<PAGE> 1
Filed pursuant to Rule 424 (b)(1)
Registration No. 333-45141
GLOBAL PROSPECTUS
LOGO
SONY CORPORATION
(SONY KABUSHIKI KAISHA)
$1,500,000,000
6 1/8% Notes due March 4, 2003
Interest payable March 4 and September 4
Interest on the 6 1/8% Notes due March 4, 2003 (the "Notes") will be payable
semiannually in arrears on March 4 and September 4 of each year, commencing
September 4, 1998. The Notes are not redeemable prior to maturity, except in the
event of certain changes in tax law. See "Description of Notes -- Optional Tax
Redemption". Except as described herein, Notes in definitive form will not be
issued. The Notes will be issued only in registered form in denominations of
$1,000 and integral multiples thereof. See "Description of Notes".
Application has been made to the London Stock Exchange Limited for the Notes to
be admitted to the Official List.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) THE COMPANY(1)(3)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note 99.788% .325% 99.463%
- -------------------------------------------------------------------------------------------------------------
Total $1,496,820,000 $4,875,000 $1,491,945,000
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from March 4, 1998.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting".
(3) Before deducting estimated expenses of $1,135,000 payable by the Company.
The Notes are offered, subject to prior sale, when, as and if accepted by the
Underwriters and subject to approval of certain legal matters. It is expected
that delivery of the Notes will be made through the facilities of The Depository
Trust Company ("DTC"), Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear System ("Euroclear"), or Cedel Bank,
societe anonyme ("Cedel Bank") on or about March 4, 1998, against payment
therefor in immediately available funds.
JOINT BOOK-RUNNERS
GOLDMAN, SACHS & CO. MERRILL LYNCH & CO. J.P. MORGAN & CO.
CO-LEAD MANAGERS
ABN AMRO HSBC MARKETS UBS LIMITED
February 26, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Enforcement of Civil Liabilities.......... 3
Available Information..................... 3
Incorporation of Certain Documents by
Reference............................... 3
Forward Looking Statements................ 4
Prospectus Summary........................ 5
Use of Proceeds........................... 8
Consolidated Ratios of Earnings to Fixed
Charges................................. 8
Capitalization............................ 9
Selected Consolidated Financial Data...... 10
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 12
<CAPTION>
PAGE
<S> <C>
Business.................................. 19
Directors and Statutory Auditors.......... 25
Description of Notes...................... 26
Global Clearance and Settlement........... 31
Taxation.................................. 34
Japanese Foreign Exchange Controls........ 35
Underwriting.............................. 36
Ratings................................... 37
Experts................................... 37
Validity of Notes......................... 37
General Information....................... 38
</TABLE>
------------------------
This Prospectus comprises listing particulars (the "Listing Particulars") with
respect to the issue of the Notes in accordance with listing rules of the London
Stock Exchange Limited (the "London Stock Exchange") made under Part IV of the
Financial Services Act 1986 (the "FSA") and for the purpose of giving
information with regard to the Company, the Company and its subsidiaries (taken
as a whole) and the Notes. Copies of this Prospectus have been delivered to the
Registrar of Companies in England and Wales for registration in accordance with
Section 149 of the FSA. The Company accepts responsibility for the information
contained in this document. To the best of the knowledge and belief of the
Company (which has taken all reasonable care to ensure that such is the case),
the information contained in this document is in accordance with the facts and
does not omit anything likely to affect the import of such information.
In this Prospectus, Sony Corporation is referred to as the "Company" and the
Company and its consolidated subsidiaries are together referred to as "Sony".
In this Prospectus, amounts are expressed in Japanese yen ("yen" or "Y") or in
United States dollars ("dollars" or "$"). Except as otherwise indicated, for the
convenience of the reader yen amounts as of and for the year ended March 31,
1997 have been translated into dollars at the rate of 124 yen to the dollar, the
approximate rate of exchange on March 31, 1997, and yen amounts as of and for
the nine months ended December 31, 1997 have been translated into dollars at the
rate of 130 yen to the dollar, the approximate rate of exchange on December 31,
1997. Such rates are not materially different from the noon buying rates in New
York City for cable transfers in foreign currencies as announced for customs
purposes by the Federal Reserve Bank of New York on such dates (Y123.72=$1 on
March 31, 1997 and Y130.45=$1 on December 31, 1997). See "Selected Consolidated
Financial Data" for information regarding rates of exchange for the yen and the
dollar from April 1, 1992 to December 31, 1997. On February 24, 1998, such noon
buying rate was Y128.15 = $1. No representation is made that the yen amounts
have been, could have been or could be converted into dollars at that or any
other rate.
No dealer, salesman or any other person has been authorized to give any
information or make any representations other than those contained in this
Prospectus in connection with the offer made hereby and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or any of the Underwriters. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof. This Prospectus does not constitute an offer or
solicitation by anyone in any jurisdiction in which such offer or solicitation
is not authorized or in which the person making such offer or solicitation is
not qualified to do so or to anyone to whom it is unlawful to make such
solicitation.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING OVER-
ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH NOTES, AND THE
IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE OFFERING. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING." IN CONNECTION WITH THIS OFFERING,
J.P.MORGAN SECURITIES INC. MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE
OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED HEREBY AT LEVELS ABOVE THOSE
WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE
EFFECTED ON THE LONDON STOCK EXCHANGE, ON THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 3
ENFORCEMENT OF CIVIL LIABILITIES
The Company is incorporated in Japan with limited liability and virtually all
its directors and executive officers (and certain experts named herein) reside
in Japan. All or a substantial portion of the assets of these persons and of the
Company are located outside the United States. As a result, it may not be
possible for investors to effect service of process upon such persons outside
Japan or to enforce against such persons or the Company judgments obtained in
United States courts predicated upon the civil liability provisions of the
Federal securities laws of the United States or judgments obtained in other
courts outside Japan. The Company has been advised by its Japanese counsel,
Tsunematsu Yanase & Sekine, that there is doubt as to the enforceability in
Japanese courts, in original actions or in actions for enforcement of judgments
of United States courts, of civil liabilities predicated solely upon the Federal
securities laws of the United States.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Certain such filings are available via electronic
means through the Commission's web site on the Internet (http://www.sec.gov).
Reports and other information filed by the Company with the Commission may also
be inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the Commission's Regional Offices at Seven World Trade
Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may
be obtained by mail from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Company's
American Depositary Shares ("ADSs") are listed on the New York Stock Exchange,
the Pacific Stock Exchange and the Midwest (Chicago) Stock Exchange and such
reports and other information concerning the Company may be inspected at the
offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005, the Pacific Stock Exchange, Inc., 301 Pine Street, San Francisco, CA
94104, and the Midwest Stock Exchange, 440 S. LaSalle Street, Chicago, IL 60605.
