other video sources.
- - A real-time computer operatingMPEG2 video encoder LSI which features the industry's
widest motion search area and integrates MPEG2 encoding system
(OS), which can
be usedcontroller and motion estimation circuitry onto a single chip. This
technology allows high quality encoding of even the most rapidly moving
scenes and video taken with many different computer systems, due to its microkernel
architecture, and which can easily be used in such devices as mobile
communications terminals and home-use audiovisual equipment.
- Flat panel display based on Plasma Addressed Liquid Crystal (PALC)
technology jointly developed with Tektronix, Inc., of the U.S.,
featuring high-brightness, high-contrast, and high-resolution.fast camera movements.
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Patents and Licenses
Sony has a number of patents in Japan and other countries, and licenses
granted from other firms. Sony considers a number of its license agreements to
be important to its business. Sony has license agreements with RCA Thomson
Licensing Corporation covering a wide range of its products, such as color
televisions, VTRs, and other related equipment. Sony has license agreements with
American Telephone and Telegraph CompanyLucent Technologies Inc. covering semiconductors and has cross license
agreements with Philips Electronics N. V.N.V. covering optical disc players and VTRs.
Sony also has license agreements with Matsushita Electric Industrial Co., Ltd.
and Victor Company of Japan Limited covering magnetic and optical recorder
products, Ampex Corporation covering video tape recorder related products, and
International Business Machines Corporation covering a wide range of information
processing products.
Sources of Supply
Sony purchases a varietyhas been pursuing optimum procurement of raw materials, parts, and
components to be used in the production of its products on a global basis. These
items are purchased from various sources of supplysuppliers around the world.world, and Sony intends to continue its
efforts to increase importsmaintains
multiple suppliers for every category of raw materials, parts and components from
other countries for its production facilities in Japan. Sony is also
promoting procurement of locally made raw materials, parts, and components
while reducing those made in Japan for overseas production facilities.
Evaluation of sources of supply are carried out both periodically and
upon necessity, and Sony does not depend upon one source of supply for any
essential items.components.
Employee Relations
As of March 31, l996,1997, Sony had approximately 151,000 full-time163,000 employees, of
which approximately 15% were members of labor unions. Approximately 61,000 full-time68,000
employees were located in Japan and 90,00095,000 overseas. Sony considers its labor
relations to be very good.
Basic wage rates of the Company are reviewed annually in April. In
addition, in accordance with Japanese custom, the Company grants its full-time
employees semi-annual bonuses. The Company provides its employees with a wide
variety of fringe benefits.
Basic wage rates, bonus policies, fringe benefits, retirement ages and
retirement benefits may vary for Sony employees outside Japan because of diverse
employment practices in the countries where Sony does business throughout the
world.
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Item 2. Description of Property
Sony has a number of plants throughout the world. Most of the buildings
and land on which they are located are owned by Sony free from significant
encumbrances. Sony makes a point of maintaining its plants and other properties
carefully to insure that production capacity is adequate for present
requirements.
The following table sets forth information as of March 31, 19961997 with
respect to principal plants for electronic products:
Approximate
Location floor space Principal products manufactured
------------------------------------------ ------------------- ------------------------------------------------ ----------- -------------------------------
(square feet)
In Japan
Kanagawa (Atsugi Technology Center) 3,229,000 Semiconductors and broadcast- and
industrial-use video equipment
Miyagi (Sendai Technology Center) 1,122,000 Magnetic and optical recording media
and electronic components
Kagoshima(Sony Kokubu Corporation) 1,059,000 Semiconductors
Aichi (Sony Kohda Corporation) 928,000 VTRs
Aichi (Sony Inazawa Corporation) 876,000 CRTs
Aichi (Sony Ichinomiya Corporation) 831,000 Color TVs, computer displays, and
professional-use monitors
Tochigi (Sony Chemicals Corporation) 739,000 Videotapes, adhesives, electronic
components, and thermal transfer ribbon
Nagasaki (Sony Nagasaki Corporation) 690,000 Semiconductors
Shizuoka (Sony Broadcast 625,000 Broadcast- and industrial-use video
Products Corporation) equipment, audio equipment, and
computers
Chiba (Sony Kisarazu Corporation) 616,000 VTRs and home video game systemconsoles
Gifu (Sony Minokamo Corporation) 577,000 VTRs
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Approximate
Location floor space Principal products manufactured
------------------------------------------ ------------------- ------------------------------------------------ ----------- -------------------------------
(square feet)
Overseas
Pittsburgh, Pennsylvania, U.S.A. 2,715,000 Rear-projection TVs/CRTs
(Sony Electronics Inc.)
San Diego, California, U.S.A. 1,655,0002,234,000 Color TVs, computer displays, and
(Sony Electronics Inc.) CRTs
Dothan, Alabama, U.S.A. 947,000 Videotapes952,000 Video tapes and micro floppydisksdata storage media
(Sony Magnetic Products Inc. of America)
San Antonio, Texas, U.S.A. 457,000461,000 Semiconductors
(Sony Electronics Inc.)
Bridgend, Wales, U.K. 740,000 CRTs
(Sony United Kingdom Limited)
Pencoed, Wales, U.K. 707,000 Color TVs and computer displays
(Sony United Kingdom Limited)
Barcelona, Spain 461,000 Color TVs and rear-projection TVs
(Sony Espana, S.A.)
Alsace, France 422,000419,000 Audio equipment and VTRs
(Sony France S.A.)
Penang, Malaysia 896,000860,000 Audio equipment
(SONY ELECTRONICS (M) SDN. BHD.)
Nuevo Laredo, Mexico 781,000786,000 Audio tapes and micro floppydisks
(Sony Magneticos de Mexico, S.A. de C.V.)
Jurong, Singapore 776,000 CRTs and computer displays
(Sony Display Device (Singapore) Pte. Ltd.)
Tijuana, Mexico 671,000 Color TVs and computer displays
(Video-Tec(Sony de Mexico,Tijuana Este, S.A. de C.V.)
Bekasi, Indonesia 522,000462,000 Audio equipment
(P.T. SONY ELECTRONICS INDONESIA)
Bangi, Malaysia 448,000 VTRs and CD-ROM drives
(SONY VIDEO (M) SDN. BHD.)
In addition to the above, Sony has a number of other plants for
electronic products throughout the world. The Company owns R&D facilities of the
Research Center and other laboratories and employee housing and recreation
facilities, as well as the headquarters buildings in Tokyo at which
administrative functions and product development activities are carried on.
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The following table sets forth information as of March 31, 19961997 with
respect to principal plants for software of the Music Group:
Approximate
Location floor space Principal products manufactured
------------------------------------------ ------------------- ------------------------------------------------ ----------- -------------------------------
(square feet)
Shizuoka, Japan 537,000 CDs, MDs, and LDs
(Sony Music Entertainment (Japan) Inc.)
Carrollton, Georgia, U.S.A. 673,000661,000 CDs and audio and video cassettes
(Sony Music Entertainment Inc.)
Terre Haute, Indiana, U.S.A. 648,000653,000 CDs, CD-ROMs, MDs, CD-ROMs, and LDs
(Digital Audio Disc Corporation)
Pitman, New Jersey, U.S.A. 500,000 CDs
(Sony Music Entertainment Inc.)
Springfield, Oregon, U.S.A. 335,000336,000 CDs and CD-ROMs
(Sony Music Entertainment Inc.)
Pitman, New Jersey, U.S.A. 510,000 CDs
(Sony Music Entertainment Inc.)
Haarlem, Holland 453,000464,000 Records and audio cassettes
(Sony Music Entertainment (Holland) B.V.)
Salzburg, Austria 329,000377,000 CDs, CD-ROMs, MDs, CD-ROMs, and LDs
(Sony DADC Austria A.G.)AG)
In addition to the above, SMEI and its affiliates have several plants
in various parts of the world and lease their corporate headquarters located in
New York City. SMEJ's offices, including leased premises, are mainly located in
Tokyo, Japan.
SPE's corporate offices and major motion picture and television
production facilities are headquartered in Culver City, California, where it
owns and operates two studio facilities, Sony Pictures Studios and The Culver
Studios. SPE also leases office space and motion picture and television support
facilities from affiliates of the Company and other third parties. Its film and
tape operations are located in Inwood, New York, where SPE also leases space.
SonyLoews Theatres leases administrative office space in New York City.
Additionally, SonyLoews Theatres leases approximately 88% of the facilities it
operates, primarily long-term land leases, owns approximately 6% and has
management agreements and partnership agreements covering the remaining 6%.
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Item 3. Legal Proceedings
The Company and certain of its subsidiaries are defendants in several
pending lawsuits. However, based upon the information currently available to
both the Company and its legal counsel, management of the Company believes that
damages from such lawsuits, if any, would not have a material effect on the
Company's consolidated financial statements.
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Item 4. Control of Registrant
(a)As far as known to the Company, it is not directly or indirectly owned
or controlled by any other corporation or by the Japanese government or
any foreign government.
(b)(1)To the knowledge of the Company, no person owns of record or
beneficially more than 10% of the outstanding Common Stock.
(2)The total number of shares of the Company's Common Stock
beneficially owned by the Directors and Statutory Auditors as of
March 31, l9961997 is as follows:
Number of Shares Percentage
Title of Class Identity of Person or Group Beneficially Owned of Class
-------------- ------------------------------------------------------- ------------------ -----------
(in thousands)
Common Stock Directors and Statutory 1,956 0.5%
Stock Auditors 1,938 0.5%
(c)As far as is known to the Company, there is no arrangement, the
operation of which may at a subsequent date result in a change in
control of the Company.
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Item 5. Nature of Trading Market
The primary markets for the Company's Common Stock are the Tokyo Stock
Exchange (the "TSE") in the form of Common Stock and the New York Stock Exchange
(the "NYSE") in the form of American Depositary Shares evidenced by American
Depositary Receipts ("ADRs"). Each American Depositary Share represents one
share of Common Stock.
The Company's Common Stock, par value 50 yen per share, has been listed
on the TSE since 1958, and is also listed on the four other stock exchanges in
Japan: Osaka, Nagoya, Fukuoka and Sapporo. In addition, the Company's Common
Stock is listed on the following stock exchanges outside Japan: Pacific,
Chicago, Toronto, London, Paris, Frankfurt, Dusseldorf, Brussels, Antwerp,
Vienna, and Swiss.
The Company's ADRs have been traded in the U.S. since 1961 and have
been listed on the NYSE since 1970. The Company's ADRs are issued and exchanged
by Morgan Guaranty Trust Company of New York, as Depositary.
At March 31, 1996,1997, there were 374,067,706384,185,043 shares of Common Stock
outstanding, of which 10,797,18513,322,505 shares were in the form of ADRs and 32,198,82436,531,897
shares were held of record in the form of Common Stock by residents in the U.S.
The number of registered ADR holders was 6,235,6,052, and the number of registered
holders of shares of Common Stock in the U.S. was 205.222.
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The following table sets forth for the periods indicated the reported
high and low sales prices of the Company's Common Stock on the TSE and the
reported high and low sales prices of American Depositary Shares on the NYSE.
Tokyo Stock New York Stock
Exchange Price Exchange Price
Per Share of Per American
Common Stock Depositary Share
----------------------- ---------------------- --------------------------
High Low High Low
----- ---- ----- --- Fiscal year ended March 31, 1995---- ---
1st quarter 6,440 yen 5,590 yen 61 3/8 dollar 54 1/4 dollar
2nd quarter 6,310 5,640 63 1/4 57 1/4
3rd quarter 6,010 5,000 60 7/8 50 3/8
4th quarter 5,720 3,990 56 1/8 42 1/2
Fiscal year ended March 31, 1996
1st quarter 4,320 yen 3,730 yen 52 1/2 dollardollars 45 7/8 dollardollars
2nd quarter 5,630 4,010 58 1/4 48 3/4
3rd quarter 6,230 4,570 61 1/2 45 1/2
4th quarter 7,030 6,040 66 1/4 57 3/8
Fiscal year ended March 31, 1997
1st quarter 7,310 yen 6,350 yen 66 5/8 dollars 59 dollars
2nd quarter 5,630 4,010 587,260 6,680 66 1/4 48 3/461 1/2
3rd quarter 6,230 4,570 61 1/2 45 1/27,700 6,720 67 7/8 58 7/8
4th quarter 7,030 6,040 669,180 7,250 74 1/4 5763 3/8
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Item 6. Exchange Controls and Other Limitations Affecting Security Holders
(a) Japanese Foreign Exchange ControlsJAPANESE FOREIGN EXCHANGE CONTROLS
The Foreign Exchange and Foreign Trade Control Law of Japan as
amended,(the
"Foreign Exchange Law"), and the cabinet orders and ministerial ordinances
issued thereunder
(together, the "foreign exchange regulations") govern certain mattersaspects relating to the acquisition and holding of
shares of common stock by "non-residents of Japan" and by "foreign investors" (as defined below)hereinafter
defined).
"Non-residents of Japan" are defined as individuals who are not
resident in Japan and corporations whose principal offices are located outside
Japan. Generally, branches and other offices of Japanese corporations located
outside Japan are regarded as non-residents of Japan, but branches and other
offices of non-resident corporations located within Japan are regarded as
residents of Japan.
Acquisition of Shares
Acquisition by a non-resident of Japan of shares of stock of a Japanese
corporation from a resident of Japan generally requires prior notification by
the acquiring person to the Minister of Finance. The notification must be filed
not more than 10 days prior to the proposed acquisition. If, however, a party to
the transaction is one of the Japanese securities companies (or licensed
branches of foreign securities companies) which are designated by the Minister
of Finance ("designated securities companies") or if such a designated securities
company acts as an intermediary (broker or agent) in such transaction, no prior
notification is required. SuchThe designated securities companies are subject to
reporting requirements to the Minister of Finance through The Bank of Japan. The
acquisition of shares by non-resident shareholders by way of a stock split is
not subject to any notification requirements.
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Notwithstanding the foregoing, if the proposed transaction falls within
the category of "inward direct investment" referred to below, the transaction is
subject to different regulations.
The term "inward direct investment" in relation to transactions in
shares means:
(i) acquisition by a "foreign investor" (a non-resident individual or a
corporation which was organized under the laws of a foreign country or
whose principal business office is located outside Japan or a Japanese
corporation a majority of whose shares are owned, directly or
indirectly, by non-residents and/or foreign corporations or a majority
of whose officers or officers having the power of representation are
non-resident individuals) of shares of stock of a Japanese corporation
whose shares are not listed on any stock exchange (or registered with a
securities dealers' association as shares to be traded on an
over-the-counter market) other than acquisition of such shares from
other foreign investors;
(ii) acquisition by a foreign investor of shares of an unlisted corporation
from a non-resident who had held such shares since the time when he was
a resident; and
(iii) acquisition of shares of a listed corporation by a foreign investor
(whether from a resident, a non-resident or any other foreign investor)
the result of which would be such investor's holding directly or
indirectly 10% or more of the total outstanding shares of such
corporation or, (ifif such foreign investor already holds 10% or more of
the total outstanding shares of such corporation)corporation, acquisition of
additional shares in such corporation.
Except in limited cases which are prescribed by the law as requiring a prior
notification, whenever an inward direct investment iswas made, the foreign
investor who made such investment must make a post facto report to the Minister
of Finance and other Ministers having jurisdiction over the business of the
issuer of the shares within 15 days from the acquisition.
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If the proposed acquisition falls within the category requiring a prior
notification (acquisition of shares of a corporation engaged in agricultural,
forestry or fishery business, petroleum business, mining business, animal
hide or hide product business and certain other business designated by
regulations), the foreign investor who intends to effect such transaction
must file a prior notification with the Minister of Finance and other
Ministers having jurisdiction over the business of the corporation whose
shares of stock are intended to be acquired. During a period between two
weeks and, depending on the situations, five months in an exceptional case,
from the filing of such notification, the foreign investor may not acquire
the shares. During the waiting period, if the Ministers consider that the
proposed acquisition would lead to any of the situations enumerated by
regulations, they may, after hearing the opinion of the Foreign Exchange
Council, recommend that the foreign investor modify or refrain from
performing the proposed acquisition. If the foreign investor does not accept
the recommendation, the Ministers may issue an order for modification or
prohibition of the proposed acquisition.
Dividends and Proceeds of Sale
Under the foreign exchange regulations, dividends paid on, and the
proceeds of sales in Japan of, shares of Common Stock of the Company held by non-residents of Japan may in
general be converted into any foreign currency and repatriated abroad. The acquisition of shares of Common Stock of the
Company by non-resident shareholders by way of a stock split is not subject
to any notification requirements.
Exercise or Transfer of Subscription Rights
Acquisition by a non-resident shareholder of shares of Common Stock of
the Company upon exercise of subscription rights is subject to the same
formalities and restrictions as referred to under "Acquisition of Shares" above
and such non-resident may in general exercise such rights after filing a prior
notification with the Minister of Finance as to such acquisition. If a
non-resident shareholder wishes to dispose of, rather than exercise, any
subscription rights, he may sell such rights in or outside Japan without
restriction. RightsAs to subscribe for shares of Common Stock may be made
generally transferable by the Board of Directors. Whether the Company will
make subscription rights generally transferable in future offerings will
depend upon the circumstances at the times of such offerings. If subscription
rights are not made generally transferable, a transfer by a foreign investor
not resident in Japan will be enforceable against the Company and third
parties only if prior written consent to each such transfer is obtained from
the Company. When such consent is necessary in the future for the transfertransferability of subscription rights the Company intends to consent, on request, to all such
transfers by non-residents.non-residents,
see "(b) DESCRIPTION OF COMMON STOCK - Subscription Rights" below.
American Depositary Shares
Neither the deposit of shares of Common Stock of the Company by a
non-resident of Japan, the issuance of ADRs in exchange therefor, nor the
withdrawal of the underlying shares of Common Stock of the Company upon
surrender of ADRs is subject to any formalities or restrictions referred to
under "Acquisition of Shares" above.
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17On May 23, 1997 the Foreign Exchange and Foreign Trade Control Law was
amended with effect from April 1, 1998. Pursuant to this amendment, the title of
the statute will be changed to the Foreign Exchange and Foreign Trade Law and,
with minor exceptions, all aspects of the foreign exchange and foreign trade
transactions which under the existing law are subject to licensing or other
approval or prior notification requirements (including those relating to the
acquisition of and other transactions in shares of stock of Japanese
corporations referred to above, except for limited cases of inward direct
investment) will be substituted by the post facto reporting requirement.
However, the Minister of Finance will have the power to impose a licensing
requirement for certain transactions in limited circumstances. Detailed
implementing regulations have not yet been issued but are expected to be made
before the amendments' effective date of April 1, 1998.
(b) Description of Common StockDESCRIPTION OF COMMON STOCK
Set forth below is certain information relating to the Common Stock of
the Company, including brief summaries of certain provisions of the Company's
Articles of Incorporation and ShareShares Handling Regulations, as currently in
effect, and of the Commercial Code of Japan relating to a joint stock company
(Kabushiki Kaisha) and certain related legislation.
General
The presently authorized capital stock of the Company is 1,350,000,000
shares, which may be issued with a par value of 50 yen per share or without a
par value. The Commercial Code requires that shares be in registered form. Under
the Commercial Code shares are transferable by delivery of share certificates,
but in order to assert shareholders' rights against the Company, the transferee
must have his name registered in the Company's register of shareholders. All of
the presently outstanding shares of the Company are of a par value of 50 yen per
share. The Company may, by a resolution of the Board of Directors, convert parcovert per
value shares into non-par value shares or vice versa. Shareholders are required
to file their names, addresses and seals with The Toyo Trust and Banking
Company, Limited, the transfer agent for the Company, and shareholders not
resident in Japan are required to file a mailing address in Japan or appoint a
resident proxy in Japan. These requirements do not apply to the holders of ADRs.
Pursuant toThe central clearing system of share certificates under the Law
Concerning Central Clearing of Share Certificates and Other Securities of Japan
applies to the shares of Common Stock of the Company. Pursuant to this system a
holder of shares of Common Stock is able to choose, at his discretion, to
participate in the central clearingthis system of
share certificates and all certificates of shares of Common Stock
elected to be put into this system are deposited with the central clearing
system and all such shares are registered in the name of the clearing house in
the Company's register of shareholders. Each participating shareholder is in
turn is registered in the register of beneficial shareholders and treated the same
way as shareholders registered in the Company's register of shareholders.
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Dividends
The Articles of Incorporation of the Company provide that the accounts
shall be closed on March 31 of each year and that dividends, if any, shall be
paid to the shareholders of record as of the end of such fiscal period. After
the close of the fiscal period, the Board of Directors prepares, among other
things, a proposed allocation of profits for dividends and other purposes; this
proposal is submitted to the Statutory Auditors of the Company and to
independent certified public accountants ("accountant auditors") and then submitted for approval to the
ordinary general meeting of shareholders, which is normally held in June each
year. In addition to provisions for dividends, if any, and for the legal reserve
and other reserves, the allocation of profits customarily includes a bonus to
Directors and Statutory Auditors. In addition to annual dividends, the Board of
Directors of the Company may by its resolution declare a cash distribution
pursuant to Article 293-5 of the Commercial Code (an "interim dividend") to
shareholders who are registered in the Company's register of shareholders at the
end of each September 30, subject to the limitations described below.
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18
The Commercial Code provides that a company may not make any
distribution of profits by way of dividends or interim dividends for any fiscal
period unless it has set aside in its legal reserve an amount equal to at least
one-tenth of the amount paid by way of appropriation of retained earnings for
such fiscal period until the legal reserve is one-quarter of its stated capital.
TheUnder the Commercial Code permits a companythe Company is permitted to distribute profits by way
of year-end or interim dividends out of the excess of its net assets over the
aggregate of (i) its stated capital, (ii) its capital surplus, (iii) its
accumulated legal reserve, (iv) the legal reserve to be set aside in respect of
the fiscal period concerned, and (v) the excess, if any, of unamortized expenses
incurred in preparation for commencement of business and in connection with
research and development expense over the aggregate of amounts referred to in
(ii), (iii) and (iv) above. If the Company has on its balance sheet a number of
shares of its Common Stock which the Company has acquired for the purpose of
transferring the same to its Directors and/or employees pursuant to the
amendments to the Commercial Code which came into forcetook effect on October 1, 1994 (the "1994 amendments to the Commercial Code")and June
1, 1997 but such shares are yet to be so transferred, the book value of such
shares shall be deducted from the amount available for payment of dividends. In
the case of interim dividends, the net assets are calculated by reference to the
balance sheet as at the last closing of the company'sCompany's accounts, but adjusted to
reflect any subsequent payment by way of appropriation of retained earningsdividend and the
transfer to the legal reserve in respect of such dividend, and any subsequent
transfer of retained earnings to stated capital,thereof,
provided that interim dividends may not be paid where there is a risk that at
the end of the fiscal year there might not be any excess of net assets over the
aggregate of the amounts referred to in (i), (ii), (iii), (iv) and (v) above,
and, in addition to the deduction referred to in the immediately preceding
sentence, if the Company's shareholders have adopted a resolution for the
Company's purchase of shares of its Common Stock for the purpose of transferring
the same to its Directors and/or employees or for the purpose of canceling the
same, pursuant to the 1994
amendments to the Commercial Code, the total amount of purchase price authorized by such resolution shall, so
long as such resolution has not expired, and whether or not such purchase has
been effected, be deducted from the amount available for interim dividends.
The amendments to the Commercial Code, which tookcurrently in effect, on April 1,
1991 eliminated the provisions relating todoes not provide for "stock
dividends."dividends". However, under the amended Code, the shareholders may by resolution transfer
any amount which is distributable as dividends to stated capital and the Board
of Directors may by resolution may issue additional shares by way of a stock split
up to the aggregate par value equal to the amount so transferred; thus, the same
effect as a stock dividend can be achieved.
In Japan, the "ex-dividend" date and the record date for dividends
precede the date of determination of the amount of the dividend to be paid.
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Transfer of Capital Surplus and Legal Reserve to Stated Capital and FreeStock Splits
(Free Share DistributionsDistributions)
When the Company issues new shares of Common Stock, the entire amount
of the issue price of such new shares is required to be accounted for as stated
capital, although the Company may account for an amount not exceeding one-half
of such issue price as capital surplus (subject to the remainder being not less
than the total par value of the new shares being issued). The Board of Directors
may transfer the whole or any part of capital surplus and legal reserve to
stated capital and grant to shareholders additional shares of Common Stock free
of charge by way of a stock split, without affecting the par value thereof, with
reference to the whole or any part of the amount of capital surplus and legal
reserve so transferred to stated capital; such additional shares may also be
granted by reference to the amount representing the portion of the issue price
of shares of Common Stock in excess of the par value thereof which has been
accounted for as stated capital.
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The Commercial Code permits the Company to make a partially free
distribution to shareholders by way of a rights issue at a subscription price
per share which is less than the par value thereof if (a) the difference between
the subscription price and the par value does not exceed the amount of the
stated capital minus the aggregate par value of all outstanding shares, divided
by the number of new shares to be issued pursuant to such rights issue, (b) the
sum of the net assets of the Company (as appearing on the latest balance sheet)
and the total subscription price, divided by the number of the shares
outstanding immediately after the issue of the new shares, is at least 50050 yen
and (c) the subscription rights are made transferable. In order to satisfy the
requirement mentioned in (a) above, the Board of Directors may transfer the
whole or any part of capital surplus or legal reserve to stated capital.
General Meeting of Shareholders
The ordinary general meeting of shareholders to settle accounts of the
Company for each fiscal period is normally held in June each year in
Shinagawa-ku, Tokyo, Japan. In addition, the Company may hold an extraordinary
general meeting of shareholders whenever necessary by giving at least two weeks'
advance notice to shareholders.
Notice of a shareholders' meeting setting forth the place, time and
purpose thereof, must be mailed to each shareholder having voting rights (or, in
the case of a non-resident shareholder, to his resident proxy or mailing address
in Japan) at least two weeks prior to the date set for the meeting.
Voting Rights
A shareholder is entitled to one vote per share subject to the
limitations on voting rights set forth in thisthe following paragraph and "'Unit'""Unit"
Share System-VotingSystem -Voting rights of a holder of shares representing less than one
unit" below. Except as otherwise provided by law or by the Company's Articles of
Incorporation, a resolution can be adopted at a general meeting of shareholders
by a majority of the shares having voting rights represented at the meeting. The
Commercial Code and the Company's Articles of Incorporation provide, however,
that the quorum for the election of Directors and Statutory Auditors shall not
be less than one-third of the total number of outstanding shares having voting
rights. The Company's shareholders are not entitled to cumulative voting in the
election of Directors. A corporate shareholder, more than one-quarter of whose
outstanding shares are directly or indirectly owned by the Company, may not
exercise its voting rights in respect of the shares of the Company. The Company
has no voting rights with respect to its own Common Stock. Shareholders may
exercise their voting rights through proxies provided that the proxies are also
shareholders holding voting rights. The Company's shareholders also may cast
their votes in writing.
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The Commercial Code provides that in order to amend the articles of
incorporation and in certain other instances, including an increase in the total
number of shares authorized to be issued, a reduction of the stated capital, the
removal of a directorDirector or statutory auditor,Statutory Auditor, dissolution, merger or consolidation
of a corporation, the transfer of the whole or an important part of the
business, the taking over of the whole of the business of any other corporation, or
any offering of new shares at a "specially favorable" price (or any offering of
convertible bonds or debentures with "specially favorable" conversion conditions
or of bonds or debentures with warrants or rights to subscribe for new shares
with "specially favorable" conditions) to persons other than shareholders or
granting to Directors or employees rights to subscribe for new shares which are
to be permitted from October 1, 1997 by virtue of the 1997 amendments to the
Commercial Code, the quorum shall be a majority of the total number of shares
having voting rights outstanding and the approval of the holders of at least
two-thirds of the shares having voting rights represented at the meeting is
required.
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Subscription Rights
Holders of the Company's Common Stock have no pre-emptivepre-emtive rights under
its Articles of Incorporation. Authorized but unissued shares may be issued at
such times and upon such terms as the Board of Directors determines, subject to
the limitations as to the offering of new shares at a "specially favorable"
price mentioned in "Voting Rights" above. The Board of Directors may, however, determine that
shareholders shall be given subscription rights regarding a particular issue of
new shares, in which case such rights must be given on uniform terms to all
shareholders as at a record date of which not less than two weeks' public notice
must be given. Each of the shareholders to whom such rights are given must also
be given notice of the expiry thereof at least two weeks prior to the date on
which such rights expire.
Rights to subscribe for new shares may be made generally transferable
by the Board of Directors. Whether the Company will make subscription rights
generally transferable in future rights offerings will depend upon the
circumstances at the time of such offerings. If subscription rights are not made
generally transferable, transfers by a foreign investor (as defined above under
the heading "(a) Japanese Foreign Exchange Controls"JAPANESE FOREIGN EXCHANGE CONTROLS") not resident in Japan will
be enforceable against the Company and third parties only if the Company's prior
written consent to each such transfer is obtained. When such consent is
necessary in the future for the transfer of subscription rights, the Company
intends to consent, on request, to all such transfers by such a foreign
investor.
Dilution
In the future it is possible that market conditions and other factors
might make a rights offering to shareholders at par or substantially below the
market price of shares of Common Stock desirable. If the number of shares
offered in a rights offering is substantial in relation to the number of shares
outstanding and the market price exceeds the subscription price at the time of
the offering, a shareholder who does not exercise and is unable otherwise to
realize the full value of his subscription rights would suffer economic dilution
of his equity interest in the Company.
Liquidation Rights
In the event of a liquidation of the Company, the assets remaining
after payment of all debts and liquidation expenses and taxes will be
distributed among the shareholders in proportion to the respective numbers of
shares held.
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Liability to Further Calls or Assessments
All the Company's presently outstanding shares of Common Stock
including shares represented by the American Depositary Shares are fully paid
and non-assessable.
Transfer Agent
The Toyo Trust and Banking Company, Limited is the transfer agent for
the Company's Common Stock. AsStock; as such transfer agent, its office at 4-3,
Marunouchi 1-chome, Chiyoda-ku, Tokyo, Japanit keeps the Company's
register of shareholders in its office at 10-11, Higashisuna 7-chome, Koto-ku,
Tokyo, Japan, and makes transfer of record ownership upon presentation of the
certificates representing the transferred shares.
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Record Date
March 31 is the record date for the Company's year-end dividends. The
shareholders who are registered as the holders of 100 shares or more in the
Company's register of shareholders at the end of each March 31 are also entitled
to exercise shareholders' rights at the ordinary general meeting of
the shareholders
with respect to the fiscal period ending on such March 31. September 30 is the
record date for interim dividends. In addition, the Company may set a record
date for determining the shareholders entitled to other rights and for other
purposes by giving at least two weeks' public notice.
The price of the shares generally goes ex-dividend or ex-rights on
Japanese stock exchanges on the third business day prior to a record date (or if
the record date is not a business day, the fourth business day prior thereto),
for the purpose of dividends or rights offerings.
Repurchase by the Company of its Common Stock
Except as otherwise permitted by the Commercial Code as set out below,
with minor exceptions, the Company or any of its subsidiaries cannot acquire the Company's Common Stock
except by means of a reduction of capital in the manner provided in the
Commercial Code. The Company may acquire, its Common Stock in response to a
shareholder's request for purchase of his shares representing less than one
unit. See "'Unit'""Unit" Share System-RightSystem -- Right of a holder of shares representing less
than one unit to require the Company to purchase such shares" below. Shares so
purchased must be sold or otherwise transferred to a third party within a
reasonable period thereafter.
Pursuant to theThe 1994 and 1997 amendments to the Commercial Code now enable the
Company mayto acquire its Common Stock for the following purposes, subject to the
authorization of shareholders at an ordinary general meeting:meeting (if the Articles of
Incorporation provide that the shares may be purchased for the purpose of
cancellation by resolution of the Board of Directors, pursuant to the resolution
of the Board of Directors): (1) for the purpose of transferring the same to its
Directors and/or employees; and (2) for the purpose of cancellation thereof.
Acquisition by the Company of shares of its Common Stock for the purpose of (1)
above is subject to, among other things, the following restrictions: (a) number
of shares to be acquired does not exceed 3%10% of all issued and outstanding
shares; (b) total amount of purchase price does not exceed the amount of the
retained earnings available for dividend payment minus the amount to be paid by
way of appropriation of earnings for the fiscal year and, if any amount of
retained earnings is to be capitalized, such amount;amount (if the purchase is made
pursuant to the resolution of the Board of Directors as referred to in the
parentheses above, one-half of such permitted amount); and (c) acquisition shall
be made only through a stock exchange
transaction. Acquisition by the Company of its Common Stock under (2) above
is subject to the restrictions referred to in (b) and shall be made either through a stock exchange transaction or by way of tender offer.
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At the ordinary general meeting of shareholders held on June 27, 1997,
the Articles of Incorporation of the Company were amended to permit the Company
to acquire and retire up to 30 million outstanding shares of its Common Stock
with the retained earnings available for dividend payment whenever the Board of
Directors deems it necessary in view of the general economic condition, the
Company's performance and financial condition and other factors and so
determines by its resolution. (No resolution has been taken by the Board of
Directors for the acquisition of shares pursuant to this authority.)
"Unit" Share System
Pursuant to the Commercial Code the Company has adopted 100 shares as one unit
of shares.
Transferability of shares representing less than one unit
Certificates for shares representing less than one unit may only be
issued in certain limited circumstances. Since the transfer of shares normally
requires delivery of the certificates therefor, fractions of a unit for which no
share certificates are issued are not transferable. Shares representing less
than one unit for which share certificates have been issued continue to be
transferable, but the transfer may be registered in the Company's register of
shareholders only if the transferee is already a registered shareholder (whether
in respect of units or of shares representing less than one unit).
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22
Right of a holder of shares representing less than one unit to require the
Company to purchase such shares
A holder of shares representing less than one unit may at any time
require the Company to purchase such shares at their last reported sale price on
the Tokyo Stock Exchange on the day when such request is made or, if no sale
takes place on such exchangethe Tokyo Stock Exchange on such day, the price at which the
first sale of the shares is effected on the Tokyo Stock Exchange thereafter,
less applicable brokerage commission. The usual securities transfer tax is
applicable to such transactions.
Other rights of a holder of shares representing less than one unit
A holder of shares representing less than one unit havehas the following
rights in respect of such shares: (i) the right to receive dividends (including
interim dividends), (ii) the right to receive shares and/or cash by way of a
stock split or upon consolidation or subdivision of shares or upon a capital
decrease or merger of the Company, (iii) the right to be allotted subscription
rights with respect to new shares, convertible bonds and bonds with warrants to
subscribe for shares when such rights are granted to shareholders, (iv) the
right to participate in the distribution of surplus assets in the event of the
liquidation of the Company, and (v) the right to require the Company to issue
replacement share certificates for lost, stolen or destroyed share certificates.
All other rights, including voting rights, cannot be exercised with respect to
shares representing less than one unit.
Voting rights of a holder of shares representing less than one unit
A holder of shares representing less than one unit cannot exercise any
voting rights with respect to such shares. In calculating the quorum for various
voting purposes, the aggregate number of shares representing less than one unit
will be excluded from the number of outstanding shares. A holder of shares
representing one or more whole units will have one vote for each such share,
except as stated in "Voting Rights" above.
Consolidation by operation of law of shares constituting one unit into one share
The unit share system is intended to be an interim measure with a view
ultimately to achieve shares of a much higher denomination than at present. On a
date to be specified by separate legislation, the shares comprising one unit
will be deemed to be consolidated into one share. Presently it is unknownnot known
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22
when the bill specifying such date will be submitted to the Japanese parliament.
If the consolidation takes place, the holder of any fractional share
constituting one-hundredth of one share or any integral multiple thereof, which
may result from such consolidation,consideration, will be registered as the holder thereof in
the register of fractional shares and the holder of any fraction representing
less than a whole hundredth of one share will be entitled to receive a cash
payment.
(c) Reporting of Substantial ShareholdingsREPORTING OF SUBSTANTIAL SHAREHOLDINGS
The Securities and Exchange Law of Japan, as amended, requires any
person who has become, beneficially and solely or jointly, a holder of more than
five percent5% of the total issued shares of a company listed on any Japanese stock exchange
or whose shares are traded on the over-the-counter market in Japan to file with
the Minister of Finance within five business days a report concerning such
shareholdings.
A similar report must also be made in respect of any subsequent change
of one percent1% or more in any such holding. For this purpose, shares issuable to such
person upon conversion of convertible securities or exercise of share
subscription warrants are taken into account in determining both the number of
shares held by such holder and the issuer's total issued share capital. Copies
of each such report must also be furnished to the issuer of such shares and all
Japanese stock exchanges on which the shares are listed or (in the case of
shares traded over-the-counter) the Securities Dealers Association of Japan.
22
23
Item 7. Taxation
Generally, a non-resident of Japan or a non-Japanese corporation is
subject to Japanese withholding tax on dividends paid by a Japanese corporation.
Stock splits in themselves (whether for the purpose of making a free
distribution or dividend in shares), subject as set out below, are not subject
to Japanese income tax. However, a transfer of retained earnings or legal
reserve (but not capital surplus) to stated capital (whether made in connection
with a stock split or otherwise) is treated as a dividend payment to
shareholders for Japanese tax purposes and is, in general, subject to Japanese
income tax.
Under the Income Tax Convention between the U.S. and Japan (the
"Convention"), the maximum rate of Japanese withholding tax that may be imposed
on dividends paid to a U.S. resident or corporation not having a "permanent
establishment" (as defined therein) in Japan is generally 15%.
For purposes of the Convention and the U.S. Internal Revenue Code of
1986, as amended (the "Code"), U.S. holders of ADRs will be treated as the
owners of the Common Stock underlying the American Depositary Shares evidenced
by the ADRs.
In the absence of an applicable tax treaty, convention or agreement
reducing the maximum rate of withholding tax, the rate of Japanese withholding
tax on dividends paid by Japanese corporations to non-residents of Japan or
non-Japanese corporations is 20%.
Gains derived by a non-resident of Japan or a non-Japanese corporation
from the sale of Common Stock or ADRs outside Japan, or from the sale of Common
Stock within Japan by a non-resident of Japan or by a non-Japanese corporation
not having a permanent establishment in Japan, are in general not subject to
Japanese income or corporation taxes. Japanese inheritance and gift taxes at
progressive rates may be payable by an individual who has acquired Common Stock
or ADRs as a legatee, heir or donee.
Dividends received by a U.S. holder of ADRs or Common Stock will be
includibleincludable in income for United StatesU.S. federal income tax purposes to the extent paid out
of current or accumulated earnings and profits of the Company as determined for
United StatesU.S. federal income tax purposes.
22
23
Subject to limitations set out in the Code, a U.S. holder of ADRs or
Common Stock of the Company will be entitled to a credit for Japanese tax
withheld from dividends paid by the Company. For purposes of the foreign tax
credit limitation, dividends will be foreign source income, but will constitute
"passive" or "financial services" income.
Dividends paid by the Company to U.S. corporate holders of ADRs or
Common Stock will not be eligible for the dividends-received deduction.
23
24
Item 8. Selected Financial Data
Year ended March 31
--------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997
------------- -------------- -------------- -------------- -----------------------------
(Millions of yen except per share amounts and yen exchange rates)
FOR THE YEAR
FOR THE YEAR
Sales and operating revenue 3,931,602 4,001,270 3,744,285 3,990,583 4,592,565 5,663,134
Operating income (loss) 176,904 130,640 106,962 (166,640) 235,324 370,330
Income (loss)
before income taxes 216,139 92,561 102,162 (220,948) 138,159 312,429
Net income (loss) 120,121 36,260 15,298 (293,356) 54,252 139,460
Depreciation
and amortization* 265,208 275,671 242,458 226,984** 227,316 266,532
Capital expenditures
(additions to fixed assets) 453,115 251,117 195,937 250,678 251,197 298,078
R&D expenses 240,591 232,150 229,877 239,164 257,326 ................................................................................................................282,569
----------------------------------------------------------------------------------------------------------------
Per Depositary Share:share:
Net income (loss) 293.1 92.2 42.1 (696.9) 134.0 309.2
Cash dividends declared
Interim 25.00 25.00 25.00 25.00 25.00
(19.46cent) (20.34cent) (22.88cent) (24.88cent) (20.81cent)(20.34cents) (22.88cents) (24.88cents) (24.48cents) (21.93cents)
Year-end 25.00 25.00 25.00 25.00 25.00
(19.86cent) (23.09cent) (25.22cent) (29.40cent) (19.36cent)
................................................................................................................30.00
(23.09cents) (25.22cents) (29.40cents) (22.77cents) (26.15cents)
----------------------------------------------------------------------------------------------------------------
AT YEAR-END
Net working capital 306,553 367,009 616,089 537,739 816,387 843,596
Long-term debt 885,301 880,395 983,712 906,486 1,203,592 1,099,765
Stockholders' equity 1,536,795 1,428,219 1,329,565 1,007,808 1,169,173 1,459,428
Stockholders' equity
per Depositary Share 4,119.23share 3,827.39 3,557.57 2,695.31 3,125.57 3,798.76
Total assets 4,911,129 4,529,830 4,269,885 4,223,920 5,045,725 ................................................................................................................5,680,342
----------------------------------------------------------------------------------------------------------------
Number of shares outstanding in thousands:
Average 417,599 417,687 417,454 417,665 421,973 458,992
At year-end 373,078 373,158 373,728 373,911 374,068 384,185
----------------------------------------------------------------------------------------------------------------
Yen exchange rates per U.S. dollar:
At year-end 132.92 114.90 102.40 86.85 107.00 123.72
Average 132.75 123.98 107.87 99.30 96.43 112.52
High 123.20 114.90 101.10 86.85 81.12 104.49
Low 141.90 134.53 114.20 105.38 107.29 124.54
* Including amortization of deferred insurance acquisition costs
** Excluding write-off of goodwill
2423
2524
Notes to Selected Financial Data:
1. Net income (loss) per Depositary Shareshare is computed based on the average number of
common shares outstanding during each period after consideration of the
dilutive effect of common stock equivalents.