The Company has filed with the Commission a registration statement on Form F-3
(herein, together with any amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 20-F for the fiscal year ended March 31,
1997 (File No. 1-6439) (the "1997 20-F") and the Company's reports on Form 6-K,
dated September 25, 1997, October 1, 1997, October 30, 1997, November 10, 1997,
January 29, 1998 and February 9, 1998, respectively, have been filed with the
Commission pursuant to the Exchange Act and (other than (i) the sections
captioned "Forecast for the Fiscal Year Ending March 31, 1998" in the reports on
Form 6-K, dated October 30, 1997 and January 29, 1998, respectively, and (ii)
the section captioned "Extra Dividend for the Fiscal Year Ending March 31, 1998"
in the report on Form 6-K dated January 29, 1998) are incorporated herein by
reference, provided, however, that such incorporated documents and any
information so incorporated do not form part of the Listing Particulars. This
Prospectus (but not the Listing Particulars) is qualified in its entirety by the
more detailed information contained in such reports and incorporated herein by
reference.
In addition, all reports on Form 20-F (and all amendments thereto) filed by the
Company pursuant to the Exchange Act and, to the extent, if at all, designated
therein, certain reports on Form 6-K furnished by the Company after the date of
this Prospectus and prior to the termination of the offering of the Notes shall
be deemed to be incorporated by reference in, and to be a part of, this
Prospectus (but not the Listing Particulars) from the date of the filing or
furnishing of such documents or reports, to the extent not superseded by
documents or reports subsequently filed or furnished.
Any statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus (but not the
Listing Particulars) to the extent that a statement contained herein or in any
other subsequently filed document which also is incorporated by reference herein
modifies or replaces such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
3
<PAGE> 4
The Company will provide without charge to each person to whom a copy of this
Prospectus is delivered, upon the request of any such person, a copy of any or
all of the documents referred to above which have been or may be incorporated
herein by reference (not including the exhibits to such documents, unless such
exhibits are specifically incorporated by reference in such documents). Requests
should be directed to the Company at 7-35, Kitashinagawa 6-chome, Shinagawa-ku,
Tokyo 141-0001, Japan, Attention: Investor Relations.
FORWARD LOOKING STATEMENTS
Statements made in this Prospectus and certain of the documents incorporated
herein by reference with respect to Sony's plans, strategies and beliefs and
other statements that are not historical facts are forward-looking statements
about the future performance of Sony which are based on management's assumptions
and belief in light of the information currently available to it and 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 and other currencies in which Sony makes significant sales or in which
Sony's assets and liabilities are denominated; 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 Electronic Business), and subjective and
changing consumer preferences (particularly in the Entertainment Business).
4
<PAGE> 5
PROSPECTUS SUMMARY
This summary is qualified in its entirety by, and is subject to, the detailed
information contained elsewhere in this Prospectus. See "Incorporation of
Certain Documents by Reference".
THE COMPANY
Sony is one of the world's leading designers, developers, manufacturers and
distributors of electronic and entertainment products. Sony's products are sold
under the trademark "Sony", which has been registered in 193 countries and
territories. The Company believes the "Sony" name is among the most recognized
in the world, and intends to continue to enhance brand recognition through the
development of high-quality, innovative products. Sony'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 was the first Japanese company to be listed on
the New York Stock Exchange.
Sony has experienced compound annual growth in sales and operating revenue of
19.1% during the last three fiscal years. For the fiscal year ended March 31,
1997, which marked the Company's fiftieth anniversary, Sony reported sales and
operating revenue of Y5,663.1 billion ($45,670.4 million), operating income of
Y370.3 billion ($2,986.5 million) and net income of Y139.5 billion ($1,124.7
million), generated by its three business segments: Electronics, Entertainment,
and Insurance and Financing.
Electronics. Sony's Electronics Business is engaged in the development,
manufacture, and sales of various kinds of electronic equipment, instruments and
devices. Sony aims to be at the forefront of the latest technology in all of its
electronics product lines, including camcorders and other video-related
equipment such as DVD-Video players and digital still cameras, audio-related
equipment such as MiniDisc (MD) systems and compact disc (CD) systems,
televisions, personal computers, telecommunication equipment, semiconductors,
electronic components and PlayStation game consoles and software. Sony believes
that it has positioned itself as a producer of quality products using advanced
technology and creative design. Sony intends to continue to capitalize on its
reputation as a world leader in innovative ideas and products by focusing on
digital and network technologies, including developing satellite broadcast
reception systems for home use.
Entertainment. Sony's Entertainment Business is engaged 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, primarily through Sony Music
Entertainment Inc. (SMEI), Sony Music Entertainment (Japan) Inc. (SMEJ) and Sony
Pictures Entertainment (SPE). SPE set a new industry record in global box office
revenues during calendar year 1997, with hit movies such as Jerry Maguire, Men
in Black and My Best Friend's Wedding. SMEI's recent albums include successful
releases from popular music artists such as Celine Dion, Barbra Streisand and
Mariah Carey.
Insurance and Financing. Sony provides life insurance primarily for individuals
in Japan through Sony Life Insurance Co., Ltd. (Sony Life Insurance), which has
adopted an innovative marketing approach and experienced significant growth in
revenue in recent years. Sony Life Insurance recently received an "AA-" credit
rating from Standard & Poor's Corporation.
The Company was established in Japan in May 1946 as Tokyo Tsushin Kogyo
Kabushiki Kaisha. In January 1958, it changed its name to Sony Kabushiki Kaisha
(Sony Corporation). The Company's principal executive offices are located at
7-35, Kitashinagawa 6-chome, Shinagawa-ku, Tokyo 141-0001, Japan and its
telephone number at that address is (813) 5448-2111.
5
<PAGE> 6
THE OFFERING
ISSUER................................ Sony Corporation
SECURITIES OFFERED.................... $1,500,000,000 principal amount of 6 1/8%
Notes due March 4, 2003.
MATURITY DATE......................... March 4, 2003.
ISSUE PRICE........................... 99.788% of the principal amount, plus
accrued interest, if any, from March 4,
1998.
INTEREST PAYMENT DATES................ March 4 and September 4, commencing
September 4, 1998.
MARKETS............................... United States, Europe and Asia other than
Japan.
STATUS OF SECURITIES.................. The Notes will be direct, unconditional,
unsubordinated obligations of the Company
and will rank pari passu and ratably
without any preference among themselves
and (with the exception of obligations in
respect of national and local taxes and
certain other statutory preferences)
equally with all other present and future
unsecured and unsubordinated obligations
of the Company from time to time
outstanding.
NEGATIVE PLEDGE....................... The Company has agreed to limitations on
the creation of certain liens to secure
payment obligations on any External
Indebtedness (as defined herein). See
"Description of Notes -- Negative Pledge
on External Indebtedness".
WITHHOLDING TAX....................... Principal of and interest on the Notes
are payable by the Company without
withholding or deduction for Japanese
withholding taxes to the extent set forth
herein. Subject to certain limitations,
the Company will pay to holders of the
Notes such additional amounts as may be
necessary in order that every net payment
of the principal and interest on the
Notes, after deduction or withholding for
any Japanese taxes imposed on such
payment, will not be less than the amount
provided for in the Notes to be due and
payable. See "Description of
Notes -- Payment of Additional Amounts"
and "Taxation -- Japanese Taxation".
OPTIONAL TAX REDEMPTION............... The Notes are redeemable, at the
Company's option, as a whole but not in
part, if the Company determines that, as
a result of any change in Japanese tax
laws, the Company would be required to
pay Additional Amounts (as defined
herein) with respect to the Notes. See
"Description of Notes -- Optional Tax
Redemption".