2. During the fiscal year ended March 31, 1996, the Company changed its method
of accounting for assessing the carrying values of intercompany foreign
currency commitments to comply with the Emerging Issues Task Force (EITF) of FASB issued EITFIssue
No. 95-2, which the Company has applied which
required mark to market of forward exchange contracts entered into
subsequent to July 25, 1995 to hedge intercompany foreign currency
commitments which do not qualify as firm commitments.95-2. This did not have a material impact on results of operations for
the yearyears ended March 31, 1996.1996 and 1997.
3. The consolidated results for the fiscal year ended March 31, 1995 reflect
the write-off of goodwill of 265 billion yen in the Pictures Group (refer
to Note 3 of Notes to Consolidated Financial Statements) and losses in the
Pictures Group of approximately 50 billion yen arising from a combination
of unusual items, such as abandoning a large number of projects in
development and providing for settlement of outstanding lawsuits and
contract claims.
4. Sales and operating revenue and operating income (loss) reported in
previous years have been reclassifiedRefer to conform withNote 2 of Notes to Consolidated Financial Statements, regarding
the presentationaccounting policy for the fiscal year ended March 31, 1996.
5. In November 1991, SMEJ, a consolidated subsidiary, issued shares of common
stock in a public offering to third parties at a price which was in excess
of the Company's averageearnings per share carrying value. The issuance was
regarded as a sale of a part of the Company's interest in the subsidiary
and resulted in a 61,544 million yen gain on subsidiary sale of stock. No
taxes were provided for on the gain as the Company does not anticipate any
significant tax consequences on possible future disposition of its
remaining investment based on its tax planning strategies.
6.computation.
5. Cash dividends declared in U.S. dollars are based on the exchange rates at
each respective payment date, using the noon buying rates for cable
transfers in yen in New York City as certified for customs purposes by the
Federal Reserve Bank of New York.
25
26
Item 9. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital ResourcesLIQUIDITY AND CAPITAL RESOURCES
Sony's management aims to maintain a solid financial position with
ample liquidity to provide operational flexibility.
At March 31, 1996,1997, total assets of Sony amounted towere 5,680.3 billion yen, 12.6% more
than the 5,045.7 billion yen an increase of 19.5% from the 4,223.9 billion yen recorded at the previous fiscal year-end. The main factors contributing to this rise includedOne reason was the
effect of year-end exchange rates that showed a significant weakeningsignificantly lower value of the yen in relation to foreign currencies at the
end of the year compared with the previous fiscal year-end; anyear-end. An increase in notes and
accounts receivable, trade, due mainly to higher sales; expanded inventories,
primarily in the U.S.; and a rise in investments and advances associated with
the business expansionoperating
assets of Sony Life Insurance.
DuringInsurance Co., Ltd., which recorded higher insurance
premiums, also contributed to the year under review, the Company issued 300.0 billion yenrise in unsecured convertible bonds in Japan. All the proceeds were used for the
repayment ofassets.
Total short- and long-term borrowings including commercial paper.
Total borrowings and debt increased 259.2 billion yen from the previous
year-end due to increases in notes and accounts receivable, trade, and
inventories as well as fluctuations in exchange rates.
Stockholders' equity rose 161.4decreased 202.0 billion
yen to 1,169.21,427.9 billion yen. This was the result of an improvement in Sony's cash
flows and the conversion of convertible bonds, offset to some degree by an
increase in foreign currency denominated liabilities caused by the yen's
depreciation.
Stockholders' equity grew by 290.3 billion yen to 1,459.4 billion yen.
The ratio of stockholders' equity to total assets was down,increased by 2.5 percentage
points, from 23.9%23.2% to 23.2%25.7%. Based on the number of shares outstanding at March
31, 1996,1997, stockholders' equity per Depositary Share increasedshare rose to 3,125.573,798.76 yen compared
with 2,695.31from 3,125.57 yen
at the previous year-end.
In cash flows from operating activities, depreciation and amortization
edged up 0.1%,rose 17.3% to 227.3266.5 billion yen. This amountfigure includes the amortization of
goodwill and intangibles arising from the acquisition of the Sony Music
Entertainment group and Sony Pictures Entertainment as well as the amortization of deferred insurance
acquisition costs. Net cash provided by operating activities amountedgrew to 234.2723.1
billion yen, up significantly from 181.9234.2 billion yen in the previous fiscal year,
primarily due primarily to the recording ofincrease in net income followingand the net loss of the previous year.decrease in inventories.
In cash flows from investing activities, net cash used in investing
activities amounted to 371.0518.0 billion yen, up from 277.9371.0 billion yen in the
previous fiscal year,year. This increase was mainly reflecting increasesattributable to growth in payments for investments
and advances and for
purchases of fixed assets.assets and marketable securities.
24
25
In cash flows from financing activities, 300.0net cash used in financing
activities totaled 247.5 billion yen, mainly due to a significant decrease in
unsecured
convertible bonds was issued in Japan. In addition, medium-term notes were
issued in the U.S. and Europe and in total 381.2 billion yen was raised
through the issuance of long-term debt.short-term borrowings.
Due to a shift toward long-term debt,the above factors, and including the effect of exchange rate
changes, there was a considerable decline in short-term borrowings during the year
under review. Net cash provided by financing activities was 130.5 billion
yen.
As a result of the above activities, the net decrease in cash and cash equivalents including the effect of exchange rate changes, amounted to 16.230.8 billion
yen, and cash and cash equivalentsresulting in a balance of 428.5 billion yen at year-end totaled 459.3 billion
yen.year-end.
Capital expenditures during the fiscal year under review rose a slight 0.2%,ended March 31, 1997,
increased 18.7% to 251.2298.1 billion yen. The largest single itemMajor components of expenditure wasthis figure are
semiconductor-related expenditures of approximately 43.050 billion yen for expanding semiconductor facilities.and capital
expenditures in the field of displays. In the fiscal year ending March 31, 1997,1998,
Sony intendsplans to increase itssemiconductor-related capital expenditures. Overseas, Sony will strengthen its manufacturing structure in
all regions through such activities as establishing manufacturing facilities
in emerging markets. In Japan, Sony willexpenditures for
next-generation products and other requirements. The company also plans to
expand its manufacturing facilities for such products as semiconductorslithium-ion batteries and lithium-ion batteries.
26
27
Results of Operationsother products. As
a result, capital expenditures are expected to exceed the insurance and financing business has become significant,
commencing with the fiscal year ended March 31, 1996, the business, which was
previously included in the Electronics Business, is reported separately.
Figures in the consolidated results for the fiscal years ended March 31, 1994
and 1995 have been reclassified to conform with the classificationlevel of the fiscal
year ended March 31, 1996.1997.
RESULTS OF OPERATIONS
(The fiscal year ended March 31, 1997 compared to the fiscal year ended
March 31, 1996)
Sales and Operating Revenue
Sony's consolidated sales during the fiscal year ended March 31, 1997,
amounted to 5,663.1 billion yen, up 23.3% from the previous fiscal year.
In Electronics, sales in Video Equipment rose 11.7% from the previous
year, mainly due to the increase in unit sales of home-use camcorders. Sales in
Audio Equipment increased 14.3%. In this category, sales of MD systems were
brisk and car stereos recorded sales growth. Sales in Televisions increased
30.4%, reflecting the growth in sales of color TVs and strong sales of computer
displays worldwide. Sales in Other Products rose 36.5%. The PlayStation game
console and software, cellular phones, and lithium-ion batteries contributed to
the sales increase in this category. However, sales of personal computer-related
semiconductors, optical pickups, and CD-ROM drives declined.
In Entertainment, sales in the Music Group increased 14.0% despite the
weak retail environment in the U.S., primarily due to favorable sales growth
outside Japan. Sales in the Pictures Group rose 37.8%, mainly benefiting from
continued strength in the television operations, including U.S. network
prime-time, daytime, and game show programming, the success of sell-through
videos, and licensing agreements of SPE's filmed entertainment library.
In Insurance and financing, revenues increased 9.0% from the previous
year, reflecting the expansion of Sony's life insurance business in Japan.
By geographic area, sales in Japan rose 15.3%. 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 the Entertainment Business. As a result, sales were up 30.1% in the U.S.,
23.8% in Europe, and 25.6% in Other Areas. Sales in Japan accounted for 28.1% of
the consolidated sales, with overseas sales accounting for 71.9%, an increase of
1.9 percentage points from the previous year.
Impact of Foreign Exchange Trends
During the fiscal year ended March 31, 1997, the U.S. dollar, German
mark, and British pound accounted for approximately 67%, 5%, and 5%,
respectively, of Sony's overseas sales. Approximately 97% of overseas sales were
denominated in foreign currencies. During the year, the yen depreciated
approximately 15% against the U.S. dollar, 7% against the German mark, and 16%
against the British pound, each in terms of average rate, compared with the
previous year. It is estimated that sales would have been approximately 520
billion yen lower than the reported figure, if the value of the yen had remained
the same as in the previous year.
25
26
To minimize the adverse effects of foreign exchange fluctuations on its
financial results, Sony promotes the localization of material and parts
procurement, design, and manufacturing operations outside Japan. During the
fiscal year ended March 31, 1997, overseas activities represented approximately
50% of total manufacturing output in Sony's Electronics Business. This figure is
expected to continue to rise. Sony employs foreign exchange forward contracts
and foreign currency option contracts to hedge against foreign exchange risks
that arise from export and import transactions of Sony Corporation and its
subsidiaries. In addition, interest rate currency swap agreements are used in
connection with certain foreign currency denominated borrowings and debt.
Cost of Sales, Selling, General and Administrative Expenses, and Operating
Income
The revenue and expenses of Insurance and financing are not included in
the figures in the following two paragraphs.
Cost of sales increased 22.2% to 3,930.1 billion yen, and the ratio of
cost of sales to consolidated sales improved 1.2 percentage points, to 72.6%.
Research and development expenses rose 9.8% to 282.6 billion yen, but as a
percentage of consolidated sales declined 0.7 percentage point, to 5.2%.
Selling, general and administrative expenses rose 23.4% to 1,132.2
billion yen. These expenses as a percentage of consolidated sales improved 0.1
percentage point, to 20.9%.
Insurance and financing expenses were up 3.6% to 230.5 billion yen.
This is mainly attributable to higher future insurance policy benefits due to
growth in Sony's life insurance business. As a percentage of insurance and
financing revenue, these expenses improved 4.8 percentage points, to 91.5%.
Operating income grew by 57.4% to 370.3 billion yen, and the ratio of
operating income to consolidated sales increased 1.4 percentage points, to 6.5%.
Other Income and Expenses
Other income rose 40.9% to 92.6 billion yen, while other expenses
decreased 7.6% to 150.5 billion yen. These changes are primarily attributable to
the foreign exchange gain, net, posted during the fiscal year ended March 31,
1997, following a substantial foreign exchange loss, net, in the previous year.
During the fiscal year ended March 31, 1997, the exchange rates of the yen at
settlement of foreign currency denominated sales were about the same as
prevailing exchange rates. However, yen exchange rates for settlement of imports
were higher than prevailing rates, resulting in a foreign exchange gain.
Among other income and expenses, the balance of interest and dividend
income less interest expenses resulted in net interest payments of 51.5 billion
yen. This is 2.4 billion yen more than in the previous year, mainly because of
the yen's depreciation.
Income before Income Taxes and Net Income
Income before income taxes was up 126.1% to 312.4 billion yen. Income
taxes as a percentage of income before income taxes declined 3.4 percentage
points, to 52.4%.
Net income increased 157.1% to 139.5 billion yen, and represented 2.5%
of consolidated sales, up 1.3 percentage points from the previous year.
Net income per share rose from 134.0 yen to 309.2 yen (refer to Note 2
of Notes to Consolidated Financial Statements). The return on average
stockholders' equity increased 5.6 percentage points, to 10.6%.
26
27
Segment Information
The following discussion is based on segment information (refer to Note
18 of Notes to Consolidated Financial Statements) and differs from the sales
classification described in Products and Sales and Distribution in Item 1.
By Industry Segment, sales in the Electronics Business grew 23.6%.
Backed by the rise in sales and the yen's depreciation, operating income surged
59.2%. Operating income as a percentage of sales in the Electronics Business
improved by 1.6 percentage points, to 6.9%.
Sales in the Entertainment Business were up 24.0%, and operating income
climbed 20.8%. As a percentage of sales in the segment, operating income
declined by 0.2 percentage point to 6.3%. 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 and television businesses, and to licensing agreements involving SPE's
filmed entertainment library.
In Insurance and financing, the strong performance of the life
insurance business was mainly responsible for a 9.0% rise in revenue and a large
153.6% increase in operating income.
By Geographic Area, Sony generated higher sales in all areas. In Japan,
sales rose 12.9%. Operating income was up by a substantial 75.8%, mainly the
result of a strong performance in the Electronics Business, including higher
profitability of exports as the yen weakened. As a percentage of sales in Japan,
operating income rose 2.8 percentage points, to 7.6%. In the U.S., sales
increased 31.9%, but operating income declined 4.5% and fell 0.7 percentage
point as a percentage of sales. This decline is primarily due to substantial
losses incurred at a semiconductor manufacturing equipment subsidiary. In
Europe, sales increased 24.7% and operating income advanced 45.2%, representing
6.2% of sales, 0.9 percentage point more than in the previous year. In Other
Areas, sales were up 20.8% and operating income rose 25.3%, representing 4.8% of
sales, 0.1 percentage point more than in the previous year.
(The fiscal year ended March 31, 1996 compared to the fiscal year ended
March 31, 1995)
Sales and Operating Revenue
Sony's consolidated sales during the fiscal year ended March 31, 1996,
amounted to 4,592.6 billion yen, up 15.1% from the previous fiscal year.
In Electronics, sales in Video Equipment rose 5.8% from the previous
year, due to the increase in unit sales of home-use camcorders and favorable
sales performances of broadcast- and industrial-use video products including
Digital Betacam VTRs. Sales in Audio Equipment increased 0.8%. In this category,
MiniDiscMD system unit sales showed significant growth, particularly in Japan. Sales in
Televisions increased 12.2%, reflecting the growth in unit sales of color TVs
and strong sales of computer displays worldwide. Sales in Other Products rose
41.4%, due to the strong sales of semiconductors, electronic components, CD-ROM
drives, and cellular phones. In addition, the 32-bit home videoPlayStation game system PlayStationconsole and
software gained popularity in Japan, the U.S., and Europe, contributing
substantially to the sales increase in Other Products.
In Entertainment, sales in the Music Group increased 3.6% over the
previous year. Strong sales gains in international markets more than offset a
sales decline in the U.S. that resulted from the weak retail environment. The
Pictures Group sales rose 13.0%, reflecting strong box office revenues from
several hit films as well as the successful off-network syndication of a hit
comedy.
In Insurance and financing, revenues increased 66.6% from the previous
year, reflecting the expanded business operations of Sony Life Insurance Co.,
Ltd.
27
28
By geographic area, sales in Japan increased 24.9%, supported by
overall sales advances in electronics products and higher sales of the
32-bit
home videoPlayStation game system PlayStation,console and software, as well as revenue growth in the life
insurance business. Sales in the U.S. rose 9.4%, reflecting gains in
computer-related products. In Europe, sales rose 16.4%, due to overall sales
growth of the Electronics Business as well as favorable results of the
Entertainment Business. In addition, the successful launch of the PlayStation in
the U.S. and Europe in the fiscal year contributed to sales in both areas. Sales
in Other Areas advanced 8.6%, led by expansion in Asian countries. Sales in
Japan accounted for 30.0% of the consolidated sales, with overseas sales
accounting for 70.0%, a decrease of 2.3 percentage points from the previous
year.
Impact of Foreign Exchange Trends
During the fiscal year ended March 31, 1996, overseas sales were
denominated approximately 63% in U.S. dollars, 8% in deutscheGerman mark, 5% in pounds sterling,British
pound, and 4% in Hong Kong dollars. In total, approximately 97% of overseas
sales were denominated in foreign currencies. In terms of average rate, the yen
rose approximately 3% against both the U.S. dollar and theBritish pound, sterling, while it
fell approximately 6% against the deutscheGerman mark. It is estimated that
consolidated sales would have been approximately 20 billion yen higher than the
reported figure if the value of the yen had remained the same as in the
previous fiscal year.
To minimize the adverse effects of foreign exchange fluctuations on its
financial results, Sony promotes the localization of its operations, from R&D to
design, materials and parts procurement, and manufacturing. During the fiscal
year ended March 31, 1996, approximately 47% of total manufacturing in Sony's
Electronics Business was conducted outside Japan, and the percentage is expected
to continue to rise in the future. Foreign exchange forward contracts and
foreign currency options are employed to hedge against foreign exchange risks in
Sony's export and import transactions. In addition, currency swap agreements are
entered into for certain foreign currency denominated borrowings and debt.
27
28
Cost of Sales, Selling, General and Administrative Expenses, and Operating
Income
The revenue and expenses of Insurance and financing were reported
separately for the first time in the fiscal year ended March 31, 1996. Such
revenue and expenses are not included in the figures in the following two
paragraphs.
Cost of sales rose 10.3% from the previous year, to 3,216.8 billion
yen, and the ratio of cost of sales to consolidated sales improved 1.9
percentage points, to 73.8%. This improvement reflects higher sales and
Companywide efforts to reduce costs. Research and development expenses
increased 7.6%, to 257.3 billion yen, but as a percentage of consolidated sales
declined 0.3 percentage point, to 5.9%.
Selling, general and administrative expenses increased 8.9% from the
previous year, to 917.9 billion yen. These expenses as a percentage of
consolidated sales improved 0.9 percentage point, to 21.0%.
Insurance and financing expenses, which were reported separately, rose
67.6% from the previous year, to 222.5 billion yen, primarily due to an increase
in future insurance policy benefits reflecting the expanded operations of Sony's
life insurance business. Insurance and financing expenses as a percentage of
Insurance and financing revenue increased 0.6 percentage point, to 96.3%.
Sony posted operating income of 235.3 billion yen for the fiscal year
ended March 31, 1996, and the ratio of operating income to consolidated sales
was 5.1%. During the previous fiscal year, due to the write-off of goodwill and
additional losses in the Pictures Group, Sony posted an operating loss of 166.6
billion yen.
28
29
Other Income and Expenses
Other income declined 5.5%, to 73.3 billion yen, and other expenses
increased 29.3%, to 170.5 billion yen, due mainly to a large foreign exchange
loss, net, as opposed to a foreign exchange gain, net, in the previous year.
Foreign exchange gains and losses arise primarily when there is a difference
between the value of sales in foreign currencies converted to yen at
prevailing exchange rates and the value at settlement of foreign exchange
forward contracts used to hedge against exchange rate fluctuations. During the fiscal year ended March 31, 1996, the exchange rates of the yen at
settlement of foreign exchange forward contracts were higher than prevailing
exchange rates, resulting in ana foreign exchange loss.
Among other income and expenses, the balance of interest and dividend
income less interest expenses resulted in net interest payments of 49.0 billion
yen, a deterioration of 6.1 billion yen from the previous year, due primarily to
an increase in total borrowings and debt.
Income before Income Taxes and Net Income
Income before income taxes amounted to 138.2 billion yen, compared with
a loss before income taxes of 220.9 billion yen in the previous year. Income
taxes as a percentage of income before income taxes came to 55.8%.
Net income for the fiscal year ended March 31, 1996, was 54.3 billion
yen, compared with a net loss of 293.4 billion yen in the previous year. The
ratio of net income to consolidated sales was 1.2%.
Sony registered net income per Depositary Share (each Depositary Share represents one share of
Common Stock) of 134.0 yen, compared with a net
loss per Depositary Shareshare of 696.9 yen in the previous year.
28
29year (refer to Note 2 of Notes to
Consolidated Financial Statements).
Segment Information
The following discussion is based on segment information (refer to Note
18 of Notes to Consolidated Financial Statements) and differs from the sales
classification described in Products and Sales and Distribution in Item 1.
By industry segment, sales in the Electronics Business rose 15.6% and
operating income surged 56.7%, reflecting the increase in sales and Companywide
efforts to cut costs and expenses. Operating income as a percentage of sales in
the Electronics Business improved from 3.9% to 5.3%.
In the Entertainment Business, sales rose 7.7%. Operating income of
54.9 billion yen was posted, compared with an operating loss of 273.3 billion
yen in the previous fiscal year, which was the result of the write-off of
goodwill and additional losses in the Pictures Group. Operating income as a
percentage of sales in the Entertainment Business amounted to 6.5%. The Pictures
Group posted operating income thanks to several hit films, successful television
syndication in the U.S., management efforts to control costs, and lower
amortization charges following the previous year's write-off of goodwill. The
operating income of the Music Group declined from the previous year due to the
weak U.S. retail environment, which was not totally offset by a strong
international performance.
In Insurance and financing, revenues soared 61.7% from the previous
year and operating income climbed 40.6%. These gains were primarily the result
of a strong performance by Sony Life Insurance Co., Ltd. Operating income as a
percentage of revenues in Insurance and financing declined from 3.9% to 3.4%.
29
30
By geographic area, Sony's sales increased significantly in all areas.
In Japan, sales advanced 14.6%, mainly as the result of an increase in sales in
the Electronics Business, and operating income soared 94.5%. Consequently,
operating income as a percentage of sales was 4.8%, a major improvement from
2.9% in the previous year. In the U.S., due to a 13.2% increase in overall sales
as well as improved profit from Pictures Group operations, operating income was
recorded. In the previous fiscal year, a large operating loss was posted due to
the write-off of goodwill and additional losses in the Pictures Group. In
Europe, while sales climbed 16.0%, operating income rose only 3.5% and operating
income as a percentage of sales worsened from 5.9% in the previous year to 5.3%.
In Other Areas, sales rose 15.7%, operating income increased 16.5%, and
operating income as a percentage of sales improved marginally, to 4.7%.
(The fiscal yearItem 9A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
COMPLIANCE WITH STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In February 1997, the FASB issued FAS 128, Earnings per Share, which
replaces the presentation of primary Earnings per Share (EPS) with a
presentation of basic EPS and also requires dual presentation of basic and
diluted EPS with an appropriate reconciliation of both computations. Basic EPS
is computed based on the average number of shares of common stock outstanding
during each period. Diluted EPS assumes the dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock. This Statement is
effective for the both interim and annual periods ending after December 15,
1997. Earlier application is not permitted. After the effective date, all
prior-period EPS data presented shall be restated to conform with this
Statement. Under the provisions of this Statement, the company's basic EPS for
the years ended March 31, 1995, compared to1996, and 1997 would be (784.7) yen, 145.1 yen,
and 367.7 yen, respectively, and also its diluted EPS for the fiscal year ended March
31, 1994)
Sales and Operating Revenue
Sony's consolidated sales during the fiscal yearyears ended March
31, 1995, amounted to 3,990.6 billion1996, and 1997 would be (784.7) yen, a 6.6% increase from the previous year.
In Electronics, sales in Video Equipment rose 3.4% from the previous
year, thanks to the growth of broadcast- and industrial-use video products,
including Digital Betacam VTRs, and increased unit sales of home-use video
decks. Sales in Audio Equipment grew 6.9%, reflecting significant increases
of unit sales of such major products as CD players and Walkman. Sales in
Televisions increased 14.7%, led by favorable sales of color TVs and computer
displays. Sales in Other Products rose 8.9%, on the strength of
semiconductors, electronic components, telephones, and batteries. In
addition, the 32-bit home video game system PlayStation contributed to rising
sales in this category.
In Entertainment, sales in the Music Group advanced 7.2% over the
previous year despite the appreciation of the yen, due to the popularity of
many of its artists throughout the world. Sales in the Pictures Group
declined 14.1%, due to the appreciation of the yen as well as disappointing
box office results from several films released during the fiscal year.
In Insurance and financing, revenues increased 21.8% from the previous
year.
29
30
By geographic area, sales in Japan increased 7.0%, supported by a
strong performance in Televisions and the introduction of the PlayStation.
Sales in Europe rose 8.7%, due to growth in overall Electronics Business
sales, led by strong sales in Televisions, and a favorable performance in the
Music Group. Sales advanced 14.4% in Other Areas, due to the continuing
exceptionally healthy expansion of Electronics Business in Asia, but fell
0.2% in the U.S., due to the appreciation of the134.0 yen, and a decline309.2 yen,
respectively (yen amounts in Pictures Group sales. Salesparentheses represent loss per share).
In February 1997, FAS 129, Disclosure of Information about Capital
Structure, and in Japan accounted for 27.7% of consolidated
sales, with overseas sales accounting for 72.3%, an decrease of 0.1
percentage point from the previous year.
Impact of Foreign Exchange Trends
During the fiscal year ended March 31, 1995, overseas sales were
denominated approximately 61% in U.S. dollars, 8% in deutsche mark, 6% in
Singapore dollars, and 5% in pounds sterling. In total, approximately 97% of
overseas sales were denominated in foreign currencies. In terms of average
rate, the yen rose approximately 9% against the U.S. dollar, 1% against the
deutsche mark, and 5% against the pound sterling. It is estimated that
consolidated sales would have been approximately 185 billion yen higher than
the reported figure if the value of the yen had remained the same as in the
previous fiscal year. On a local currency basis, sales in the U.S. rose
approximately 12% in the Electronics Business and 15% in the Music Group and
fell 9% in the Pictures Group. On the same basis, in Europe, sales in the
Electronics Business rose approximately 13%, and those in Other Areas
increased 23%.
To minimize the adverse effects of foreign exchange fluctuations on its
financial results, Sony promotes the localization of its operations, from R&D
to design, materials and parts procurement, and manufacturing. During the
fiscal year ended March 31, 1995, approximately 42% of total manufacturing in
Sony's Electronics Business was conducted outside Japan, and the percentage
is expected to continue to rise in the future. Foreign exchange forward
contracts and foreign currency options are employed to hedge against foreign
exchange risks in Sony's export and import transactions. In addition,
currency swap agreements are entered into for certain foreign currency
denominated borrowings and debt.
Write-off of Goodwill
During the second quarter of the fiscal year ended March 31, 1995, Sony
decided to make an important change in its method of accounting for assessing
the carrying value of its investments in acquired businesses, including
goodwill. The effect of this accounting change was to reduce the goodwill
associated with the acquisition of Columbia Pictures Entertainment, now named
Sony Pictures Entertainment (SPE), by 265.2 billion yen.
Since Sony acquired SPE in 1989, SPE had grown to become one of the
top-tier companies in the motion picture industry, achieving top-level U.S.
box office revenues for three consecutive years until 1993. After this,
however, SPE's performance began to deteriorate, and the company recorded a
significant operating loss during the fiscal year ended March 31, 1994. In
light of Sony's substantial investment, SPE had not provided adequate
returns. In conjunction with the resignation of SPE's top management, Sony
reevaluated its investment strategy in the Pictures Group. As a result, Sony
concluded that additional funding would be necessary. Based on this decision,
Sony reevaluated its method of assessing the carrying value of its
investments in acquired businesses and wrote off a portion of goodwill in the
Pictures Group representing the unrecoverable amount of its investment. This
write-off of goodwill did not have any impact on cash flows.
Also during the second quarter of the fiscal year ended March 31, 1995,
additional losses amounting to approximately 50 billion yen were incurred in
the Pictures Group, arising from a combination of unusual items, such as
abandoning a large number of projects in development and providing for
settlement of outstanding lawsuits and contract claims.
30
31
From the latter part of the fiscal year ended March 31, 1995, Sony has
begun rebuilding and strengthening the Pictures Group and is working to
revitalize the three core businesses in the Group: motion pictures,
television programming and distribution, and theatrical exhibition. In an
intensive effort to streamline operations and raise efficiency in its motion
picture operations, the Pictures Group has been tightening control over movie
production and overhead costs, and has integrated the distribution and
marketing divisions of its two studios to simplify its organization and
reduce costs. In addition, to create more opportunities to generate new
revenue, the Pictures Group has increased production starts while minimizing
financial risks in the film production by strengthening business alliances
with independent production companies.
Cost of Sales, Selling, General and Administrative Expenses, and Operating
Loss
The revenue and expenses of Insurance and financing are not included in
the figures in the following two paragraphs.
Cost of sales rose 5.8%, to 2,916.5 billion yen, and the ratio of cost
of sales to consolidated sales improved 0.2 percentage point, to 75.7%.
Despite additional losses in the Pictures Group, the improvement in the cost
of sales ratio was indicative of Companywide efforts to reduce costs in the
Electronics Business and a decrease in depreciation and amortization expenses
resulting from efforts to limit capital expenditures during the prior three
fiscal years. Research and development expenses rose 4.0% from the previous
year, to 239.2 billion yen, but as a percentage of consolidated sales edged
down 0.1 percentage point, to 6.2%.
Selling, general and administrative expenses increased 8.2%, to 842.8
billion yen, reflecting an increase in expenses for sales promotions and
additional losses in the Pictures Group. These expenses as a percentage of
consolidated sales increased 0.4 percentage point, to 21.9%. As a result of
the write-off of goodwill in the Pictures Group (mentioned previously under
"Write-off of Goodwill"), amortization of goodwill for the Pictures Group
included in selling, general and administrative expenses declined
approximately 4.7 billion yen.
Insurance and financing expenses rose 29.7% from the previous year, to
132.8 billion yen.
Due to the write-off of goodwill and additional losses in the Pictures
Group, Sony posted an operating loss of 166.6 billion yen, compared with
operating income of 107.0 billion yen in the previous year.
OtherJune 1997, FAS 130, Reporting Comprehensive Income and Expenses
Other income fell 28.4%, to 77.6 billion yen, due chiefly to a decline
in foreign exchange gain, net,FAS
131, Disclosures about Segments of an Enterprise and a decrease in interest income accompanying
lower interest rates in Japan.
Other expensesRelated Information about
Capital Structure were up 16.5%, to 131.9 billion yen, reflecting an
increase in loss on disposal and sales of fixed assets accompanying the
merging and streamlining of certain manufacturing subsidiaries.
Among other income and expenses, the balance of interest and dividend
income less interest expenses resulted in net interest payments of 43.0
billion yen, a deterioration of 6.8 billion yen from the previous year.
Loss before Income Taxes and Net Loss
As a result of the aforementioned factors, Sony recorded a loss before
income taxes of 220.9 billion yen and a net loss of 293.4 billion yen,
compared with income before income taxes of 102.2 billion yen and net income
of 15.3 billion yen in the previous year. Sony registered a net loss per
Depositary Share (each Depositary Share represents one share of Common Stock)
of 696.9 yen, compared with net income per Depositary Share of 42.1 yen in
the previous year.
31
32
Segment Information
The following discussionissued. FAS 129 is based on segment information and differs
from the sales classification described in Products and Sales and
Distribution in Item 1.
By industry segment, sales in the Electronics Business rose 8.3% and
operating income surged 40.5%, reflecting the rise in sales and cost-cutting
efforts, including Companywide streamlining and expansion of overseas
production. Operating income as a percentage of sales in the Electronics
Business thus rose from 3.0% to 3.9%.
In the Entertainment Business, however, sales fell 1.6% and an
operating loss of 273.3 billion yen was recorded due to the write-off of
goodwill and additional losses in the Pictures Group. However, in the second
half of the fiscal year ended March 31, 1995, the Pictures Group returned to
profitability, compared with an operating loss for the same period of the
previous year. This was a result of several successful films released during
the fourth quarter, such as Legends of the Fall and Little Women, efforts to
rebuild the group's business, and decreased amortization charges following
the write-off of goodwill. Operating income in the Music Group fell below the
previous year's level due primarily to the appreciation of the yen.
In Insurance and financing, revenues increased 18.9% from the previous
year and operating income fell 48.2%. Operating income as a percentage of
revenues in Insurance and financing declined from 8.9% to 3.9%.
By geographic area, sales fell 4.0% in the U.S. due to the appreciation
of the yen and the decline in Pictures Group sales, but sales in Japan,
Europe, and Other Areas rose 14.5%, 9.5%, and 27.8%, respectively. Due to the
write-off of goodwill and additional losses recorded in the Pictures Group,
an operating loss was recorded in the U.S. However, substantial gains in
operating income of 23.9%, 18.3%, and 27.7%, respectively, were recorded in
Japan, Europe, and Other Areas, corresponding to operating income as a
percentage of net sales of 2.9%, 5.9%, and 4.6%, all higher than the previous
year's figures. The growth in sales and operating income in Japan was
attributable to an increase in the export sales of the Company resulting from
the readjustment of certain business operations related to the manufacture of
products and their export to the U.S. and Europe that had previously been
entrusted to subsidiaries in Southeast Asia. The rise in sales and operating
income in Other Areas reflected market expansion and increased production in
Asia.
Compliance with Statements of Financial Accounting Standards
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No.121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires that long-lived assets and certain identifiable intangibles
held and used be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets or intangibles
may not be recoverable. This Statement will be effective for the yearfinancial statements for
periods ending after December 15, 1997 and FAS 130 and FAS 131 are effective for
financial statements for periods beginning April 1, 1996. However, the Company anticipates that the effect of
adoptionafter December 15, 1997. The
statements are primarily disclosure oriented and will not be material.
32
33effect the Company's
consolidated financial position or operating results.
Item 10. Directors and Officers of Registrant
On April 1, 1995, Chief Executive Officer Norio Ohga assumedJune 27, 1997, the officeCompany made a major reform of Chairmanits Board of
Directors and at the same time introduced a new system of executive officers.
While the Company selects appropriate and qualified persons for the management
of Sony as candidates for directorship, the Company intends to increase the
number of outside Directors in order to reinforce the Board's supervisory
function on the conduct of business. The number of Directors are reduced
adequately so that more active discussion may be conducted and proper decisions
may be taken at the Board of Directors. Under the new system of executive
officers, the executive officers appointed by the Board of Directors execute
their respective assigned duties upon the delegation of power and authority by
the Representative Directors, who have unlimited statutory authority and power
to represent and act on behalf of the Company in all respects, and assist the
relevant Representative Directors in their respective areas of responsibility.
This new system was introduced with a view to strengthening the executive
function of officers headed by the Representative Directors who are in charge of
business operations in line with the basic policies set by the Board of
Directors and under the supervision of the Board and Nobuyuki Idei assumed the office of President
and Chief Operating Officer.Directors.
30
31
Set forth below are the names of the Company's Directors and Statutory
Auditors as of July 1, 1996.1997.
Director/Director or
Statutory Name Position Auditor
Directors and Statutory Auditors since
- - ------------------------------------ --------------------------------------------- --------------------------------------------------------------- -----------------
Norio Ohga Chairman and 1964 Representative Director, Chief Executive Officer
Tsunao HashimotoNorio Ohga --------------------------------------------------------------------------------------1964
Vice Chairman and 1980
Representative Director
Chief Human Resources Officer
Nobuyuki IdeiTsunao Hashimoto --------------------------------------------------------------------------------1980
President and 1989 Representative Director, Chief Operating Officer
Minoru MorioNobuyuki Idei -----------------------------------------------------------------------------------1989
Executive Deputy President and 1988
Representative Director
Chief Technology OfficerDirectors
Minoru Morio -----------------------------------------------------------------------------------1988
Kozo Ohsone Executive Deputy President and 1987
Representative Director-----------------------------------------------------------------------------------1987
Yoshiyuki Kaneda Executive Deputy President and 1986
Representative Director
Chief Production Officer--------------------------------------------------------------------------------1986
Tamotsu Iba Executive Deputy President and 1992
Representative Director
Chief Financial Officer
Fumio Kohno Senior Managing Director 1980
Kiyoshi Yamakawa Senior Managing Director 1984
Junichi Kodera Senior Managing Director 1985
Chief Marketing Officer
Jiro Aiko Senior Managing Director 1987
Kenji Tamiya Senior Managing Director 1986
Chief Communications Officer
Masahiro Takahashi Senior Managing Director 1987
Akira Nagano Managing Director 1988
Sumio Sano Managing Director 1990
33
34
Hideo Nakamura Managing Director 1991
Suehiro Nakamura Managing Director 1992
Katsuhito Hayashi Managing Director 1993
Teruaki Aoki Managing Director 1989
Kenichi Oyama Managing Director 1993
Toshitada Doi Director 1988
Jakob J. Schmuckli Director 1989
Masayuki Takano Director 1990
Seiichi Watanabe Director 1990
Kenji Hori Director 1991
Toshiyuki Yamada Director 1992
Katsuaki Tsurushima Director 1992
Yasumasa Mizushima Director 1993
Kunitake Ando Director 1994
Masahiro Hayashi Director 1995
Masayoshi Morimoto Director 1995
Shizuo Takashino Director 1995
Takeo Eguchi Director 1995
Shigeyuki Ochi Director 1996
Toshiharu Sawada Director 1996
Akiyosi Kawashima Director 1996
Kenichi Kamiya Director 1989------------------------------------------------------------------------------------1992
Directors
Peter G. Peterson Director 1991-------------------------------------------------------------------------------1991
Kenichi Suematsu --------------------------------------------------------------------------------1997
Hideo Ishihara ----------------------------------------------------------------------------------1997
Standing Statutory Auditors
Nobuo Kanoi Standing------------------------------------------------------------------------------------1996
Akihisa Ohnishi ---------------------------------------------------------------------------------1993
Yoshisuke Mohri ---------------------------------------------------------------------------------1994
Statutory Auditor
1996
Akihisa Ohnishi Standing Statutory Auditor 1993
Yoshisuke Mohri Standing Statutory Auditor 1994
Kazuaki Morita Statutory Auditor 1995----------------------------------------------------------------------------------1995
34Set forth below are the names of the Company's executive officers
(including seven Representative Directors) as of July 1, 1997.
Executive Officers (Since June 27, 1997)
----------------------------------------
Norio Ohga
Tsunao Hashimoto-----------------Chief Human Resources Officer, In charge of Corporate External Relations Division
Nobuyuki Idei
Minoru Morio---------------------Chief Technology Officer, In charge of Home Entertainment & Information Group,
Semiconductor Company, and Intellectual Property Development Center
Kozo Ohsone----------------------Chief Production Officer, In charge of Personal Entertainment & Communication
Group and Computer Peripherals & Components Company
Yoshiyuki Kaneda-----------------Executive Representative, Western Japan
Tamotsu Iba----------------------Chief Financial Officer, In charge of Legal Division
31
3532
Corporate Executive Vice President
Kiyoshi Yamakawa-----------------In charge of Image Creation & Communication Group
Suehiro Nakamura-----------------President of Display Company
Kenichi Oyama--------------------Senior General Manager of Accounting & Finance Division
Corporate Senior Vice President
Hideo Nakamura-------------------In charge of Manufacturing System Business Center, Circuit
Board Business Center, and Production Engineering Center
Teruaki Aoki---------------------President of Computer Peripherals & Components Company, In
charge of Bionics Department
Masayuki Takano------------------President of Broadcast Products Company
Yasumasa Mizushima---------------In charge of Procurement Center and Logistics Center
Masayoshi Morimoto---------------Senior General Manager of Corporate Human Resources Division,
In charge of Employee Relations & General Affairs Center and
Capital Market & Investor Relations
Shizuo Takashino-----------------President of Personal A&V Products Company, In charge of MD
Business Center
Akiyosi Kawashima----------------President of Recording Media & Energy Company
Mario Tokoro---------------------President of IT Laboratories and Sony Computer Science
Laboratory
Corporate Vice President
Toshitada Doi--------------------President of D-21 Laboratory
Seiichi Watanabe-----------------President of Semiconductor Company
Kenji Hori-----------------------In charge of Information Systems Center and Customer
Satisfaction Center
Toshiyuki Yamada-----------------President of Research Center
Katsuaki Tsurushima--------------President of Advanced Development Laboratory
Kunitake Ando--------------------President of Information Technology Company
Takeo Eguchi---------------------President of Image & Sound Communication Company, In charge of
Visual Communication Center, New Video Theater Systems Planning
Department, and Card Systems Department
Shigeyuki Ochi-------------------President of Media Processing Laboratories
Nobuyuki Watanabe----------------Senior General Manager of Electronic Devices Marketing Group
Tadasu Kawai---------------------Senior General Manager of International Marketing Center, In
charge of Corporate AD Center
Masao Morita---------------------President of Personal & Mobile Communication Company
Mitsuru Ohki---------------------Senior General Manager of Corporate Communication Center
Yoshio Nishi---------------------Senior Vice President of Recording Media & Energy Company
Yutaka Nakagawa------------------Senior Vice President of Personal A&V Products Company
Yukio Kubota---------------------Senior Vice President of Display Company, Vice President of
Information Technology Company
Katsumi Ihara--------------------President of Home A&V Products Company
(a) All of the aboveaforementioned persons, with the exception of Mr. Kenichi Kamiya,
Advisor of The Sakura Bank, Limited, Mr. Peter G.