FORM, DENOMINATION
AND REGISTRATION...................... The Notes will be issued in the form of
one or more fully registered global
securities (collectively, the "Global
Note") registered in the name of Cede &
Co., as the nominee of DTC. Except as
described in this Prospectus, beneficial
interests in the Global Note will be
represented through accounts of financial
institutions acting on behalf of
beneficial owners as direct and indirect
participants in DTC. Investors may elect
to hold interests in the Global Note
through DTC in the United States or
through Cedel Bank or Euroclear if they
are participants of such systems, or
indirectly through organizations which
are participants in such systems. Cedel
Bank and Euroclear will hold interests on
6
<PAGE> 7
behalf of their participants through
their respective depositaries, The Chase
Manhattan Bank ("Chase") and Morgan
Guaranty Trust Company of New York
("Morgan"), which in turn will hold such
interests in accounts as participants of
DTC. Except as described in this
Prospectus, owners of beneficial
interests in the Global Note will not be
entitled to have Notes registered in
their names, will not receive or be
entitled to receive Notes in definitive
form and will not be considered holders
thereof under the Indenture. The Notes
will only be sold in minimum aggregate
principal amounts of $1,000 and integral
multiples thereof. See "Description of
Notes -- Form, Denomination and
Registration".
GLOBAL CLEARANCE AND
SETTLEMENT............................ Initial settlement for the Notes will be
made in same day funds. Secondary market
trading of the Notes represented by the
Global Note will occur through
participants of DTC, Cedel Bank and
Euroclear and will settle in same day
funds. See "Global Clearance and
Settlement".
GOVERNING LAW......................... The Notes and the Indenture shall all be
governed by and construed in accordance
with the laws of the State of New York.
RATINGS............................... The Notes have received a rating of "Aa3"
from Moody's Investors Service Inc. and
"A" from Standard & Poor's Corporation.
See "Ratings".
USE OF PROCEEDS....................... The aggregate net proceeds to the Company
from the Offering are estimated to be
approximately $1.49 billion (after
deduction of underwriting commissions and
estimated offering expenses). The Company
plans to use such proceeds to increase
the capital of Sony Corporation of
America and ultimately to repay
commercial paper and other indebtedness
of Sony Capital Corporation, and for
general corporate purposes.
LISTING............................... Application has been made to the London
Stock Exchange for the Notes to be
admitted to the Official List.
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<PAGE> 8
USE OF PROCEEDS
The aggregate net proceeds to the Company from the Offering are estimated to be
approximately $1.49 billion (after deduction of underwriting commissions and
estimated offering expenses). The Company plans to use such proceeds to increase
the capital of Sony Corporation of America, a wholly owned subsidiary of the
Company, and ultimately to repay commercial paper and other indebtedness of Sony
Capital Corporation, a wholly owned subsidiary of Sony Corporation of America,
and for general corporate purposes. Such commercial paper and other indebtedness
was incurred by Sony Capital Corporation primarily to provide working capital.
As of December 31, 1997, Sony Capital Corporation had $1.7 billion principal
amount of commercial paper outstanding, all of which was scheduled to mature
before March 31, 1998. The average interest rate payable on such commercial
paper was approximately 5.9%.
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for Sony
for the periods indicated:
<TABLE>
<CAPTION>
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NINE MONTHS
YEARS ENDED MARCH 31, ENDED
1993 1994 1995 1996 1997 DECEMBER 31,
---------- ---------- ---------- ---------- ---------- 1997
------------
unaudited
<S> <C> <C> <C> <C> <C> <C>
Consolidated Ratio of Earnings
to Fixed Charges 1.6 1.7 (1)(2) 1.8 3.2 5.3
========== ========== ========== ========== ========== ==========
</TABLE>
- ---------------
(1) As a result of a net loss incurred in the year ended March 31, 1995, Sony
was unable to fully cover fixed charges.
(2) Earnings for the year ended March 31, 1995 reflected the write-off of
goodwill of Y265 billion in the Pictures Group and losses in the Pictures
Group of approximately Y50 billion arising from a combination of unusual
items, including abandoning a large number of projects in development, and
providing for settlement of outstanding lawsuits and claims. If such
write-off and losses had not occurred, the ratio of earnings to fixed
charges would have been 1.5.
8
<PAGE> 9
CAPITALIZATION
The following table, which should be read in conjunction with Sony's
consolidated financial statements included in the 1997 20-F (the "Consolidated
Financial Statements") and the unaudited interim consolidated financial
statements (the "Interim Consolidated Financial Statements") included in the
Company's Report on Form 6-K, dated January 29, 1998 (the "1998 6-K"), sets
forth the consolidated short-term debt and capitalization of Sony: (i) as of
December 31, 1997, and (ii) as adjusted to reflect the issuance of the Notes and
the application of the proceeds therefrom (assuming all the proceeds are applied
to repay outstanding commercial paper of Sony Capital Corporation).
<TABLE>
<CAPTION>
---------------------------------------------------
AS OF DECEMBER 31, 1997
ACTUAL AS ADJUSTED
(MILLIONS (THOUSANDS (MILLIONS (THOUSANDS
OF OF OF OF
YEN) DOLLARS)(1) YEN) DOLLARS)(1)
---------- ----------- ---------- -----------
unaudited
<S> <C> <C> <C> <C>
SHORT-TERM DEBT
Total short-term debt (including current portion of
long-term debt) Y 622,872 $ 4,791,323 Y 427,872 $ 3,291,323
========== =========== ========== ===========
LONG-TERM DEBT
Long-term debt 924,412 $ 7,110,862 Y 924,412 $ 7,110,862
The Notes -- -- 195,000 1,500,000
---------- ----------- ---------- -----------
Total Long-term Debt 924,412 $ 7,110,862 Y1,119,412 $ 8,610,862
========== =========== ========== ===========
STOCKHOLDERS' EQUITY
Common stock, Y50 par value, 1,350,000,000 shares
authorized, 402,412,289 shares issued and
outstanding Y 390,717 $ 3,005,515 Y 390,717 $ 3,005,515
Additional paid-in capital 533,032 4,100,246 533,032 4,100,246
Legal reserve 37,389 287,608 37,389 287,608
Unrealized gain on securities 39,101 300,777 39,101 300,777
Retained earnings 921,186 7,086,046 921,186 7,086,046
Cumulative translation adjustment (165,242) (1,271,092) (165,242) (1,271,092)
---------- ----------- ---------- -----------
Total stockholders' equity 1,756,183 13,509,100 1,756,183 13,509,100
---------- ----------- ---------- -----------
Total capitalization(2) Y3,303,467 $25,411,285 Y3,303,467 $25,411,285
========== =========== ========== ===========
</TABLE>
- ---------------
(1) For convenience only, yen amounts have been translated into dollars at the
rate of Y130 = $1, the approximate rate of exchange on December 31, 1997.
(2) Since December 31, 1997 there has been no material change in the
consolidated capitalization of Sony. As of December 31, 1997, Sony had no
material contingent liabilities or guarantees outstanding.