Peterson, Chairman of The Blackstone Group, Mr. Kenichi Suematsu, Advisor
of The Sakura Bank, Limited, Mr. Hideo Ishihara, Chairman of Goldman Sachs
(Japan) Ltd., and Mr. Kazuaki Morita, Chairman of Morita and Co., are
engaged full-time in the affairs of Sony.
(b) Mr. Kazuaki Morita is an uncle of Mr. Masao Morita.
All Directors and Statutory Auditors shall be elected by the general
meeting of shareholders. In general, the term of office of Directors shall
expire at the conclusion of the ordinary general meeting of shareholders held
with respect to the last closing of accounts within one year after their
assumption of office, and the term of office of Statutory Auditors shall expire
at the conclusion of the ordinary general meeting of shareholders held with
respect to the last closing of accounts within three years after their
assumption of office; however, they may serve any number of consecutive terms.
The Directors constitute the Board of Directors, which has the ultimate
responsibility for administration of the Company's affairs.32
33
The Board of Directors may elect from among its members a Chairman and
Director, a Vice Chairman and Director, and a President and Director, and one or
more Executive Deputy Presidents and Directors, Senior Managing Directors and
Managing Directors. From among the Directors the
Board of Directors shall elect one or more Representative Directors. Each of the
Representative Directors has the authority individually to represent the Company
in the conduct of its affairs.
The Statutory Auditors of the Company are not required to be and are
not certified public accountants. However, at least one of the Statutory
Auditors should be a person who has not been a director, general manager or
employee of the Company or any of its subsidiaries during the five-year period
prior to his election as a Statutory Auditor. The Statutory Auditors may not at
the same time be Directors, managers or employees of the Company. Each Statutory
Auditor has the statutory duty to examine the financial statement and business
reports to be submitted by the Board of Directors at the general meeting of
shareholders and also to supervise the administration by the Directors of the
Company's affairs. They are entitled to participate in meetings of the Board of
Directors but are not entitled to vote.
Under the Law concerning Special Measures to the Commercial Code with
respect to Audit, the Board of Statutory Auditors has a statutory duty to
prepare and submit its audit report to the Board of Directors each year. A
Statutory Auditor may note his opinion in the audit report if his opinion is
different from the opinion expressed in the audit report. The Board of Statutory
Auditors is empowered to establish audit principles, the method of examination
by Statutory Auditors of the Company's affairs and financial position and other
matters concerning the performance of the Statutory Auditors' duties.
There is not any arrangement or understanding between a Director or a
Statutory Auditor and any other person pursuant to which he was selected as a
Director or a Statutory Auditor.
Item 11. Remuneration of Directors and Statutory Auditors
(a) The aggregate amount of remuneration, including bonuses, paid by Sony to
all Directors and Statutory Auditors of the Company as a group (44(45 persons)
who served during the fiscal year ended March 31, 1996,1997, was approximately
5,2692,572 million yen.
(b) The aggregate amount accrued for lump-sum severance indemnities by Sony
during the fiscal year for Directors of the Company totaled 860695 million
yen. (See Note 12 of Notes to Consolidated Financial Statements.)
35
36
Item 12. Options to Purchase Securities from Registrant or Subsidiaries
As of September 1, 1996,1997, the Company had granted the following
outstanding Warrants to purchase shares of Common Stocks to certain Directors
and senior executive staff membersofficers as part of their compensation.
(a) Number of Shares Initial Issue Price per Share* Exercise Period
--------------------------------- -------------------------------- ---------------------------------------- ------------------------------ ---------------
Number of shares of 5,330 yen October 1, 1995 to
Common Stock having an August 31, 1999
issue price of 1 billion yen
Number of shares of 7,022 yen October 1, 1996 to
Common Stock having an August 15, 2000
issue price of 2 billion yen
* Subject to antidilution adjustment
33
34
(b) As of September 1, 1997, the total amount of Common Stock called for by
Warrants held by Directors and executive officers is 1.9 billion yen.
Item l3.13. Interest of Management in Certain Transactions
(a) None of the information which the Company is required by Japanese law or
stock exchange requirements to disclose to its shareholders or otherwise
make public with respect to the interest of management in certain
transactions relates to any material transaction required to be disclosed
by this item.
(b) None.
PART II
Item 14. Description of Securities to be Registered
Not applicable.
PART III
Item 15. Defaults Upon Senior Securities
None.
Item l6.16. Changes in Securities and Changes in Security for Registered Securities
(a) None.
(b) None.
(c) None.
(d) None.
36
37
PART IV
Item l7.17. Financial Statements
Not applicable.
Item 18. Financial Statements
See Financial Statements.
Item 19. Financial Statements and Exhibits
(a) Financial Statements
See accompanying index to Consolidated Financial Statements.
34
35
(b) Exhibits
None.
37(1) Articles of Incorporation, as amended
(English translation)
(2) Regulations of the Board of Directors, as amended
(English translation)
(3) Certificate of English translations
35
3836
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this annual report to be signed on its behalf
by the undersigned, thereunto duly authorized.
SONY CORPORATION
(Registrant)
BY /s/ SUMIO SANO
BY ---------------------
Sumio Sano
Managing DirectorKenichi Oyama
--------------------------------------
Kenichi Oyama
Corporate Executive Vice President
Date September 25, 1996
Date ---------------------
3811, 1997
------------------
36
3937
S O N Y C O R P O R A T I O N
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 19961997
4038
SONY CORPORATION
AND CONSOLIDATED SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of independent accountants F- 2
Consolidated balance sheets at March 31, 1995 and 1996 F- 3
Consolidated statements of income and retained earnings
for the years ended March 31, 1994, 1995 and 1996 F- 5
Consolidated statements of cash flows
for the years ended March 31, 1994, 1995 and 1996 F- 7
Notes to consolidated financial statements F-10
Financial statement schedule
for the years ended March 31, 1994, 1995 and 1996
II - Valuation and qualifying accounts F-42
Page
----
Report of independent accountants F-2
Consolidated balance sheets at March 31, 1996 and 1997 F-3
Consolidated statements of income and retained earnings
for the years ended March 31, 1995, 1996, and 1997 F-5
Consolidated statements of cash flows
for the years ended March 31, 1995, 1996, and 1997 F-7
Notes to consolidated financial statements F-10
Financial statement schedule
for the years ended March 31, 1995, 1996, and 1997
II - Valuation and qualifying accounts F-43
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or the notes thereto.
Financial statements of majority-owned subsidiaries of the registrant not
consolidated and of 50% or less owned persons accounted for by the equity method
have been omitted because the registrant's proportionate share of the income
from continuing operations before income taxes, and total assets of each such
company is less than 20% of the respective consolidated amounts, and the
investment in and advances to each company is less than 20% of consolidated
total assets.
F-1
4139
Report of Independent Accountants
To the Stockholders and Board of Directors of
Sony Corporation (Sony Kabushiki Kaisha)
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Sony
Corporation and its consolidated subsidiaries at March 31, 19951996 and 1996,1997, and
the results of their operations and their cash flows for each of the three years
in the period ended March 31, 1996,1997, 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 is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Notes 2 andNote 3 to the consolidated financial statements, the company
changed its methodsmethod of accounting for assessing the carrying values of its
investments in acquired businesses including goodwill and for investments in
debt and equity securities in the year ended March
31, 1995.
/s/ PRICE WATERHOUSE
- - ------------------------------------------
Price Waterhouse
May 10, 19966, 1997
Tokyo, Japan
F-2
42
S O N Y C O R P O R A T I O N40
SONY CORPORATION
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
Yen in millions
------------------------------------------------------
March 31
----------------------------
1995--------------------------
1996 ---------- ----------1997
--------- ---------
Current assets:
Cash and cash equivalents 475,555 459,339 428,518
Time deposits 16,173 32,605 52,518
Marketable securities 66,617 28,420 120,094
Notes and accounts receivable, trade 675,111 923,566 1,066,314
Allowance for doubtful accounts and sales returns (48,185) (68,763) (93,732)
Inventories 723,383 856,638 869,800
Deferred income taxes 77,883 83,291 111,756
Prepaid expenses and other current assets 160,161 208,891 ---------- ----------240,195
--------- ---------
Total current assets 2,146,698 2,523,987 ---------- ----------2,795,463
--------- ---------
Noncurrent inventories-film 141,651 186,007 ---------- ----------242,727
--------- ---------
Investments and advances:
Affiliated companies 39,313 40,470 52,547
Securities investments and other 445,539 640,182 ---------- ----------
484,852734,332
--------- ---------
680,652 ---------- ----------786,879
--------- ---------
Property, plant and equipment:
Land 153,347 164,563 179,011
Buildings 638,282 714,419 818,084
Machinery and equipment 1,481,053 1,618,612 1,805,851
Construction in progress 65,312 78,078 ---------- ----------
2,337,99472,661
--------- ---------
2,575,672 2,875,607
Less-Accumulated depreciation 1,308,693 1,454,913 ---------- ----------
1,029,3011,636,696
--------- ---------
1,120,759 ---------- ----------1,238,911
--------- ---------
Other assets:
Intangibles 82,555 104,733 112,080
Goodwill 121,383 148,729 161,840
Deferred insurance acquisition costs 79,716 112,820 148,032
Other 137,764 168,038 ---------- ----------
421,418194,410
--------- ---------
534,320 ---------- ----------
4,223,920616,362
--------- ---------
5,045,725 ========== ==========5,680,342
========= =========
The accompanying notes are an integral part of these statements.
F-3
43
S O N Y C O R P O R A T I O N41
SONY CORPORATION
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
Yen in millions
------------------------------------------------------
March 31
----------------------------
1995--------------------------
1996 ---------- -----------1997
--------- ---------
Current liabilities:
Short-term borrowings 408,943 292,396 117,801
Current portion of long-term debt 55,204 133,863 210,315
Notes and accounts payable, trade 543,461 565,044 653,826
Accounts payable, other and accrued expenses 342,803 418,612 Dividends payable 9,539 9,467537,726
Accrued income and other taxes 73,686 74,029 169,480
Other 175,323 214,189
---------- ----------223,656 262,719
--------- ---------
Total current liabilities 1,608,959 1,707,600 ---------- ----------1,951,867
--------- ---------
Long-term liabilities:
Long-term debt 906,486 1,203,592 1,099,765
Accrued pension and severance costs 109,888 123,959 146,289
Deferred income taxes 125,448 160,398 173,951
Future insurance policy benefits and other 273,093 447,316 579,263
Other 93,098 126,233 ---------- ----------
1,508,013154,912
--------- ---------
2,061,498 ---------- ----------2,154,180
--------- ---------
Minority interest in consolidated subsidiaries 99,140 107,454 ---------- ----------114,867
--------- ---------
Stockholders' equity:
Common stock, 50 yen par value-
Authorized: 1,350,000,000 shares
Issued: 1995 - 373,911,490 shares 299,589
1996 - 374,067,706 shares 299,885
1997 - 384,185,043 shares 332,037
Additional paid-in capital 441,241 441,735 474,033
Legal reserve 27,620 31,380 35,831
Unrealized gain on securities 64,972 81,333 67,278
Retained earnings 585,553 617,343 731,470
Cumulative translation adjustment (411,167) (302,503) ---------- ----------
1,007,808(181,221)
--------- ---------
1,169,173 ---------- ----------1,459,428
--------- ---------
Commitments and contingent liabilities
4,223,920 5,045,725 ========== ==========5,680,342
========= =========
The accompanying notes are an integral part of these statements.
F-4
44
S O N Y C O R P O R A T I O N42
SONY CORPORATION
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
Yen in millions
---------------------------------------------------------------------------------------
Year ended March 31
---------------------------------------------
1994------------------------------------------
1995 1996 ---------- ---------- ----------1997
--------- --------- ---------
Sales and operating revenue:
Net sales 3,609,873 3,826,693 4,339,411 5,383,911
Insurance and financing revenue 113,881 138,747 231,198 251,930
Other operating revenue 20,531 25,143 21,956 ---------- ---------- ----------
3,744,28527,293
--------- --------- ---------
3,990,583 4,592,565 ---------- ---------- ----------5,663,134
--------- --------- ---------
Costs and expenses:
Cost of sales 2,755,840 2,916,475 3,216,806 3,930,107
Selling, general and administrative 779,085 842,783 917,887 1,132,241
Insurance and financing expenses 102,398 132,798 222,548 230,456
Goodwill write-off -- 265,167 -- ---------- ---------- ----------
3,637,323--
--------- --------- ---------
4,157,223 4,357,241 ---------- ---------- ----------5,292,804
--------- --------- ---------
Operating income (loss) 106,962 (166,640) 235,324 ---------- ---------- ----------370,330
--------- --------- ---------
Other income:
Interest and dividends 28,568 22,362 18,053 19,406
Foreign exchange gain, net 35,435 22,789 -- 18,085
Other 44,368 32,417 55,253
---------- ---------- ----------
108,371 77,568 73,306
---------- ---------- ----------27,992 47,702 55,152
--------- --------- ---------
73,143 65,755 92,643
--------- --------- ---------
Other expenses:
Interest 64,734 65,354 67,095 70,892
Foreign exchange loss, net -- 25,580 --
25,580
Other 48,437 66,522 77,796
---------- ---------- ----------
113,171 131,876 170,471
---------- ---------- ----------62,097 70,245 79,652
--------- --------- ---------
127,451 162,920 150,544
--------- --------- ---------
Income (loss) before income taxes 102,162 (220,948) 138,159 ---------- ---------- ----------312,429
--------- --------- ---------
Income taxes:
Current 59,869 84,108 72,088 169,060
Deferred 18,743 (18,935) 5,070 ---------- ---------- ----------
78,612(5,490)
--------- --------- ---------
65,173 77,158 ---------- ---------- ----------163,570
--------- --------- ---------
Income (loss) before minority interest 23,550 (286,121) 61,001 148,859
Minority interest in consolidated
subsidiaries 8,252 7,235 6,749 ---------- ---------- ----------9,399
--------- --------- ---------
Net income (loss) 15,298 (293,356) 54,252 ========== ========== ==========139,460
========= ========= =========
(Continued on following page)
The accompanying notes are an integral part of these statements.
F-5
45
S O N Y C O R P O R A T I O N43
SONY CORPORATION
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Continued)
Yen in millions
------------------------------------------------------------------------------
Year ended March 31
----------------------------------------
1994--------------------------------------
1995 1996 ---------1997
-------- ------- ---------------
Net income (loss) (from preceding page) 15,298 (293,356) 54,252 139,460
Retained earnings:
Balance, beginning of year 907,454 901,847 585,553 617,343
Common stock issue costs, net of tax (11) (8) (2) --
Cash dividends (18,673) (18,692) (18,700) (20,882)
Transfer to legal reserve (2,221) (4,238) (3,760) (4,451)
-------- -------- --------------- -------
Balance, end of year 901,847 585,553 617,343 731,470
======== ======== =============== =======
Yen
------------------------------------------------------------------------------
Per common share:
Net income (loss) 42.1 (696.9) 134.0 309.2
Cash dividends 50.0 50.0 50.055.0
The accompanying notes are an integral part of these statements.
F-6
46
S O N Y C O R P O R A T I O N44
SONY CORPORATION
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Yen in millions
---------------------------------------
Year ended March 31
---------------------------------------
1994 1995 1996 ---- ---- ----1997
-------- -------- -------
Cash flows from operating activities:
Net income (loss) 15,298 (293,356) 54,252 139,460
Adjustments to reconcile net income (loss)
to net cash provided by operating activities-
Depreciation and amortization,
including amortization of deferred
insurance acquisition costs 242,458 226,984 227,316 266,532
Goodwill write-off 265,167 -- 265,167 --
Accrual for pension and severance costs,
less payments 11,566 15,364 9,604 19,521
Loss on disposal of fixed assets 3,758 17,838 9,429 13,411
Deferred income taxes 18,743 (18,935) 5,070 (5,490)
Changes in assets and liabilities:
Increase in notes and accounts receivable (2,849) (116,093) (150,158) (65,905)
(Increase) decrease in inventories 13,019 (86,740) (69,157) 41,825
Increase in other current assets (11,151) (4,385) (32,117) (2,906)
Increase (decrease) in notes
and accounts payable 5,804 56,112 (4,169) 66,099
Increase (decrease) in accrued income
and other taxes (18,051) 10,528 (6,064) 89,887
Increase in other current liabilities 29,042 57,309 54,438 73,786
Increase in future insurance policy benefits
and other 54,002 76,100 174,223 131,947
Other (23,828) (23,954) (38,490) (45,032)
-------- -------- ---------------
Net cash provided by operating activities 337,811 181,939 234,177 723,135
======== ======== ===============
(Continued on following page)
The accompanying notes are an integral part of these statements.
F-7
47
S O N Y C O R P O R A T I O N45
SONY CORPORATION
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Yen in millions
-------------------------------------------------------------------------------
Year ended March 31
---------------------------------------
1994----------------------------------------
1995 1996 ------- ------- -------1997
-------- -------- --------
Cash flows from investing activities:
Payments for purchases of fixed assets (198,132) (222,861) (250,157) (298,187)
Proceeds from sales of fixed assets 8,931 6,637 22,823 14,940
Payments for investments and advances (387,876) (326,684) (490,330) (450,399)
Proceeds from sales of investment
securities and collections of advances 346,835 273,919 313,769 316,787
Payments for purchases of marketable
securities (64,316) (115,244) (54,964) (128,929)
Proceeds from sales of marketable securities 55,990 81,432 101,913 46,105
(Increase) decrease in time deposits 20,840 27,595 (12,359) (18,361)
Other 1,398 (2,727) (1,694) 46
-------- -------- --------
Net cash used in investing activities (216,330) (277,933) (370,999) (517,998)
======== ======== ========
(Continued on following page)
The accompanying notes are an integral part of these statements.
F-8
48
S O N Y C O R P O R A T I O N46
SONY CORPORATION
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Yen in millions
-------------------------------------------------------------------------------
Year ended March 31
----------------------------------------
1994---------------------------------------
1995 1996 ---------1997
------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 287,389 29,853 381,239 171,698
Payments of long-term debt (193,867) (69,039) (87,500) (209,383)
Increase (decrease) in short-term borrowings (193,970) 153,515 (145,527) (192,034)
Dividends paid (18,641) (18,681) (18,772) (18,657)
Other 105 (2,595) 1,037 --------881
------- -------- --------
Net cash provided by (used in)
financing activities (118,984) 93,053 130,477 --------(247,495)
------- -------- --------
Effect of exchange rate changes on cash
and cash equivalents (7,503) (5,735) (9,871) --------11,537
------- -------- --------
Net decrease in cash and cash equivalents (5,006) (8,676) (16,216) (30,821)
Cash and cash equivalents at beginning
of year 489,237 484,231 475,555 --------459,339
------- -------- --------
Cash and cash equivalents at end of year 484,231 475,555 459,339 ========428,518
======= ======== ========
The accompanying notes are an integral part of these statements.
F-9
49
S O N Y C O R P O R A T I O N47
SONY CORPORATION
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of operations:
The company is engaged in the development, manufacture, and sale of various
kinds of electronic equipment, instruments, and devices. The company's principal
manufacturing facilities are located in Japan, the United States, Europe, and
Asia, and its products are marketed by sales subsidiaries and unaffiliated local
distributors throughout the world. The company is also engaged worldwide 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. These activities are carried on
principally through a Japanese stock life insurance subsidiary and also a
Japanese financing subsidiary.
2. Summary of significant accounting policies:
The parent company and its subsidiaries in Japan maintain their records and
prepare their financial statements in accordance with accounting principles
generally accepted in Japan while its foreign subsidiaries maintain their
records and prepare their financial statements in conformity with accounting
principles generally accepted in the countries of their domicile. Certain
adjustments and reclassifications, including those relating to the tax effects
of temporary differences, capitalization of stock purchase warrants, deferral of
insurance acquisition costs, the accrual of certain expenses, and the accounting
for foreign currency translation, have been incorporated in the accompanying
consolidated financial statements to conform with accounting principles
generally accepted in the United States of America ( U.S. GAAP ).(U.S. GAAP). These
adjustments were not recorded in the statutory books of account.
The preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
F-10
5048
Significant accounting policies are as follows:
Basis of consolidation and accounting for investments in affiliated companies -
The consolidated financial statements include the accounts of the parent company
and those of its majority-owned subsidiary companies. All significant
intercompany transactions and accounts are eliminated. Investments in 20% to 50%
owned companies are stated at cost plus equity in undistributed earnings;
consolidated net income (loss) includes the company's equity in current earnings
(loss) of such companies, after elimination of unrealized intercompany profits.
On occasion, a subsidiary or affiliated company accounted for by the equity
method may issue its shares to third parties as either a public offering or upon
conversion of convertible debt to common stock at amounts per share in excess of
or less than the company's average per share carrying value. With respect to
such transactions, the resulting gains or losses arising from change in interest
are recorded in income for the year the change in interest transaction occurs.
The excess of the cost over the underlying net equity of investments in
subsidiaries and affiliated companies accounted for on an equity basis is
allocated to identifiable assets based on fair values at the date of
acquisition. The unassigned residual value of the excess of the cost over the
underlying net equity is recognized as goodwill.
During the year ended March 31, 1995, the company changed its method of
accounting for assessing the carrying value of its investments in acquired
businesses including goodwill (see Note 3).
Translation of foreign currencies -
All asset and liability accounts of foreign subsidiaries and affiliates are
translated into Japanese yen at appropriate year-end current rates and all
income and expense accounts are translated at rates that approximate those rates
prevailing at the time of the transactions. The resulting translation
adjustments are accumulated as a component of stockholders' equity.
Foreign currency receivables and payables are translated at appropriate year-end
current rates and the resulting translation gains or losses are taken into
income currently.
F-11
5149
Revenue recognition -
Revenues from electronics sales and music are recognized when products are
shipped to customers.
Motion picture revenue is recognized beginning on the date of theatrical
exhibition. Revenue from television licensing agreements is recognized when the
motion picture or television series first becomes available for telecast.
Revenue from home videocassette sales is generally recognized on the date of
shipment.
Insurance premiums are reported as earnedrevenue when due and paid.from policyholders. Benefits
and expenses are associated with earned insurance premiums so as to result in
the recognition of profits over the life of the contracts. This association is
accomplished through a provision for liabilities for future benefits and
amortization of acquisition costs.
Cash and cash equivalents -
Cash and cash equivalents include all highly liquid investments, generally with
original maturities of three months or less, that are readily convertible to
known amounts of cash and are so near maturity that they present insignificant
risk of changes in value because of changes in interest rates.
Debt and equity securities -
UnrealizedOn April 1, 1994, the company adopted Statement of Financial Accounting
Standards No. 115 (FAS 115), Accounting for Certain Investments in Debt and
Equity Securities, and recorded 73,000 million yen of unrealized gains on
available-for-sale securities as a separate component of stockholders' equity on
a net of tax basis. Under FAS 115, unrealized gains and losses on debt
securities and equity securities classified as available-for-sale, whose fair
values are readily determinable, are reported in a separate component of
stockholders' equity, net of tax. Debt securities that are expected to be held
to maturity are reported at amortized cost.
Inventories -
Inventories in electronics and music entertainment 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 subsidiary companies which is
determined on the "first-in, first-out" basis.
Film costs include production, print, certain advertising costs, and allocated
overhead. Film costs are amortized in the proportion that revenue for a period
relates to management's estimate of ultimate revenues.
F-12
50
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 be amortized
against revenues from primary markets are classified as
F-12
52 current assets. Primary
markets for motion pictures include theatrical, home videocassette, and pay
television. Primary markets for television programs include network and
first-run syndication. All other film costs are classified as noncurrent.
Property, plant and equipment and depreciation -
Property, plant and equipment is stated at cost. Depreciation of property, plant
and equipment is computed on the declining-balance method for the parent company
and Japanese subsidiaries and on the straight-line method for foreign subsidiary
companies at rates based on estimated useful lives of the assets according to
general class, type of construction and use. Significant renewals and additions
are capitalized at cost. Maintenance and repairs and minor renewals and
betterments are charged to income as incurred.
Intangibles and goodwill -
Intangibles, which mainly consist of artist contracts and music catalogs, are
being amortized on a straight-line basis principally over 16 years and 21 years,
respectively.
Goodwill recognized in acquisitions accounted for as purchases is being
amortized on a straight-line basis principally over a 40-year period.
Deferred insurance acquisition costs -
Costs that vary with and are primarily related to acquiring new insurance
policies are deferred and are being amortized mainly over the premium-paying
period of the related insurance policies using assumptions consistent with those
used in computing policy reserves.
Liability for insurance future policy benefits -
Liability for insurance future policy benefits is computed based on actuarial
assumptions.
F-13
5351
Accounting for the impairment of long-lived assets -
InDuring the fiscal year ended March 1995,31, 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No.121,company has adopted FAS 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, which requires that long-lived assets and certain identifiable
intangibles held and used be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of the assets or intangibles
may not be recoverable. This Statement will be effective for the year beginning April 1, 1996. However,
the company anticipates that theThe effect of adoption willadopting this statement was not be material.
Income taxes -
The provision for income taxes is computed based on the pretax income (loss)
included in the consolidated statements of income. The asset and liability
approach is used to recognize deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities.
Derivative financial instruments -
Derivative financial instruments are used in the company's risk management of
foreign currency and interest rate risk exposures of its financial assets and
liabilities. Gains and losses on derivative financial instruments qualified as
hedges to manage existing financial assets and liabilities are deferred and
effectively offset gains and losses arising from the related assets and
liabilities. Others used for hedging purposes but not qualifying for hedge
accounting under U.S. GAAP are marked to market.
In July 1995, the Emerging Issues Task Force (EITF) of the FASBFinancial Accounting
Standards Board (FASB) reached a consensus with regard to EITF Issue No.95-2,No. 95-2,
Determination of What Constitutes a Firm Commitment for Foreign Currency
Transactions Not Involving a Third Party. EITF No.95-2No. 95-2 requires companies to
mark to market forward exchange contracts to hedge intercompany foreign currency
commitments which do not qualify as firm commitments as defined by such
consensus. Accordingly, the company has applied the provisions of EITF No.95-2No. 95-2
effective as of the second quarter of the year ended March 31,1996.31, 1996. Previously,
gains or losses on those forward exchange contracts to hedge intercompany
foreign currency commitments have been deferred in accordance with FAS 52 and
EITF No.91-1.No. 91-1. The application of the provisions of EITF No.95-2No. 95-2 did not have a
material impact on the results of operations for the yearyears ended March 31,1996.31, 1996
and 1997.
F-14
5452
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 during each period after consideration of the
dilutive effect of common stock equivalents which include warrants and certain
convertible bonds. Net income (loss) per common share is appropriately adjusted
for any free distributions of common stock.
In February 1997, the FASB issued FAS 128, Earnings per Share, which replaces
the presentation of primary Earnings per Share (EPS) with a presentation of
basic EPS and also requires dual presentation of basic and diluted EPS with an
appropriate reconciliation of both computations. Basic EPS is computed based on
the average number of shares of common stock outstanding during each period.
Diluted EPS assumes the dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock. This Statement is effective for the
both interim and annual periods ending after December 15, 1997. Earlier
application is not permitted. After the effective date, all prior-period EPS
data presented shall be restated to conform with this Statement. Under the
provisions of this Statement, the company's basic EPS for the years ended March
31, 1995, 1996, and 1997 would be (784.7 yen), 145.1 yen, and 367.7 yen,
respectively, and also its diluted EPS for the years ended March 31, 1995, 1996,
and 1997 would be (784.7 yen), 134.0 yen, and 309.2 yen, respectively (yen
amounts in parentheses represent loss per share).
Distribution of common stock -
On occasion, the company may make a free distribution of common stock which is
accounted for either by a transfer of the applicable par value from the
additional paid-in capital to the common stock account or with no entry if free
shares are distributed from the portion of previously issued shares accounted
for as excess of par value in the common stock account. Under the Japanese
Commercial Code, a stock dividend can be effected by an appropriation of
retained earnings to the common stock account by resolution of the general
stockholders' meeting and the free share distribution with respect to the amount
as appropriated by resolution of the Board of Directors' Meeting.
Common stock issue costs -
Common stock issue costs 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.
F-15
53
Other recent pronouncements-
In June 1996, FAS 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities, was issued and was effective for
transfers and servicing of financial assets and extinguishment of liabilities
occurring after December 31, 1996. The adoption of FAS 125 did not have a
material effect on the company's consolidated financial position or operating
results.
In February 1997, FAS 129, Disclosure of Information about Capital Structure,
and in June 1997, FAS 130, Reporting Comprehensive Income and FAS 131,
Disclosures about Segments of an Enterprise and Related Information about
Capital Structure were issued. FAS 129 is effective for financial statements for
periods ending after December 15, 1997 and FAS 130 and FAS 131 are effective for
financial statements for periods beginning after December 15, 1997. The
statements are primarily disclosure oriented and will not effect the company's
consolidated financial position or operating results.
Reclassifications -
Certain reclassifications of the financial statements of income and related footnote
amountsretained earnings in
the years ended March 31, 19941995 and 19951996 have been made to conform with the
presentation in the year ended March 31, 1996.1997.
3. Investments in acquired businessesIntangible assets and other long-lived assets including goodwill:
During the second quarter of the year ended March 31, 1995, the company changed
its method of accounting for assessing the carrying value of its investments in
acquired businesses including goodwill. Previously, the company assessed the
carrying value of its investments in acquired businesses including goodwill on
the basis of projections of undiscounted future operating cash flows plus an
amount for an anticipated residual value. F-15
55Under the new method adopted, the
company applied a discount factor to those projected cash flows.
The company believed that the new method provided a better measurement of the
recoverability of its investments because the discounted cash flows method
recognized the effect of the substantial cost of capital employed to carry the
investments. The effect of this accounting change was to reduce the goodwill of
the Entertainment segment associated with the Pictures Group by 265,167 million
yen.
This new accounting methodology was also applied to unrelated acquisitions and
it was determined that the book value of these investments was recoverable from
future operating cash flows of those businesses over the forecast period.
Accordingly, no additional write-offs were necessary.
Since its acquisition in November 1989, there had been slower than expected
growth of the businessesbusiness of the Pictures Group, higher than expected levels of
operating costs and expenses and higher than anticipated capital investment
requirements. The deterioration experienced in the year ended March 31, 1994
gave rise to a thorough internal review. Similar results experienced in the
first half of the year ended March 31, 1995,
F-16
54
together with the resignation of the Pictures Group top management, caused the
company to conclude that additional funding would be needed to attain acceptable
levels of profitability. In light of the level of investments and likelihood of
additional funding requirements, the company determined in the second quarter of
the year ended March 31, 1995 that a discounted cash flows method provided a
preferable measurement of the recoverability of its investments in acquired
businesses because this method recognizes the effect of the cost of capital. The
discounted future results of the Pictures Group, based on the company's
forecasts, were not sufficient to justify the carrying value as of the end of
the second quarter of the year ended March 31, 1995.
In formulating the financial forecasts, the company considered historical
performance and the medium-term plans as well as the longer-term economic
outlook. These forecasts took into consideration market conditions during the
second quarter of the year ended March 31, 1995 as well as foreseeable
opportunities for future growth in existing lines of business. Although the
company believed it could fund the Pictures Group over the entire forecast
period, it had not determined whether additional investments would be made in
areas other than the existing lines of business.
The operating cash flows were based upon the short-term plans in effect in the
second quarter of the year ended March 31, 1995 that called for a substantial
improvement in earnings through recovered market share and cost reductions. For
the longer term, it was assumed that the low levels of inflation then existing
would continue and that the industry would grow at a slightly better rate than
the economy as a whole. At the end of the forecast period a residual was
included based on an appropriate multiple of the final year's results.
The company believes that the forecast results, based on the historical
financial trends and market conditions during the second quarter of the year
ended March 31, 1995, were the best estimate of the company's future
performance.
F-16
56
In arriving at the discounted net present value, the company used a discount
rate of 9% reflecting its weighted average cost of funds, including a factor for
equity allocated to the Pictures Group, commensurate with the risk associated
with that business as indicated by reference to comparable industry statistics.
Over the entire forecast period, after giving effect to significant additional
investment required to complete 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 yen. Based on such forecasts, the
cumulative results of the Pictures Group's operating cash flows on a discounted
net present value basis of 309,005 million yen as of September 30, 1994 were
insufficient to recover a significant portion of the investment. The amount of
the resultant shortfall reduced the goodwill balance arising from the Pictures
Group to 85,197 million yen as of September 30, 1994.
TheF-17
55
As a result, the changes in the company's goodwill during the yearsyear ended March
31, 1995 and
1996, are summarized as follows:
Yen in millions
-----------------------
Balance at March 31, 1994 424,482
Amortization of goodwill (8,037)
Goodwill write-off (265,167)
Translation adjustment and other (29,895)
---------------
Balance at March 31, 1995 121,383
Amortization of goodwill (5,145)
Translation adjustment and other 32,491
-------
Balance at March 31, 1996 148,729
===============
During the years ended March 31, 1996 and 1997, there were no significant
impairments of intangible assets or other long-lived assets including goodwill.
4. Accumulated amortization of intangibles and goodwill:
Accumulated amortization of intangibles and goodwill excluding the goodwill
write-off described in Note 3, amounted to 117,149151,131 million
yen and 151,131188,943 million yen at March 31, 19951996 and 1996,1997, respectively.
F-17
57
5. Cash flow information:
Cash payments during the year-
Cash payments for income taxes were 77,535 million yen, 80,499 million yen, 88,565 million yen, and
88,56587,723 million yen for the years ended March 31, 1994, 1995, 1996, and 1996,1997,
respectively; in these respective years, interest payments were 67,828 million
yen, 70,464 million
yen, 69,882 million yen, and 69,88268,004 million yen.
Noncash investing and financing activities-
Capital lease obligations of 1,971 million yen, 6,557 million yen, 9,563 million yen, and 9,5634,824
million yen were incurred during the years ended March 31, 1994, 1995, 1996, and 1996,1997,
respectively.
Conversions of convertible debt into common stock and additional paid-in capital
were 2,435 million yen, 791 million yen, 680 million yen, and 68063,578 million yen for the years
ended March 31, 1994, 1995, 1996, and 1996,1997, respectively.
F-18
56
6. Inventories:
Inventories comprise the following:
Yen in millions
---------------------
March 31
---------------------
1995 1996 1997
------- -------
Current:
Finished products 451,575 521,826 527,418
Work in process 109,615 121,035 119,406
Raw materials, purchased components and supplies 112,204 135,411 127,366
Film - released 37,649 52,761 73,767
- in process 12,340 25,605 21,843
------- -------
723,383 856,638 869,800
======= =======
Noncurrent:
Film - released 85,720 115,796 143,003
- in process 55,931 70,211 99,724
------- -------
141,651 186,007 242,727
======= =======
F-18
58
7. Account balances and transactions with affiliated companies:
Account balances and transactions with affiliated companies are presented below:
Yen in millions
------------------------------------
March 31
-----------------
1995-------------------
1996 1997
------ ------
Accounts receivable, trade 31,240 25,890 13,232
====== ======
Accounts payable, trade 464 425 89
====== ======
Yen in millions
-----------------------------------
Year ended March 31
-----------------------------------
1994 1995 1996 1997
------- ------- -------
Sales 209,525 226,237 123,623 96,183
======= ======= =======
Purchases 1,853 3,338 2,647 733
======= ======= =======
Dividends from affiliated companies accounted for by the equity method for the
years ended March 31, 1994, 1995, 1996, and 19961997 were 10,435 million yen, 4,721 million yen, 6,639 million
yen, and 6,6393,071 million yen, respectively.
F-19
5957
8. Marketable securities and securities investments:
Marketable securities and securities investments and other include debt and
equity securities of which the aggregate fair value, gross unrealized gains and
losses, and cost pertaining to available-for-sale securities are as follows:
Yen in millions
-------------------------------------------------------------------------------------------------------
March 31, 1995-----------------------------------------------------------------------------------------------------------
March 31, 1996 --------------------------------------------------------------- ---------------------------------------March 31, 1997
------------------------------------------------- ----------------------------------------------------
Gross Gross Gross Gross
unrealized unrealized Fair unrealized unrealized Fair
Cost gains losses Fair value Cost gains losses Fair value
------- ---------- ---------- ---------- ------- -------- ------- ----------------- ---------- ----------
Available-for-sale:Available-for-sale
Debt
securities 241,430 4,995 1,365 245,060 341,554 11,592 2,149 350,997 531,968 22,001 1,338 552,631
Equity
securities 65,097 130,765 906 194,956 49,842 158,279 1,006 207,115 49,512 124,682 2,364 171,830
------- ------- ----- ------- ------- ------- ------------ -------
Total 306,527 135,760 2,271 440,016 391,396 169,871 3,155 558,112 581,480 146,683 3,702 724,461
======= ======= ===== ======= ======= ======= ============ =======
At March 31, 1996,1997, debt securities mainly consist of Japanese government and
municipal bonds and corporate debt securities due within 1 to 15 years.
During the years ended March 31, 1995, 1996, and 1996,1997, the net unrealized gains
on available-for-sale securities included in the separate component of
stockholders' equity, net of applicable taxes, decreased by 8,028 million yen,
and increased by 16,361 million yen, and decreased by 14,055 million yen,
respectively.
Proceeds from sales of available-for-sale securities on a specifically
identified average cost basis were 315,619 million yen, 299,727 million yen, 397,774 million yen, and
397,774347,790 million yen for the years ended March 31, 1994, 1995, 1996, and 1996,1997,
respectively. On those sales, gross realized gains were 6,326 million yen, 3,440 million yen,
14,605 million yen, and 14,60519,174 million yen and gross realized losses were 278 million
yen, 1,863
million yen, 7,734 million yen, and 7,7349,877 million yen, respectively.
The net change in unrealized gain or loss on trading securities that has been
included in earnings during the years ended March 31, 1994, 1995, 1996, and 19961997 was
insignificant.
F-20
60
In the ordinary course of business, the company maintains long-term investment
securities, included in securities investments and other, issued by a number of
nonpublic companies. The aggregate carrying amounts of the investments in
nonpublic companies were 12,653 million yen, 21,65950,146 million yen and 20,55462,346 million yen at March 31,
1994, 19951996 and 1996,1997, respectively. The corresponding fair values at those dates were
not computed as such estimation was not readily determinable.
F-20
58
9. Short-term borrowings and long-term debt:
Short-term borrowings at March 31, 19961997 comprise the following:
Yen in
millions
--------
Loans, principally from banks, with interest
ranging from 0.67%0.68% to 11.50%9.80% per annum 142,310103,851
Commercial paper with interest ranging from
5.18%0.65% to 5.50%3.10% per annum 150,086
--------
292,396
========13,950
-------
117,801
=======
As at March 31, 1996,1997, the company had unused lines of credit amounting to
789,0701,213,438 million yen of which 272,614376,401 million yen related to commercial paper
programs and 108,92995,060 million yen related to medium term notes. Under these
programs, the company is authorized to obtain short-term financing at prevailing
interest rates for periods not in excess of 360 days.
F-21
6159
Long-term debt at March 31, 19961997 comprises the following:
Yen in
millions
-----------------
Unsecured loans, representing obligations principally to banks, due 19961997 to
20122017 with interest ranging from 0.76%1.0% to 10.13%9.25% per annum 189,777128,312
Secured loans, representing obligations principally to insurance companies and
banks, due 19961998 to 2000 with interest ranging from 9.2%5.7% to 19.0%10.13% per
annum 3,3504,024
Medium-term notes of consolidated subsidiaries due 19961997 to 2006 with interest
ranging from 3.23%3.02% to 8.04% per annum 234,014338,371
Unsecured 6.0% convertible debentures due 1997, convertible currently
at 3,200.2 yen for one common share, redeemable before due date 1214
Unsecured 2.0% convertible bonds due 2000, convertible currently at 4,159.9 yen
for one common share, redeemable before due date 418352
Unsecured 0.15% convertible bonds due 2001, convertible currently at 6,519 yen
for one common share, redeemable before due date 300,000243,326
Unsecured 1.5% convertible bonds due 2002, convertible currently at 4,387.9 yen
for one common share, redeemable before due date 1,6031,122
Unsecured 1.4% convertible bonds due 2003, convertible currently at 5,415.5 yen
for one common share, redeemable before due date 31,74025,391
Unsecured 1.4% convertible bonds due 2005, convertible currently at 7,990.9 yen
for one common share, redeemable before due date 298,595298,581
Unsecured 0.125% convertible bonds of a consolidated subsidiary, due
1998, convertible currently at 1,815 yen for one common share 331316
Unsecured 0.1% bonds, due 1999 with detachable warrants 1,000
Unsecured 0.1% bonds, due 2000 with detachable warrants 2,000
Unsecured 6.875% bonds due 2000 50,31550,232
Unsecured 4.4% bonds due 2001 80,000
Unsecured 1.95% bonds of a consolidated subsidiary, due 1998 15,000
Unsecured 2.55% notes of a consolidated subsidiary, due 2000 5,000
Unsecured 9-7/8% senior subordinated notes of a consolidated subsidiary, due 1998 33,82338,240
Unsecured Nikkei-linked coupon notes of a consolidated subsidiary, due 1997 5,6796,627
Unsecured 6.0% notes of a consolidated subsidiary, due 1997 10,76812,565
Unsecured floating rate notes of a consolidated subsidiary, due 1997 12,709
Unsecured floating rate notes of a consolidated subsidiary, due 1996 16,65614,830
Unsecured fixed coupon notes linked to the Yen/U.S. dollar rate of a consolidated
subsidiary, due 2001 691
Unsecured 5.7% notes of a consolidated subsidiary, due 1997, redeemable before
due date 4,254
Unsecured 7-1/2% bonds of a consolidated subsidiary, due 1996 1,889
Secured 5.3% bonds of a consolidated subsidiary, due 1996, redeemable before
due date 1,000807
Secured 3.8% bonds of a consolidated subsidiary, due 2001, redeemable before due date 3,000
Long-term capital lease obligations, 1.15% to 19.00%16.28% per annum, due 19961997 to 2007 29,5692015 29,314
Guarantee deposits received 6,26211,656
---------
1,337,4551,310,080
Less - Portion due within one year 133,863210,315
---------
1,203,5921,099,765
=========
F-22
6260
On September 1, 1995, the company issued 1 billion yen of 0.1% bonds, with
detachable warrants. One warrant entitles the holders to subscribe 2 million yen
for shares of common stock of the company at 5,330 yen per share (subject to
adjustment in certain circumstances). Upon issuance of the bonds, the company
bought all of these warrants and distributed such instruments at fair market
value to the directors of the company as a part of their directors'
remuneration. At March 31, 1996, 5001997, 255 warrants were outstanding and will expire
on August 31, 1999.
On February 26, 1996, the company issued 300 billion yen of 0.15% convertible
bonds due 2001, which may be converted into shares of common stock of the
company, at the option of the holder thereof, at any time. The conversion price
is subject to adjustment in certain circumstances.
On August 16, 1996, the company issued 2 billion yen of 0.1% bonds, with
detachable warrants. One warrant entitles the holders to subscribe 2 million yen
for shares of common stock of the company at 7,022 yen per share (subject to
adjustment in certain circumstances). Upon issuance of the bonds, the company
bought all of these warrants and distributed such instruments at fair market
value to the directors and employees of the company as a part of their
remuneration or salary. At March 31, 1996, 89,9151997, 909 warrants were outstanding and
will expire on August 15, 2000.
At March 31, 1997, 80,083 thousand shares of common stock would be issued upon
conversion or exercise of all convertible debentures and warrants outstanding.
At March 31, 1996,1997, property, plant and equipment with a book value of 4,4154,627
million yen is mortgaged as security for loans and bonds issued by consolidated
subsidiaries.
Aggregate amounts of annual maturities of long-term debt during the next five
years are as follows:
Year ending
March 31 Yen in millions
----------- ---------------
1997 133,863
1998 189,055210,315
1999 86,25294,465
2000 83,350107,705
2001 352,942348,834
2002 152,670
The basic agreements with certain banks in Japan include provisions that
collateral (including sums on deposit with such banks) or guarantors will be
furnished upon the banks' request and that any collateral furnished, pursuant to
such agreements or otherwise, will be applicable to all present or future
indebtedness to such banks.
F-23
61
10. Insurance-related operations:
The company's stock life insurance subsidiary maintains accounting records as
noted in Note 2 in accordance with the accounting principles and practices
prescribed by the Japanese Ministry of Finance ( the "MOF" ), which vary in some
respects from U.S. GAAP. Those differences are mainly:
F-23
63 that insurance
acquisition costs are deferred and amortized generally over the premium-paying
period of the insurance policies, that future policy benefits calculated locally
under the authorization of the MOF are comprehensively adjusted to a net level
premium method with certain adjustments of actuarial assumptions and that
deferred income taxes are not recognized under local accounting practices. For
purposes of preparing the consolidated financial statements, appropriate
adjustments have been made to reflect such items in accordance with U.S. GAAP.
The amounts of statutory net equity and accumulated deficit as of March 31, 1996 and 1997 were 12,624
million yen and 9,37612,625 million yen, respectively. Movements in these
respective amounts were negligible compared with the previous year.
Deferred insurance acquisition costs-
Insurance acquisition costs to be deferred, such as commission expenses, medical
examination, and inspection report fees, etc., vary with and are primarily
related to acquiring new insurance policies and are amortized mainly over the
premium-paying period of the related insurance policies using assumptions
consistent with those used in computing policy reserves. Amortization charged to
income for the years ended March 31, 1994, 1995, 1996, and 19961997 amounted to 3,332
million yen, 7,148
million yen, 9,694 million yen, and 9,69415,855 million yen, respectively.
Future insurance policy benefits-
Liabilities for future policy benefits are established in amounts adequate to
meet the estimated future obligations of policies in force. These liabilities
are computed by the net level premium method based upon estimates as to future
investment yield, mortality and withdrawals. Future policy benefits are computed
using interest rates ranging from approximately 3.5% to 6.25%, generally graded
down after 10 to 20 years. Mortality, morbidity, and withdrawal assumptions for
all policies are based on either the life insurance subsidiary's own experience
or various actuarial tables. At March 31, 19951996 and 1996,1997, future insurance policy
benefits amounted to 251,599392,119 million yen and 392,119528,204 million yen, respectively.
F-24
62
11. Financial instruments:
The company has certain financial instruments including financial assets and
liabilities and off-balance-sheet financial instruments incurred in the normal
course of business. In applying a consistent risk management strategy, the
company manages its exposure to market rate movements of its financial assets
and liabilities through the use of derivative financial instruments which
include currency forward exchange and option contracts and interest rate
currency swap agreements F-24
64
designated as hedges. These instruments are executed
with creditworthy financial institutions, and virtually all foreign currency
contracts are denominated in U.S. dollars, Deutsche MarkGerman mark, and other currencies of
major industrialized countries. Although the company may be exposed to losses in
the event of nonperformance by counterparties or interest and currency rate
movements, it does not anticipate significant losses due to the nature of its
counterparties or the hedging arrangements.
Following are explanatory notes regarding the financial assets and liabilities
and off-balance-sheet financial instruments.
Cash and cash equivalents, time deposits, and notes and accounts receivable,
trade-
In the normal course of business, substantially all cash and cash equivalents,
time deposits, and notes and accounts receivable, trade, are highly liquid and
are carried at amounts which approximate fair value.
Notes and accounts payable, trade-
In the normal course 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 based on the discounted amounts of future cash
flows using the company's current incremental borrowing rates for similar
liabilities.
F-25
63
Derivative financial instruments-
The company enters into various currency forward exchange contracts, interest
rate swap and interest rate currency swap agreements and foreign currency
purchased and written options as a normal part of its risk management efforts,
which include those transactions designed as hedges but that do not qualify for
hedge accounting under U.S. GAAP. Gains and losses on those derivative financial
instruments qualified for hedge accounting are deferred and effectively offset
gains and losses on the underlying hedged assets and liabilities by recognizing
them in the same period. Others used for hedging purposes but not qualified for
hedge accounting under U.S. GAAP are marked to market. Such off-balance-sheet
activities comprise the following:
F-25
65
Foreign exchange forward contracts, the majority of which mature within three
months, are used to hedge the risk of changes in foreign currency exchange rates
substantially associated with accounts receivable and payable and commitments on
future trade transactions denominated in foreign currencies.
The purpose of the company's foreign currency hedging activities is to protect
the company from the risk that the eventual Yen net cash inflows resulting from
the sale of products to foreign customers will be adversely affected by changes
in exchange rates. The contracted amounts outstanding at March 31, 19951996 and 19961997
were 1,287,491843,090 million yen and 843,090756,294 million yen, respectively. The fair values
of these contracts were estimated based on the market quotes.
Interest rate swap and interest rate currency swap agreements mature during 19961997
to 20032006 and the related differentials to be paid or received are recognized in
interest expense over the terms of the agreements. Currency swap portions of the
interest rate currency swap agreements are marked to market at the end of each
period and the foreign exchange gain or loss recognized on the swap offsets the
foreign exchange gain or loss recorded on the foreign-denominated debt. These
agreements were arranged to lower funding costs, to diversify sources of funding
and to limit the company's exposure to loss in relation to underlying debt
instruments resulting from adverse fluctuations in foreign currency exchange and
interest rates. At March 31, 19951996 and 1996,1997, the aggregate notional principal
amounts of the interest rate swap agreements were 155,672155,306 million yen and
155,306176,705 million yen, respectively, and those of the interest rate currency swap
agreements were 228,524233,685 million yen and 233,685300,269 million yen, respectively. The
fair values of such agreements were estimated based on the discounted amounts of
net future cash flows.
The company entered into foreign currency option purchased contracts in the
notional amounts of 84,498106,549 million yen and 106,549196,990 million yen at March 31,
19951996 and 1996,1997, respectively. These contracts, the majority of which expire
within three months of the balance sheet dates, are used in conjunction with the
forward exchange contracts to hedge foreign currency exposure arising from
accounts receivable and commitments on future
F-26
64
trade transactions denominated in foreign currencies. The company also entered
into foreign currency option written contracts in the notional amounts of
105,869164,439 million yen and 164,439185,621 million yen at March 31, 19951996 and 1996,1997,
respectively. The majority of these contracts are part of range forward contract
arrangements and expire in the same month with the corresponding currency option
contracts purchased shown above and are limited to those which lower the
premiums paid. The fair values of such foreign currency options were estimated
based on the values quoted by brokers.
F-26
66
A consolidated insurance subsidiary entered into written government bond option written
contracts as an integral part of short-term investing activities in order to fix
the yields from bonds on hand to certain ranges. All of these contracts expire
within two months of the balance sheet dates and their notional principal
amounts were 76,69391,485 million yen and 91,485204,945 million yen at March 31, 19951996 and
1996,1997, respectively. For accounting purposes, those transactions do not qualify
for hedge accounting. Accordingly, an unrealized loss of 526 million yen at
March 31,1996 was chargedthose written bond option contracts were
marked to income.market. The fair values of such written bond option written contracts were
estimated based on the values quoted by brokers.market quotes.
F-27
65
The estimated fair values of the company's financial instruments excluding debt
and equity securities, both on and off the balance sheets, are summarized as
follows:
Yen in millions
-------------------------------------------------------------------------------
Estimated fair
Carrying amount fair value
--------------- --------------
At March 31, 1995
Cash and cash equivalents 475,555 475,555
Time deposits 16,173 16,173
Notes and accounts receivable, trade 675,111 675,111
Short-term borrowings (408,943) (408,943)
Notes and accounts payable, trade (543,461) (543,461)
Long-term debt including the current portion (961,690) (929,704)
Forward exchange contracts 19,285 48,742
Interest rate and currency swap agreements - 5,778
Option contracts purchased 652 7,386
Option contracts written (351) (677)
Bond option contracts written (307) (1,818)
At March 31, 1996
Cash and cash equivalents 459,339 459,339
Time deposits 32,605 32,605
Notes and accounts receivable, trade 923,566 923,566
Short-term borrowings (292,396) (292,396)
Notes and accounts payable, trade (565,044) (565,044)
Long-term debt including the current portion (1,337,455) (1,247,781)
Forward exchange contracts (2,226) (4,058)
Interest rate and currency swap agreements --- 9,740
Option contracts purchased 1,577 1,577
Option contracts written (1,232) (1,232)
Bond option contracts written (526) (526)
At March 31, 1997
Cash and cash equivalents 428,518 428,518
Time deposits 52,518 52,518
Notes and accounts receivable, trade 1,066,314 1,066,314
Short-term borrowings (117,801) (117,801)
Notes and accounts payable, trade (653,826) (653,826)
Long-term debt including the current portion (1,310,080) (1,248,046)
Forward exchange contracts 997 2,464
Interest rate and currency swap agreements -- (27,740)
Option contracts purchased 724 724
Option contracts written (1,035) (1,035)
Bond option contracts written (526) (526)(1,026) (1,026)
F-27F-28
6766
12. Pension and severance plans:
OnUpon terminating employment, employees of the parent company and subsidiaries in
Japan are entitled, under most circumstances, to lump-sum indemnities or pension
payments as described below,below. For employees voluntarily retiring, under normal
circumstances, minimum payment is an amount based on current rates of pay and
lengths of service. Under normal circumstances,In calculating the minimum payment priorfor employees
involuntarily retiring, including employees retiring due to meeting mandatory
retirement age is an amount based on voluntary retirement. Employees receiverequirements, the company may grant additional benefits on involuntary retirement, including retirement at the age limit.benefits. With
respect to directors' resignations, lump-sum severance indemnities are
calculated by using a similar formula and are normally paid subject to the approval
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 which the contributions are made by
the companies and their employees, and an additional portion representing the
substituted noncontributory pension plans. TheUnder the contributory pension plans,
the defined benefits underrepresenting the noncontributory portion of the plans, in
general, cover 60% of the indemnities under the existing regulations to
employees. The remaining portion of the
indemnities isare covered by severance payments by the
companies. The company has a recorded pension liability to cover the amount of
the projected benefit obligation in excess of plan assets, net of unrecognized
items. The pension benefits are determined based on years of service and the
compensation amounts, as stipulated in the aforementioned regulations, and are
payable at the option of the retiring employee as a monthly pension or in a lump-sum amount. The
contributionsamount or on a
monthly pension. Contributions to the plans are funded withthrough several financial
institutions in accordance with the applicable laws and regulations.
Most foreign subsidiaries have defined benefit pension plans or severance
indemnity plans coveringwhich substantially cover all of their employees, under which
the cost of benefits is currently funded or accrued. The benefits forBenefits awarded under
these plans are based primarily on current rate of pay and lengths of service.
F-28F-29
6867
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 ended March 31
------------------------------------
1994-----------------------------------
1995 1996 1997
------ ------ -------
Net pension and severance cost (credit):
Service cost - benefits earned during the year 23,987 29,276 32,772
Interest cost on projected benefit obligation 11,024 11,090 11,959
Actual return on plan assets (3,672) (9,545) (14,373)
Net amortization and deferral 2,828 7,245 14,053
------ ------ -------
Actuarial net pension and severance cost for the year 34,167 38,066 44,411
Employee contributions (3,614) (4,098) (4,073)
------ ------ -------
Net pension and severance cost for the year 30,553 33,968 40,338
====== ====== =======
Foreign plans:
Yen in millions
----------------------------------
Year ended March 31
----------------------------------
1995 1996 1997
------ ------ ------
Net pension and severance cost (credit):
Service cost - benefits earned during the year 24,212 23,987 29,27610,198 10,790 15,988
Interest cost on projected benefit obligation 10,670 11,024 11,0902,839 3,197 4,108
Actual return on plan assets (5,326) (3,672) (9,545)68 (4,122) (3,897)
Net amortization and deferral 1,183 2,828 7,245
------- ------- -------
Actuarial net pension and severance cost for the year 30,739 34,167 38,066
Employee contributions (3,333) (3,614) (4,098)
------- ------- -------
Net pension and severance cost for the year 27,406 30,553 33,968
======= ======= =======
Foreign plans:
Yen in millions
------------------------------------
Year ended March 31
------------------------------------
1994 1995 1996
------ ------- ------
Net pension and severance cost (credit):
Service cost - benefits earned during the year 9,882 10,198 10,790
Interest cost on projected benefit obligation 2,653 2,839 3,197
Actual return on plan assets (2,449) 68 (4,122)
Net amortization and deferral 890 (1,016) 1,860 870
------ ------------- ------
Net pension and severance cost for the year 10,976 12,089 11,725 17,069
====== ============= ======
F-29F-30
6968
Pension plans' funded status:
Japanese plans Foreign plans
---------------------------------------------- ------------------------
Yen in millions Yen in millions
---------------------------------------------- ------------------------
March 31 March 31
---------------------- ------------------------
------------------------
1995 1996 19951997 1996 -------- --------1997
------- ------- -------- --------
Actuarial present value of obligations-
Vested benefit 167,810 207,925 25,141268,719 38,439 50,325
Nonvested benefit 37,698 42,544 2,50453,311 3,877 -------- --------4,060
------- ------- -------- --------
Accumulated benefit obligation 205,508 250,469 27,645322,030 42,316 54,385
Additional benefits related
to projected salary increase 53,106 60,184 12,78071,418 18,735 -------- --------20,288
------- ------- -------- --------
Projected benefit obligation 258,614 310,653 40,425393,448 61,051 74,673
Plan assets at fair value 142,330 171,240 20,755204,491 31,280 -------- --------43,837
------- ------- -------- --------
Excess of projected benefit obligation
over plan assets 116,284 139,413 19,670188,957 29,771 30,836
Unrecognized net loss (14,754) (30,722) (2,117)(59,740) (5,280) (4,805)
Unrecognized net transition asset 3,854 3,479 (144)3,104 (771) 1,453
Unrecognized prior service cost (11,752) (10,766) (12,807) -- --
-------- --------------- ------- -------- --------
Net pension liability recognized in the
balance sheet 93,632 101,404 17,409119,514 23,720 ======== ========27,484
======= ======= ======== ========
Assumptions used in developing the
pension obligation as of March 31:
Discount rate 4.5% 4.0% 7.0-8.5% 7.0-9.0%3.5% 7.0- 9.0% 6.5- 9.0%
Long-term rate of salary increase 3.5% 3.2% 3.0-8.5% 3.0-8.5%3.0% 3.0- 8.5% 2.5- 8.5%
Long-term rate of return on funded assets 4.0% 3.5% 3.7% 7.0-10.0% 7.0-10.0%
As required under FAS 87, the assumptions are reviewed in accordance with
changes in circumstances. Such changes in assumptions are the primary reason for
the fluctuation in the projected benefit obligation and unrecognized net gains
and losses.
The plan assets are invested primarily in interest bearing securities and listed
equity securities.
F-30F-31
7069
13. Income taxes:
Income (loss) before income taxes and income tax expense comprise the following:
Yen in millions
------------------------------------------------------------------------------
Year ended March 31
----------------------------------------
1994--------------------------------------
1995 1996 1997
-------- -------- --------------- -------
Income (loss) before income taxes:
Parent company and domestic subsidiaries 92,849 58,038 78,154 226,847
Foreign subsidiaries 9,313 (278,986) 60,005 85,582
-------- -------- --------
102,162------- -------
(220,948) 138,159 312,429
======== ======== =============== =======
Income taxes - Current:
Parent company and domestic subsidiaries 35,716 53,258 40,488 125,028
Foreign subsidiaries * 24,153 30,850 31,600 44,032
-------- -------- --------
59,869------- -------
84,108 72,088 169,060
======== ======== =============== =======
Income taxes - Deferred:
Parent company and domestic subsidiaries 21,500 (15,935) 6,543 (6,543)
Foreign subsidiaries * (2,757) (3,000) (1,473) 1,053
-------- -------- --------
18,743------- -------
(18,935) 5,070 (5,490)
======== ======== =============== =======
* Includes taxes provided on undistributed earnings of foreign subsidiaries.
The company is subject to a number of different income taxes which, in the
aggregate, indicate a statutory rate in Japan of approximately 51%.