9
<PAGE> 10
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain selected consolidated financial data for
Sony. The data (other than exchange rates) have been extracted or derived,
without material adjustments, from consolidated financial statements which have
been prepared in conformity with accounting principles generally accepted in the
United States. The selected consolidated financial data as of March 31, 1996 and
1997 and for the fiscal years ended March 31, 1995, 1996 and 1997 have been
derived from the audited Consolidated Financial Statements included in the 1997
20-F. The selected financial data as of and for the nine months ended December
31, 1996 and 1997 include, in the opinion of the Company, all adjustments
(consisting of only normally recurring adjustments) necessary for a fair
presentation of such information and have been derived from the unaudited
Interim Consolidated Financial Statements included in the 1998 6-K. The results
of operations for the nine months ended December 31,1997 are not necessarily
indicative of the operating results to be expected for the entire year ending
March 31, 1998 or for any other period. This information should also be read in
conjunction with, and is qualified in its entirety by reference to,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
<TABLE>
<CAPTION>
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(Millions of yen or thousands of dollars, except per YEAR ENDED MARCH 31
share amounts and yen exchange rates) 1993 1994 1995 1996 1997 1997(1)
---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales and operating revenue Y4,001,270 Y3,744,285 Y3,990,583 Y4,592,565 Y5,663,134 $45,670,435
Costs and expenses 3,870,630 3,637,323 4,157,223 4,357,241 5,292,804 42,683,903
Operating income (loss) 130,640 106,962 (166,640) 235,324 370,330 2,986,532
Income (loss) before income taxes 92,561 102,162 (220,948) 138,159 312,429 2,519,589
Income taxes 49,794 78,612 65,173 77,158 163,570 1,319,113
Net income (loss) 36,260 15,298 (293,356) 54,252 139,460 1,124,677
Net income (loss) per share(2):
Basic 97.2 41.0 (784.7) 145.1 367.7 2.97
Diluted 92.2 41.0 (784.7) 134.0 309.2 2.49
Depreciation and amortization(3) 275,671 242,458 226,984(4) 227,316 266,532 2,149,452
Capital expenditures (additions to fixed assets) 251,117 195,937 250,678 251,197 298,078 2,403,855
Research and development expenses 232,150 229,877 239,164 257,326 282,569 2,278,782
BALANCE SHEET DATA (END OF PERIOD):
Assets:
Cash and time deposits Y 555,166 Y 529,326 Y 491,728 Y 491,944 Y 481,036 $ 3,879,323
Property, plant and
equipment 1,138,350 1,049,422 1,029,301 1,120,759 1,238,911 9,991,218
Total assets 4,529,830 4,269,885 4,223,920 5,045,725 5,680,342 45,809,210
Liabilities and stockholders' equity:
Short-term debt(5) 660,427 366,244 464,147 426,259 328,116 2,646,097
Long-term debt 880,395 983,712 906,486 1,203,592 1,099,765 8,869,073
Total liabilities(6) 3,015,825 2,844,200 3,116,972 3,769,098 4,106,047 33,113,282
Stockholders' equity 1,428,219 1,329,565 1,007,808 1,169,173 1,459,428 11,769,581
YEN EXCHANGE RATES PER U.S. DOLLAR(7):
At period-end Y 114.90 Y 102.40 Y 86.85 Y 107.00 Y 123.72
Average 123.98 107.87 99.30 96.43 112.52
High 114.90 101.10 86.85 81.12 104.49
Low 134.53 114.20 105.38 107.29 124.54
<CAPTION>
----------------------------
(Millions of yen or thousands of dollars, except per DECEMBER 31
share amounts and yen exchange rates) 1996 1997 1997(1)
---------- ---------- -----------
unaudited
<S> <<C> <C> <C>
INCOME STATEMENT DATA:
Sales and operating revenue Y4,197,439 Y5,081,523 $39,088,638
Costs and expenses 3,897,022 4,620,212 35,540,092
Operating income (loss) 300,417 461,311 3,548,546
Income (loss) before income taxes 256,825 416,353 3,202,715
Income taxes 121,747 200,110 1,539,307
Net income (loss) 127,117 201,309 1,548,531
Net income (loss) per share(2):
Basic 339.6 509.2 3.92
Diluted 278.1 437.4 3.36
Depreciation and amortization(3) 188,366 216,896 1,668,431
Capital expenditures (additions to fixed assets) 201,334 251,044 1,931,108
Research and development expenses 204,558 229,844 1,768,031
BALANCE SHEET DATA (END OF PERIOD):
Assets:
Cash and time deposits Y 555,290 Y 525,219 $ 4,040,146
Property, plant and
equipment 1,188,763 1,278,495 9,834,577
Total assets 5,753,974 6,556,864 50,437,415
Liabilities and stockholders' equity:
Short-term debt(5) 548,333 622,872 4,791,323
Long-term debt 1,200,550 924,412 7,110,862
Total liabilities(6) 4,293,638 4,671,910 35,937,769
Stockholders' equity 1,346,041 1,756,183 13,509,100
YEN EXCHANGE RATES PER U.S. DOLLAR(7):
At period-end Y 115.77 Y 130.45
Average 109.74 121.03
High 104.49 111.42
Low 116.13 131.08
</TABLE>
- ---------------
(1) For convenience only, yen amounts as of and for the year ended March 31,
1997 have been translated into dollars at the rate of Y124 = $1, the
approximate rate of exchange on March 31, 1997, and yen amounts as of and
for the nine months ended December 31, 1997 have been translated into
dollars at the rate of Y130 = $1, the approximate rate of exchange on
December 31, 1997.
(2) Net income (loss) per share amounts were computed based on Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128),
which is effective for both interim and annual periods ended after December
15, 1997. All prior-period net income (loss) per share amounts have been
restated from the amounts shown in the 1997 20-F to conform with FAS 128.
(3) Including amortization of deferred insurance acquisition costs.
(4) Excluding write-off of goodwill.
(5) Including current portion of long-term debt.
(6) Total liabilities is the sum of current liabilities and long-term
liabilities.
(7) Based on the noon buying rate in New York City for cable transfers in
foreign currencies as announced for customs purposes by the Federal Reserve
Bank of New York.
10
<PAGE> 11
<TABLE>
<CAPTION>
-------------------------------------------------------------------
AS OF AND FOR
THE NINE
MONTHS ENDED
AS OF AND FOR THE YEAR ENDED MARCH 31 DECEMBER 31
1993 1994 1995 1996 1997 1996 1997
------ ------ ------- ------ ------ ------ ------
unaudited
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED RATIOS:
Operating margin(1) 3.3% 2.9% (4.2)% 5.1% 6.5% 7.2% 9.1%
Total debt/net worth(2) 1.1x 1.0x 1.4x 1.4x 1.0x 1.3x 0.9x
Total debt/total capital(3) 51.9% 50.4% 57.6% 58.2% 49.5% 56.5% 46.8%
Net debt/net total capital(4) 40.8% 38.2% 46.6% 49.3% 39.3% 47.0% 36.8%
Operating cash flow/total debt(5) 27.0% 25.0% 13.3% 14.4% 50.6% N/A N/A
EBIT interest coverage(6) 2.1x 2.6x (2.4)x 3.1x 5.4x 5.8x 9.8x
Pretax interest coverage(7) 1.1x 1.6x (3.4)x 2.1x 4.4x 4.8x 8.8x
</TABLE>
- ---------------
N/A: not available
(1) Operating margin is operating income (loss) divided by sales and operating
revenue.
(2) Total debt is the sum of short-term borrowings, current portion of long-term
debt and long-term debt. Net worth is stockholders' equity.
(3) See note 2 for definition of total debt. Total capital is the sum of total
debt and stockholders' equity.
(4) Net debt is total debt (see note 2) less cash and cash equivalents and time
deposits. Net total capital is the sum of total debt and stockholders'
equity less cash and cash equivalents and time deposits.
(5) Operating cash flow is cash flow from operating activities. See note 2 for
definition of total debt.
(6) EBIT interest coverage is EBIT divided by gross interest expense. EBIT is
income (loss) before interest expense and income taxes.
(7) Pretax interest coverage is income (loss) before income taxes divided by
gross interest expense.
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA:
(1) 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 Issue No.
95-2. This did not have a material impact on results of operations for the
years ended March 31, 1996 and 1997.
(2) The consolidated results for the fiscal year ended March 31, 1995 reflect
the write-off of goodwill of Y265 billion in the Pictures Group (see Note 3
of the Notes to the Consolidated Financial Statements) and losses in the
Pictures Group of approximately Y50 billion 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.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements included in the 1997 20-F and the unaudited Interim
Financial Statements included in the 1998 6-K.
LIQUIDITY AND CAPITAL RESOURCES
Sony's management aims to maintain a solid financial position with ample
liquidity to provide operational flexibility. Total assets increased from
Y5,045.7 billion at March 31, 1996 to Y5,680.3 billion at March 31, 1997 and
Y6,556.9 billion at December 31, 1997. One reason for this increase was the
significantly lower value of the yen in relation to foreign currencies at March
31, 1997 and December 31, 1997 compared with March 31, 1996. An increase in
operating assets of Sony Life Insurance, which recorded higher insurance
premiums, also contributed to the rise in total assets.
Total short- and long-term borrowings and debt decreased from Y1,629.9 billion
at March 31, 1996 to Y1,427.9 billion at March 31, 1997. This was primarily the
result of an improvement in Sony's cash flows and the conversion of convertible
bonds, partially offset by an increase in foreign currency denominated
liabilities caused by the yen's depreciation. Total debt was Y1,547.3 billion at
December 31, 1997.
Stockholders' equity increased from Y1,169.2 billion at March 31, 1996 to
Y1,459.4 billion at March 31, 1997 and Y1,756.2 billion at December 31, 1997.
The ratio of stockholders' equity to total assets increased from 23.2% at March
31, 1996 to 25.7% at March 31, 1997 and 26.8% at December 31, 1997.
Net cash provided by operating activities was Y723.1 billion in the fiscal year
ended March 31, 1997, compared to Y234.2 billion in the fiscal year ended March
31, 1996. This increase was primarily due to an increase in net income and a
decrease in inventories. Depreciation and amortization increased by 17.3% to
Y266.5 billion in the fiscal year ended March 31, 1997 from Y227.3 billion in
the fiscal year ended March 31, 1996. This figure includes the amortization of
goodwill and intangibles as well as the amortization of deferred insurance
acquisition costs.
Net cash used in investing activities was Y518.0 billion in the fiscal year
ended March 31, 1997, compared to Y371.0 billion in the fiscal year ended March
31, 1996. This increase was mainly attributable to growth in payments for
purchases of fixed assets and marketable securities.
Net cash used in financing activities was Y247.5 billion in the fiscal year
ended March 31, 1997, compared to net cash provided by financing activities of
Y130.5 billion in the fiscal year ended March 31, 1996. This was mainly due to a
significant decrease in short-term borrowings.
Due to the above factors, and including the effect of exchange rate changes,
there was a net decrease in cash and cash equivalents of Y30.8 billion,
resulting in a balance of Y428.5 billion at March 31, 1997. Cash and cash
equivalents were Y467.8 billion at December 31, 1997.
Capital expenditures during the fiscal year ended March 31, 1997 increased 18.7%
to Y298.1 billion from Y251.2 billion in March 31, 1996. Major components
included semiconductor-related expenditures of approximately Y50 billion and
capital expenditures in the field of displays. During the current fiscal year,
Sony has increased semiconductor-related capital expenditures for
next-generation products and other requirements and expanded manufacturing
facilities for lithium-ion batteries and other products. As a result, capital
expenditures for the fiscal year ending March 31, 1998 are expected to exceed
the level of the fiscal year ended March 31, 1997. Capital expenditures for the
nine months ended December 31, 1997 were Y251.0 billion, a 24.7% increase from
Y201.3 billion in the nine months ended December 31, 1996.
NINE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1996
Sales and Operating Revenue
Consolidated sales and operating revenue increased 21.1% to Y5,081.5 billion in
the nine months ended December 31, 1997 from Y4,197.4 billion in the nine months
ended December 31, 1996.
In Electronics, sales in Video Equipment rose 9.4% from the nine months ended
December 31, 1996, mainly due to the increase in unit sales of home-use
camcorders. Sales in Audio Equipment increased 11.8%, due in part to increased
12
<PAGE> 13
sales of MD systems and car stereos. Sales in Televisions increased 4.4%,
reflecting the growth in sales of color TVs in Japan, including a new series
incorporating flat cathode ray tubes. Sales in Other Products rose 41.8%. The
PlayStation game console and software, cellular phones, and personal computers
contributed to the sales increase in Other Products.
In Entertainment, sales in the Music Group increased 11.5% from the nine months
ended December 31, 1996, primarily due to sales growth outside Japan. Sales in
the Pictures Group rose 47.4%, mainly benefitting from strong box office results
for the 1997 summer season, sell-through video sales and television syndication.
Movies released by the Picture Group during the nine months ended December 31,
1997 included Men in Black, My Best Friend's Wedding and As Good As It Gets.
In Insurance and Financing, revenues increased 23.4% from the nine months ended
December 31, 1996, reflecting the expansion of Sony's life insurance business in
Japan.
By geographic area, sales in Japan rose 16.5%, primarily due to sales increases
in each major category of the Electronics Business, as well as from the
expansion of the life insurance business. Sony's overseas sales were higher in
both the Electronics Business and the Entertainment Business. As a result, sales
increased by 30.4% in the United States, 21.0% in Europe, and 13.9% in Other
Areas. Sales in Japan accounted for 26.8% and overseas sales accounted for 73.2%
of consolidated sales in the nine months ended December 31, 1997, compared to
27.8% and 72.2%, respectively, in the nine months ended December 31, 1996.