Reconciliations of the differences between the statutory tax rate and the
effective income tax rate are as follows:
Year ended March 31
------------------------------
1994-----------------------------------
1995 1996 1997
----- ---- ------ ----
Statutory tax rate 52.0% (51.0%) 51.0% 51.0%
Increase (reduction) in taxes resulting from:
Income tax credit (2.3) (2.0) (2.8) (2.8)
Nondeductible goodwill write-off 61.2 -- 61.2 --
Current operating losses of subsidiaries,
excluding nondeductible goodwill write-off 25.2 17.6 7.9 5.2
Other 2.0 3.7 (0.2) ----(1.0)
----- ---- ----
Effective income tax rate 76.9% 29.5% 55.9% ====52.4%
===== ==== ====
F-31F-32
7170
The significant components of deferred tax assets and liabilities are as
follows:
Yen in millions
------------------------
March 31
------------------------
1995 1996 1997
-------- --------
Deferred tax assets:
Operating loss carryforwards for tax purposes 50,433 58,304 75,536
Warranty reserve and accrued expenses 29,998 46,187
Accrued pension and severance costs 37,938 45,418
Inventory - intercompany profits and write-down 37,984 38,793 Accrued pension and severance costs 33,269 37,938
Warranty reserve and accrued expenses 26,158 29,99844,416
Future insurance policy benefits 12,308 25,717 34,580
Other accrued employees' compensation 11,944 11,723 Bad debts reserve 4,617 7,415
Depreciation 5,129 4,32214,465
Other 53,508 82,52494,261 87,125
-------- --------
Gross deferred tax assets 235,350 296,734 347,727
Less: Valuation allowance (90,182) (118,356) (122,258)
-------- --------
Total deferred tax assets 145,168 178,378 225,469
-------- --------
Deferred tax liabilities:
Unrealized gain on securities (66,784) (85,204) (72,741)
Undistributed earnings of foreign subsidiaries (27,480) (51,995) (68,928)
Insurance acquisition costs (36,082) (51,064) (67,004)
Depreciation (18,963) (18,807) Deferred expenses (4,507) (6,929)(17,041)
Other (27,023) (26,718)(33,647) (39,133)
-------- --------
Gross deferred tax liabilities (180,839) (240,717) (264,847)
-------- --------
Net deferred tax liabilities (35,671) (62,339) (39,378)
======== ========
F-32
72
The valuation allowance mainly relates to deferred tax assets of consolidated
subsidiaries with operating loss carryforwards for tax purposes that are not
expected to be realized. The net changes in the total valuation allowance for
the years ended March 31, 1995, 1996, and 19961997 were both increases of 9,264 million
yen, 28,174 million yen, and 28,1743,902 million yen, respectively.
Net deferred tax liabilities are included in the consolidated balance sheets as
follows:
Yen in millions
------------------------
March 31
------------------------
1995 1996 1997
-------- --------
Deferred income taxes (Current assets) 77,883 83,291 111,756
Other assets - Other 14,538 18,351 27,158
Current liabilities - Other (2,644) (3,583) (4,341)
Deferred income taxes (Long-term liabilities) (125,448) (160,398) (173,951)
-------- --------
Net deferred tax liabilities (35,671) (62,339) (39,378)
======== ========
F-33
71
At March 31, 1996,1997, no deferred income taxes have been provided on undistributed
earnings of foreign subsidiaries not expected to be remitted in the foreseeable
future totaling 233,573214,815 million yen, and on the gain on a subsidiary's sale of
stock of 61,544 million yen 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 based on
its tax planning strategies. The unrecognized deferred tax liabilities as of
March 31, 19961997 for such temporary differences amounted to 90,930104,743 million yen.
Operating loss carryforwards for tax purposes of consolidated subsidiaries at
March 31, 19961997 amounted to approximately 167,474218,100 million yen and are available
as an offset against future taxable income of such subsidiaries. These
carryforwards expire at various dates primarily up to 15 years. Realization is
dependent on such subsidiaries generating sufficient taxable income prior to
expiration of the loss carryforwards. Although realization is not assured,
management believes it is more likely than not that all of the deferred tax
assets, less valuation allowance, will be realized. The amount of such net
deferred tax assets considered realizable, however, could be reduced in the near
term if estimates of future taxable income during the carryforward period are
reduced.
F-33F-34
7372
14. Stockholders' equity:
Changes in each caption of stockholders' equity, except for retained earnings,
have resulted from the following:
Yen in millions
----------------------------------------
Year ended March 31
----------------------------------------
1994 1995 1996 1997
-------- --------------- --------
Common stock:
Balance at beginning of year 297,985 299,194 299,589 299,885
Exercise of stock purchase warrants -- -- 336
Conversion of convertible debt 1,209 395 296 31,816
-------- -------- --------
Balance at end of year 299,194 299,589 299,885 332,037
======== ======== ========
Additional paid-in capital:
Balance at beginning of year 439,619 440,845 441,241 441,735
Exercise of stock purchase warrants -- -- 336
Conversion of convertible debt 1,226 396 384 31,762
Common stock warrants -- -- 110 200
-------- -------- --------
Balance at end of year 440,845 441,241 441,735 474,033
======== ======== ========
Legal reserve:
Balance at beginning of year 21,161 23,382 27,620 31,380
Transfer from retained earnings 2,221 4,238 3,760 4,451
-------- -------- --------
Balance at end of year 23,382 27,620 31,380 35,831
======== ======== ========
Unrealized gain on securities:
Balance at beginning of year -- 73,000 64,972 81,333
Net charge during the year -- (8,028) 16,361 (14,055)
-------- -------- --------
Balance at end of year -- 64,972 81,333 67,278
======== ======== ========
Cumulative translation adjustment:
Balance at beginning of year (238,000) (335,703) (411,167) (302,503)
Aggregate translation adjustment for the year (96,725) (75,354) 114,461 127,705
Income taxes for the year allocated to
translation adjustment (978) (110) (5,797) (6,423)
-------- -------- --------
Balance at end of year (335,703) (411,167) (302,503) (181,221)
======== ======== ========
On November 20, 1991, the company made a free share distribution of 33,908,621
shares for which no accounting entry is required in Japan. Had the distribution
been accounted for in the manner adopted by companies in the United States of
America, 201,078 million yen would have been transferred from retained earnings
to the appropriate capital accounts.
F-34F-35
7473
During the years ended March 31, 1994, 1995 and 1996, the company issued 570,467
shares, 183,167
shares and 156,216 shares, respectively, of common stock arising from the
conversion of convertible debt, and during the year ended March 31, 1997, the
company issued 117,838 shares and 9,999,499 shares, respectively, of common
stock arising from the exercise of stock purchase warrants and the conversion of
convertible debt.
Conversions of convertible debt into common stock are accounted for in
accordance with the provisions of the Japanese Commercial Code by crediting
approximately one-half of the conversion proceeds to the common stock account
and the remainder to the additional paid-in capital account.
The Japanese Commercial Code provides that an amount equal to at least 10% of
cash dividends and other distributions from retained earnings paid by the
company and its Japanese subsidiaries be appropriated as a legal reserve. No
further appropriation is required when the legal reserve equals 25% of stated
capital. The amounts of statutory retained earnings of the parent company
available for the payments of dividends to stockholders as of March 31, 19951996 and
19961997 were 482,735490,265 million yen and 490,265507,253 million yen, respectively. These
amounts include cash dividends for the six-month periodperiods ended March 31, 19951996
and 1996,1997, respectively, which have been incorporated in the accompanying
consolidated financial statements.
The appropriations of retained earnings for the year ended March 31, 1996,1997, which
have been incorporated in the accompanying consolidated financial statements,
will be proposed for approval at the general stockholders' meeting to be held on
June 27, 19961997 and will be recorded in the statutory books of account, in
accordance with the Japanese Commercial Code, after stockholders' approval.
Retained earnings at March 31, 19961997 include parent company and its consolidated
subsidiaries' equity in undistributed earnings of 20% to 50% owned companies
accounted for by the equity method in the amount of 8,72615,751 million yen.
15. 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, 1994, 1995, 1996, and 19961997 were 229,877 million yen, 239,164 million yen, and
257,326 million yen,
and 282,569 million yen, respectively.
F-35F-36
7574
Advertising costs-
Advertising costs included in selling, general and administrative expenses for
the years ended March 31, 1994, 1995, 1996, and 19961997 were 132,205 million yen, 141,017 million yen, 159,821
million yen, and 159,821216,579 million yen, respectively.
16. Leased assets:
The company leases certain plant facilities, office space, warehouses,
employees' residential facilities, and other assets.
An analysis of leased assets under capital leases is as follows:
Yen in millions
-------------------------------------------
March 31
-------------------------------------------
Class of property 1995 1996 1997
- ------------------------ ------ ------------- -------
Land 1,744 2,351 2,538
Buildings 19,205 23,080 24,623
Machinery and equipment 4,181 8,466 9,682
Accumulated amortization (6,324) (9,838) (13,022)
------- -------
18,806 24,059 23,821
======= =======
The following is a schedule by year of the future minimum lease payments under
capital leases together with the present value of the net minimum lease payments
as of March 31, 1996:1997:
Yen in millions
-------------------------------
Year ending March 31:
1997 4,832
1998 4,9556,521
1999 4,6665,222
2000 4,1604,643
2001 4,0964,118
2002 4,239
Later years 16,71013,909
------
Total minimum lease payments 39,41938,652
Less - Amount representing interest 9,8509,338
------
Present value of net minimum lease payments 29,56929,314
Less - Current obligations 3,4514,409
------
Long-term capital lease obligations 26,11824,905
======
F-36F-37
7675
Rental expenses under operating leases for the years ended March 31, 1994, 1995, 1996,
and 19961997 were 83,536 million yen, 79,295 million yen, 81,385 million yen, and 81,38586,570 million yen,
respectively. The minimum rental payments required under operating leases that
have initial or remaining noncancelable lease terms in excess of one year at
March 31, 19961997 are as follows:
Yen in millions
-------------------------------
Year ending March 31:
1997 31,647
1998 26,67438,526
1999 22,58934,687
2000 19,29530,388
2001 16,63723,864
2002 20,643
Later years 122,759132,739
-------
Total minimum future rentals 239,601280,847
=======
17. Commitments and contingent liabilities:
Commitments outstanding at March 31, 19961997 for the purchase of property, plant
and equipment and other assets approximated 42,19449,562 million yen.
Contingent liabilities for notes discounted and guarantees given in the ordinary
course of business and for employee loans amounted to 94,50798,377 million yen at
March 31, 1996.1997.
The company has entered into agreements with financial institutions whereby the
company can sell up to 53,00062,000 million yen of specifically identified accounts
receivable and future receivables with limited recourse. For the years ended
March 31, 1995, 1996, and 1996,1997, the company did not sell any specifically
identified accounts receivable or future receivables. For the year ended March 31, 1994,
the company sold specifically identified accounts receivable and future
receivables of 15,141 million yen. As of March 31, 19951996 and
1996,1997, the outstanding balance of all receivables sold with limited recourse
amounted to 16,5546,678 million yen and 6,678868 million yen, respectively.
The company has also entered into agreements with financial institutions whereby
the company can sell up to 100,700117,800 million yen of undivided interests in a pool
of eligible receivables with limited recourse. The maximum pool of eligible
receivables sold outstanding at any one time during the years ended March 31,
1995, 1996, and 19961997 amounted to 72,535 million yen, 71,868 million yen, and 71,8680
million yen, respectively. As of March 31, 1995, the outstanding balance of all receivables
sold with limited recourse amounted to
F-37
77
22,250 million yen. The company had1996 and 1997, there were no
outstanding balancebalances of such receivables sold with limited recourse as of March 31,1996.sold.
F-38
76
Under the terms of each of the receivable salessale agreements, the company has
retained substantially the same risk of credit loss as if the receivables had
not been sold. The company has fully reserved for these potential credit losses.
The company pays fees which approximate the purchasers' costs of issuing
commercial paper 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, 2000. As of March 31, 1997, these subsidiaries
were committed to make payments under such long-term contracts of 21,545 million
yen.
The company and certain of its subsidiaries are defendants in several pending
lawsuits. However, based upon the information currently available to both the
company and its legal counsel, management of the company believes that damages
from such lawsuits, if any, would not have a material effect on the company's
consolidated financial statements.
18. Business segment information:
The company operates on a worldwide basis principally within three industry
segments: 1) Electronics, 2) Entertainment, and 3) Insurance and financing. The
Electronics segment designs, develops, manufactures, and distributes video
equipment, audio equipment, televisions, and other products. The Entertainment
segment manufactures, markets, and distributes music and pictures entertainment
products. The Insurance and financing segment represents insurance business,
primarily individual life insurance business in the Japanese market, and other
financing business, which consists of customer financing and leasing business
also in the Japanese market.
Since the company's insurance and financing businesses became significant for
financial reporting purposes, the company has established a new reportable
segment in the year ended March 31, 1996. The insurance and financing
businesses, which were previously included in the former Electronics segment,
are now reported as a separate segment. Financial data for previous years have
been restated to conform with the segment presentation in the year ended March
31, 1996.
The following tables present certain information regarding the company's
industry segments and operations by geographic areas at March 31, 1994, 1995, 1996,
and 19961997 and for the years then ended:
F-38F-39
7877
Industry segments -
Yen in millions
------------------------------------------------------------------------------------------
Year ended March 31
----------------------------------------------
1994--------------------------------------------
1995 1996 ----------1997
--------- --------- ----------
Sales and operating revenue:
Electronics -
Customers 2,839,411 3,075,228 3,530,154 4,387,739
Intersegment 13,100 12,963 39,321 ---------- ---------- ----------22,664
--------- --------- ---------
Total 2,852,511 3,088,191 3,569,475 4,410,403
Entertainment -
Customers 790,993 776,608 831,213 1,023,465
Intersegment 3,400 4,959 10,838 ---------- ---------- ----------20,521
--------- --------- ---------
Total 794,393 781,567 842,051 1,043,986
Insurance and financing -
Customers 113,881 138,747 231,198 251,930
Intersegment 14,631 14,106 16,001 ---------- ---------- ----------17,424
--------- --------- ---------
Total 128,512 152,853 247,199 269,354
Elimination (31,131) (32,028) (66,160) ---------- ---------- ----------(60,609)
--------- --------- ---------
Consolidated 3,744,285 3,990,583 4,592,565 ========== ========== ==========5,663,134
========= ========= =========
Operating income (loss):
Electronics 86,566 121,624 190,586 303,406
Entertainment, including
a write-off of 25,075 (273,270) 54,878
goodwill in 1995
Insurance and financing 11,483 5,949 8,362
Corporate and elimination (16,162) (20,943) (18,502)
---------- ---------- ----------
Consolidated 106,962 (166,640) 235,324
========== ========== ==========
Identifiable assets:
Electronics 2,240,610 2,469,688 2,903,430
Entertainment 1,379,867 1,007,741 1,271,860
Insurance and financing 458,734 528,277 748,150
Corporate assets and elimination 190,674 218,214 122,285
---------- ---------- ----------
Consolidated 4,269,885 4,223,920 5,045,725
========== ========== ==========
Depreciation and amortization:
Electronics 179,660 164,914 167,591
Entertainment, excluding a
write-off of goodwill in 1995 43,234(273,270) 54,878 66,279
Insurance and financing 5,949 8,362 21,209
Corporate and elimination (20,943) (18,502) (20,564)
--------- --------- ---------
Consolidated (166,640) 235,324 370,330
========= ========= =========
Identifiable assets:
Electronics 2,469,688 2,903,430 3,168,676
Entertainment 1,007,741 1,271,860 1,533,185
Insurance and financing 528,277 748,150 870,406
Corporate assets and elimination 218,214 122,285 108,075
--------- --------- ---------
Consolidated 4,223,920 5,045,725 5,680,342
========= ========= =========
Depreciation and amortization:
Electronics 164,914 167,591 191,041
Entertainment, excluding
write-off of goodwill in 1995 37,952 33,697 43,614
Insurance and financing,
including deferred insurance
acquisition costs 17,081 20,600 23,001 29,047
Corporate 2,483 3,518 3,027 ---------- ---------- ----------2,830
--------- --------- ---------
Consolidated 242,458 226,984 227,316 ========== ========== ==========266,532
========= ========= =========
Capital expenditures:
Electronics 143,679 175,070 194,417 231,756
Entertainment 34,610 58,898 41,782 50,205
Insurance and financing 10,845 13,118 12,844 14,171
Corporate 6,803 3,592 2,154 ---------- ---------- ----------1,946
--------- --------- ---------
Consolidated 195,937 250,678 251,197 ========== ========== ==========298,078
========= ========= =========
F-39F-40
7978
Geographic areas -
Yen in millions
----------------------------------------------
Year ended March 31
----------------------------------------------
1994 1995 1996 1997
---------- ---------- ----------
Sales and operating revenue:
Japan -
Customers 1,379,449 1,479,190 1,768,132 2,048,406
Intersegment 938,640 1,175,446 1,275,251 1,386,422
---------- ---------- ----------
Total 2,318,089 2,654,636 3,043,383 3,434,828
U.S.A. -
Customers 1,206,585 1,153,550 1,250,712 1,672,173
Intersegment 49,470 51,637 113,121 126,637
---------- ---------- ----------
Total 1,256,055 1,205,187 1,363,833 1,798,810
Europe -
Customers 712,246 778,465 886,468 1,100,958
Intersegment 9,665 11,994 30,299 42,381
---------- ---------- ----------
Total 721,911 790,459 916,767 1,143,339
Other -
Customers 472,988 579,378 687,253 841,597
Intersegment 336,008 454,854 509,120 603,518
---------- ---------- ----------
Total 808,996 1,034,232 1,196,373 1,445,115
Elimination (1,360,766) (1,693,931) (1,927,791) (2,158,958)
---------- ---------- ----------
Consolidated 3,744,285 3,990,583 4,592,565 5,663,134
========== ========== ==========
Operating income (loss):
Japan 61,257 75,878 147,582 259,376
U.S.A., including a write-off of
goodwill in 1995 (4,361) (296,417) 32,372 30,928
Europe 39,696 46,959 48,621 70,597
Other 37,466 47,862 55,772 69,858
Corporate and elimination (27,096) (40,922) (49,023) (60,429)
---------- ---------- ----------
Consolidated 106,962 (166,640) 235,324 370,330
========== ========== ==========
Identifiable assets:
Japan 2,050,302 2,282,291 2,603,041 U.S.A. 1,303,7632,888,019
U.S.A 931,884 1,243,565 1,517,302
Europe 428,228 498,259 623,069 697,940
Other 341,876 395,517 547,348 690,100
Corporate assets and elimination 145,716 115,969 28,702 (113,019)
---------- ---------- ----------
Consolidated 4,269,885 4,223,920 5,045,725 5,680,342
========== ========== ==========
Export sales and operating revenue:
To U.S.A. 99,380U.S.A 110,645 125,547 141,420
To Europe 72,179 85,589 110,718 122,947
To Other 191,800 193,818 169,271 209,568
---------- ---------- ----------
Total 363,359 390,052 405,536 473,935
========== ========== ==========
F-40F-41
8079
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 development expenses unallocable to the segments.
Identifiable assets are those assets used in the operations of each industry or
geographic segment. Unallocated corporate assets consist primarily of cash and
cash equivalents and marketable securities maintained for general corporate
purposes.
F-41F-42
8180
SCHEDULE II
S O N Y C O R P O R A T I O NSONY CORPORATION
AND CONSOLIDATED SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Yen in millions
------------------------------------------------------------------------------------------------------------------------------------------------
Additions
Balance at charged to Balance at
beginning costs and Deductions Other end of
of period expenses (Note 1) (Note 2) period
--------- ------------------- ---------- ---------- -------- ------- ----------
Year ended March 31, 1994:
Allowance for doubtful accounts
and sales returns 42,306 21,179 (12,113) (5,887) 45,485
======= ====== ====== ===== ======
Year ended March 31, 1995:
Allowance for doubtful accounts
and sales returns 45,485 15,002 (6,790) (5,512) 48,185
======= ====== ====== ============ ====== ======
Year ended March 31, 1996:
Allowance for doubtful accounts
and sales returns 48,185 25,556 (14,136) 9,158 68,763
====== ====== ======= ====== ======
=====Year ended March 31, 1997:
Allowance for doubtful accounts
and sales returns 68,763 42,285 (28,570) 11,254 93,732
====== ====== ======= ====== ======
Notes: 1. Amounts written off.
2. Translation adjustment.
Balance at Balance at
beginning Other end of
of period Additions Deductions (Note 2)1) period
--------- --------- ---------- ----------------- ---------- -------- ----------
Year ended March 31, 1994:
Valuation allowance (Note 1)
- Deferred tax assets 54,402 32,198 - (5,682) 80,918
====== ====== ====== ====== =======
Year ended March 31, 1995:
Valuation allowance
- Deferred tax assets 80,918 19,652 -30,076 (10,424) (10,388) 90,182
====== ====== ============= ===== ======= ====== =======
Year ended March 31, 1996:
Valuation allowance
- Deferred tax assets 90,182 12,590 -22,532 (9,942) 15,584 118,356
======= ===== ======= ====== ====== =============
Year ended March 31, 1997:
Valuation allowance
- Deferred tax assets 118,356 7,802 (19,974) 16,074 122,258
======= ===== ======= ====== =======
Notes:Note: 1. The amount results from the adoption of FAS 109 from April 1,1993.
2. Translation adjustment.
F-42F-43