Impact of Foreign Exchange Trends
During the nine months ended December 31, 1997, sales denominated in U.S.
dollars, Deutsche marks, and British pounds accounted for approximately 70%, 4%,
and 5%, respectively, of Sony's overseas sales. Approximately 97% of overseas
sales were denominated in foreign currencies. During the nine months ended
December 31, 1997, the yen depreciated approximately 9% against the U.S. dollar
and 13% against the British pound, and appreciated approximately 6% against the
Deutsche mark, each in terms of average rate, compared with the nine months
ended December 31, 1996. The Company estimates that sales would have been
approximately Y253 billion lower than the reported figure in the nine months
ended December 31, 1997 if the value of the yen had remained the same as in the
nine months ended December 31, 1996.
To reduce the impact of foreign exchange fluctuations on its earnings, Sony
promotes the localization of material and parts procurement, design, and
manufacturing operations outside Japan. Sony estimates that during the nine
months ended December 31, 1997, overseas activities represented approximately
52% of total manufacturing output in Sony's Electronics Business. 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 the Company and its subsidiaries. In addition, interest rate
currency swap agreements are used in connection with certain foreign currency
denominated borrowings and debt.
The decline in exchange rates of certain Asian currencies has not had a
significant impact on Sony's earnings.
Cost of Sales, Selling, General and Administrative Expenses, and Operating
Income
The revenue and expenses of Insurance and Financing are not included in the
following two paragraphs.
Cost of sales increased 18.1% to Y3,428.3 billion in the nine months ended
December 31, 1997 from Y2,903.7 billion in the nine months ended December 31,
1996. Cost of sales as a percentage of consolidated sales (sales and operating
revenue less insurance and financing revenue) decreased by 1.8% to 70.7%.
Research and development expenses increased 12.4% to Y229.8 billion in the nine
months ended December 31, 1997 from Y204.6 billion in the nine months ended
December 31, 1996, but as a percentage of consolidated sales declined 0.4% to
4.7%.
Selling, general and administrative expenses increased 18.3% to Y971.4 billion
in the nine months ended December 31, 1997 from Y821.0 billion in the nine
months ended December 31, 1996. Selling, general and administrative expenses as
a percentage of consolidated sales decreased 0.5% to 20.0%.
Insurance and financing expenses increased 28.0% to Y220.5 billion in the nine
months ended December 31, 1997 from Y172.3 billion in the nine months ended
December 31, 1996. This was 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 increased 3.4% to 93.8%.
13
<PAGE> 14
Operating income increased 53.6% to Y461.3 billion in the nine months ended
December 31, 1997 from Y300.4 billion in the nine months ended December 31,
1996. Operating income as a percentage of consolidated sales and operating
revenue increased 1.9% to 9.1%.
Other Income and Expenses
Other income decreased 13.1% to Y54.2 billion in the nine months ended December
31, 1997 from Y62.4 billion in the nine months ended December 31, 1996, while
other expenses decreased 6.4% to Y99.1 billion from Y105.9 billion. The decrease
in other income was primarily attributable to a decrease in net foreign exchange
gain, while the decrease in other expenses was primarily attributable to a
decrease in interest expenses.
Among other income and expenses, the balance of interest and dividend income
less interest expenses resulted in net interest payments of Y32.0 billion in the
nine months ended December 31, 1997. This represented a decrease of Y8.0 billion
from the nine months ended December 31, 1996, mainly due to a decrease in total
debt outstanding.
Income before Income Taxes and Net Income
Income before income taxes increased 62.1% to Y416.4 billion in the nine months
ended December 31, 1997 from Y256.8 billion in the nine months ended December
31, 1996. Income taxes as a percentage of income before income taxes increased
0.7% to 48.1%.
Net income increased 58.4% to Y201.3 billion in the nine months ended December
31, 1997 from Y127.1 billion in the nine months ended December 31, 1996. Net
income represented 4.0% of consolidated sales and operating revenue in the nine
months ended December 31, 1997, an increase of 1.0% from the nine months ended
December 31, 1996.
Segment Information
The following discussion is based on segment information (see Note 18 of the
Notes to the Consolidated Financial Statements) and differs from the sales
classification described under "Business -- Business Segments" and "-- Sales and
Distribution".
By industry segment, sales in the Electronics Business grew 19.7%. Backed by the
rise in sales and the yen's depreciation, operating income in the Electronics
Business increased 65.9%. Operating income as a percentage of sales in the
Electronics Business improved by 2.8% to 10.0%. Sales in the Entertainment
Business were up 27.3%, and operating income increased by 16.7%. As a percentage
of sales in the Entertainment Business, operating income declined by 0.7% to
7.3%. 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 strong box office results for the 1997 summer season,
sell-through video sales and television syndication. In Insurance and Financing,
the strong performance of the life insurance business was mainly responsible for
a 22.3% rise in revenue. However, operating income in Insurance and Financing
decreased by 15.7%, primarily as a result of a revaluation of deferred insurance
acquisition costs and higher expenses, including benefit payments.
FISCAL YEAR ENDED MARCH 31, 1997 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1996
Sales and Operating Revenue
Consolidated sales and operating revenue increased 23.3% to Y5,663.1 billion in
the fiscal year ended March 31, 1997 from Y4,592.6 billion in the fiscal year
ended March 31, 1996.
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% from the previous
year despite the weak retail environment in the United States, primarily due to
favorable sales growth outside Japan. Sales in the Pictures Group rose 37.8%,
mainly benefitting 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.
14
<PAGE> 15
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 increased by 30.1% in the
United States, 23.8% in Europe, and 25.6% in Other Areas. Sales in Japan
accounted for 28.1% and overseas sales accounting for 71.9% of consolidated
sales in the fiscal year ended March 31, 1997, compared to 30.0% and 70.0%,
respectively, in the fiscal year ended March 31, 1996.
Impact of Foreign Exchange Trends
During the fiscal year ended March 31, 1997, sales denominated in U.S. dollars,
Deutsche marks, and British pounds 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 Deutsche mark, and 16%
against the British pound, each in terms of average rate, compared with the
fiscal year ended March 31, 1996. The Company estimates that sales would have
been approximately Y520 billion lower than the reported figure in the fiscal
year ended March 31, 1997 if the value of the yen had remained the same as in
the fiscal year ended March 31, 1996.
Cost of Sales, Selling, General and Administrative Expenses, and Operating
Income
The revenue and expenses of Insurance and Financing are not included in the
following two paragraphs.
Cost of sales increased 22.2% to Y3,930.1 billion in the fiscal year ended March
31, 1997 from Y3,216.8 billion in the fiscal year ended March 31, 1996. Cost of
sales as a percentage of consolidated sales decreased by 1.2% to 72.6%. Research
and development expenses increased 9.8% to Y282.6 billion in the fiscal year
ended March 31, 1997 from Y257.3 billion in the fiscal year ended March 31,
1996, but as a percentage of consolidated sales declined 0.7% to 5.2%.
Selling, general and administrative expenses increased 23.4% to Y1,132.2 billion
in the fiscal year ended March 31, 1997 from Y917.9 billion in the fiscal year
ended March 31, 1996. Selling, general and administrative expenses as a
percentage of consolidated sales decreased 0.1% to 20.9%.
Insurance and financing expenses increased 3.6% to Y230.5 billion in the fiscal
year ended March 31, 1997 from Y222.5 billion in the fiscal year ended March 31,
1996. This was 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 decreased 4.8% to 91.5%.
Operating income increased 57.4% to Y370.3 billion in the fiscal year ended
March 31, 1997 from Y235.3 billion in the fiscal year ended March 31, 1996.
Operating income as a percentage of consolidated sales and operating revenue
increased 1.4% to 6.5%.
Other Income and Expenses
Other income increased 40.9% to Y92.6 billion in the fiscal year ended March 31,
1997 from Y65.8 billion in the fiscal year ended March 31, 1996, while other
expenses decreased 7.6% to Y150.5 billion from Y162.9 billion. These changes are
primarily attributable to the net foreign exchange gain posted during the fiscal
year ended March 31, 1997, compared with a substantial net foreign exchange loss
in the fiscal year ended March 31, 1996. 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 Y51.5 billion in the
fiscal year ended March 31, 1997. This represented an increase of Y2.4 billion
from the fiscal year ended March 31, 1996, mainly because of the yen's
depreciation against other currencies.
15
<PAGE> 16
Income before Income Taxes and Net Income
Income before income taxes increased 126.1% to Y312.4 billion in the fiscal year
ended March 31, 1997 from Y138.2 billion in the fiscal year ended March 31,
1996. Income taxes as a percentage of income before income taxes declined 3.4%
to 52.4%.
Net income increased 157.1% to Y139.5 billion in the fiscal year ended March 31,
1997 from Y54.3 billion in the fiscal year ended March 31, 1996. Net income
represented 2.5% of consolidated sales and operating revenue in the fiscal year
ended March 31, 1997, an increase of 1.3% from the previous year.
Segment Information
The following discussion is based on segment information (see Note 18 of the
Notes to the Consolidated Financial Statements) and differs from the sales
classification described under "Business -- Business Segments" and "-- Sales and
Distribution".
By industry segment, sales in the Electronics Business grew 23.6%. Backed by the
rise in sales and the yen's depreciation, operating income in the Electronics
Business increased 59.2%. Operating income as a percentage of sales in the
Electronics Business improved by 1.6% to 6.9%. Sales in the Entertainment
Business were up 24.0%, and operating income increased by 20.8%. As a percentage
of sales in the Entertainment Business, operating income declined by 0.2% 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 153.6% increase in operating
income.
By geographic area, Sony generated higher sales in all areas. In Japan, sales
rose 12.9%. Operating income in Japan increased by 75.8%, mainly as 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% to 7.6%. In the United States, sales increased 31.9%,
but operating income declined 4.5% and fell 0.7% as a percentage of sales. This
decline was 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% more than in
the fiscal year ended March 31, 1996. In Other Areas, sales increased 20.8% and
operating income increased 25.3%, representing 4.8% of sales, 0.1% more than in
the fiscal year ended March 31, 1996.
FISCAL YEAR ENDED MARCH 31, 1996 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1995
Sales and Operating Revenue
Sony's consolidated sales and operating revenue increased 15.1% to Y4,592.6
billion in the fiscal year ended March 31, 1996 from Y3,990.6 billion during the
fiscal year ended March 31, 1995.
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, MD
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 PlayStation game console and
software gained popularity in Japan, the United States, 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 United States that resulted from the weak retail environment.
Sales in the Pictures Group 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.
By geographic area, sales in Japan increased 24.9%, supported by overall sales
advances in electronics products and higher sales of the PlayStation game
console and software, as well as revenue growth in the life insurance business.
16
<PAGE> 17
Sales in the United States 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 United States 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% and overseas sales accounted for 70.0% of consolidated sales
in the fiscal year ended March 31, 1996, compared with 27.7% and 72.3%,
respectively, in the fiscal year ended March 31, 1995.
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 Deutsche mark, 5% in 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 British pound, while it fell
approximately 6% against the Deutsche mark. It is estimated that consolidated
sales would have been approximately Y20 billion higher than the reported figure
in the fiscal year ended March 31, 1996 if the value of the yen had remained the
same as in the fiscal year ended March 31, 1995. During the fiscal year ended
March 31, 1996, approximately 47% of total manufacturing in Sony's Electronics
Business was conducted outside Japan.
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 following two paragraphs.
Cost of sales increased 10.3% to Y3,216.8 billion in the fiscal year ended March
31, 1996 from Y2,916.5 billion in the fiscal year ended March 31, 1995. Cost of
sales as a percentage of consolidated sales decreased 1.9% to 73.8%. This
improvement reflects higher sales and Company-wide efforts to reduce costs.
Research and development expenses increased 7.6% to Y257.3 billion in the fiscal
year ended March 31, 1996 from Y239.2 billion in the fiscal year ended March 31,
1995, but as a percentage of consolidated sales declined 0.3% to 5.9%.
Selling, general and administrative expenses increased 8.9% to Y917.9 billion in
the fiscal year ended March 31, 1996 from Y842.8 billion in the fiscal year
ended March 31, 1995. Selling, general and administrative expenses as a
percentage of consolidated sales decreased 0.9% to 21.0%.
Insurance and financing expenses, which were reported separately from cost of
sales, increased 67.6% to Y222.5 billion in the fiscal year ended March 31, 1996
from Y132.8 billion in the fiscal year ended March 31, 1995, 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% to 96.3%.
Operating income was Y235.3 billion in the fiscal year ended March 31, 1996,
compared to an operating loss of Y166.6 billion in the fiscal year ended March
31, 1995. Operating income as a percentage of consolidated sales and operating
revenue was 5.1% in the fiscal year ended March 31, 1996. The operating loss in
the fiscal year ended March 31, 1995 was primarily due to the write-off of
goodwill and additional losses in the Pictures Group.
Other Income and Expenses
Other income decreased 10.1% to Y65.8 billion in the fiscal year ended March 31,
1996 from Y73.1 billion in the fiscal year ended March 31, 1995, while other
expenses increased 27.8% to Y162.9 billion in the fiscal year ended March 31,
1996 from Y127.5 billion in the fiscal year ended March 31, 1995. These changes
were mainly due to a large net foreign exchange loss in the fiscal year ended
March 31, 1996, as opposed to a net foreign exchange gain in the fiscal year
ended March 31, 1995. 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 a foreign exchange loss.
Among other income and expenses, the balance of interest and dividend income
less interest expenses resulted in net interest payments of Y49.0 billion in the
fiscal year ended March 31, 1996, a decrease of Y6.1 billion from the fiscal
year ended March 31, 1995, due primarily to an increase in total borrowings and
debt.
17
<PAGE> 18
Income before Income Taxes and Net Income
Income before income taxes was Y138.2 billion in the fiscal year ended March 31,
1996, compared with a loss before income taxes of Y220.9 billion in the fiscal
year ended March 31, 1995. Income taxes as a percentage of income before income
taxes was 55.8% in the fiscal year ended March 31, 1996.
Net income was Y54.3 billion in the fiscal year ended March 31, 1996, compared
with a net loss of Y293.4 billion in the fiscal year ended March 31, 1995. Net
income represented 1.2% of consolidated sales and operating revenue in the
fiscal year ended March 31, 1996.
Segment Information
The following discussion is based on segment information (see Note 18 of the
Notes to the Consolidated Financial Statements) and differs from the sales
classification described in "Business -- Business Segments" and "Business --
Sales and Distribution".
By industry segment, sales in the Electronics Business rose 15.6% and operating
income increased 56.7%, reflecting the increase in sales and Company-wide
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 the Entertainment Business was
Y54.9 billion in the fiscal year ended March 31, 1996, compared with an
operating loss of Y273.3 billion in the fiscal year ended March 31, 1995, which
was primarily 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 was 6.5% in the fiscal year ended March 31, 1996. The
Pictures Group posted operating income in the fiscal year ended March 31, 1996
as the result of several hit films, successful television syndication in the
United States, 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 entirely offset by a strong international
performance.
In Insurance and Financing, revenues increased 61.7% and operating income
increased 40.6% from the fiscal year ended March 31, 1995. These gains were
primarily the result of a strong performance by Sony Life Insurance. Operating
income as a percentage of revenues in Insurance and Financing declined from 3.9%
to 3.4%.
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 increased 94.5%. Consequently,
operating income as a percentage of sales was 4.8%, compared to 2.9% in the
fiscal year ended March 31, 1995. In the United States, due to a 13.2% increase
in overall sales as well as improved profit from Pictures Group operations,
operating income was recorded in the fiscal year ended March 31, 1996. In the
fiscal year ended March 31, 1995, 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% in the fiscal year ended March 31, 1996, operating
income rose only 3.5% and operating income as a percentage of sales worsened
from 5.9% in the fiscal year ended March 31, 1995 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%.
18
<PAGE> 19
BUSINESS
Sony is one of the world's leading designers, developers, manufacturers and
distributors of electronic and entertainment products. Sony's products are sold
under the trademark "Sony", which has been registered in 193 countries and
territories. The Company believes the "Sony" name is among the most recognized
in the world, and intends to continue to enhance brand recognition through the
development of high-quality, innovative products. Sony'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 was the first Japanese company to be listed on
the New York Stock Exchange.
Sony has experienced compound annual growth in sales and operating revenue of
19.1% during the last three fiscal years. For the fiscal year ended March 31,
1997, which marked the Company's fiftieth anniversary, Sony reported sales and
operating revenue of Y5,663.1 billion ($45,670.4 million), operating income of
Y370.3 billion ($2,986.5 million) and net income of Y139.5 billion ($1,124.7
million), generated by its three business segments: Electronics, Entertainment,
and Insurance and Financing.
BUSINESS SEGMENTS
The following table sets forth Sony's sales and operating revenue by business
group for the periods indicated. The Electronics Business includes Video
Equipment, Audio Equipment, Televisions, and Other Products. The Entertainment
Business includes the Music Group and the Pictures Group.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
YEAR ENDED MARCH 31,
1995 1996 1997
------------------ ------------------ -------------------------------
(THOUSANDS
(MILLIONS (MILLIONS (MILLIONS OF
OF YEN) OF YEN) OF YEN) DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
Video Equipment 691,116 17.3% 731,097 15.9% 816,582 6,585,339 14.4%
Audio Equipment 898,507 22.5 905,441 19.7 1,034,769 8,344,911 18.3
Televisions 708,574 17.8 794,767 17.3 1,036,010 8,354,919 18.3
Other Products 777,031 19.5 1,098,849 24.0 1,500,378 12,099,823 26.5
--------- ----- --------- ---- - --------- ---------- ---- -
Total Electronics
Business 3,075,228 77.1 3,530,154 76.9 4,387,739 35,384,992 77.5
--------- ----- --------- ---- - --------- ---------- ---- -
Music Group 494,931 12.4 512,908 11.2 584,960 4,717,419 10.3
Pictures Group 281,677 7.0 318,305 6.9 438,505 3,536,331 7.8
--------- ----- --------- ---- - --------- ---------- ---- -
Total Entertainment
Business 776,608 19.4 831,213 18.1 1,023,465 8,253,750 18.1
--------- ----- --------- ---- - --------- ---------- ---- -
Insurance and Financing 138,747 3.5 231,198 5.0 251,930 2,031,693 4.4
--------- ----- --------- ---- - --------- ---------- ---- -
Sales and Operating Revenue 3,990,583 100.0% 4,592,565 100.0% 5,663,134 45,670,435 100.0%
========= ===== ========= ===== ========= ========== =====
</TABLE>
Electronics Business
Sony's Electronics Business is engaged in the development, manufacture and sales
of various kinds of electronic equipment, instruments and devices. Sony aims to
be at the forefront of the latest technology in all of its electronics product
lines. Sony believes that it has positioned itself as a producer of quality
products using advanced technology and creative design. Sony intends to continue
to capitalize on its reputation as a world leader in innovative ideas and
products by focusing on digital and network technologies, including developing
satellite broadcast reception systems for home use.
Video Equipment. Sony offers a wide range of video equipment, including 8mm,
VHS, and Consumer-Use Digital VCR Specifications (DV format) videotape recorders
(VTRs), DVD-Video players, video CD players, digital still cameras, broadcast-
and industrial-use video equipment, and videotapes. In the spring of 1997, Sony
launched its first DVD-Video player in Japan and the United States.
Audio Equipment. Sony offers a variety of audio equipment, including MiniDisc
systems, CD players, headphone stereos, personal component stereos, hi-fi
components, radio-cassette tape recorders, tape recorders, digital audio tape
(DAT) recorders/players, IC recorders, radios, headphones, car stereos, car
navigation systems, professional-use audio equipment, audiotapes, and blank MDs.
Sony is working to expand the new MD system lineup, which includes MD Walkman
models, MD decks, and compact stereo systems that incorporate MD decks.
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<PAGE> 20
Televisions. Sony offers a range of televisions and similar products, including
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. In June 1997, Sony
introduced in Japan a new series of wide-screen TVs incorporating newly
developed FD Trinitron cathode ray tubes (CRTs), which is the first television
for the home with a CRT that is flat in both the horizontal and vertical axes.
Other Products. Sony offers a variety of other products, including
semiconductors, LCDs, electronic components, CRTs, personal computers (PCs),
computer peripherals, telecommunications equipment, PlayStation game consoles
and software, batteries, and factory automation (FA) systems. Sony began
marketing a new series of home-use PCs in the United States in September 1996,
and in Japan in July 1997.
Entertainment Business
Sony's Entertainment Business is engaged 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, primarily through SMEI, SMEJ and SPE.
Music Group. SMEI and SMEJ produce, manufacture, market, and distribute CDs,
MDs, DVDs, laserdiscs (LDs), records, and pre-recorded audio and video
cassettes, and produce and manufacture CD-ROMs. Major SMEI recording artists
include Celine Dion, Barbra Streisand and Mariah Carey. Sony has a leading CD
production capacity, with plants in the United States, Austria, Japan, Brazil,
Australia, Canada, Hong Kong, and Mexico.
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 Group, includes
Columbia Pictures, TriStar Pictures, Sony Pictures Classics, Sony Pictures
Releasing, and Columbia TriStar Film Distributors International, SPE's
international theatrical business. SPE set a new industry record in global box
office revenues during calendar year 1997, with hit movies such as Jerry
Maguire, Men in Black and My Best Friend's Wedding. SPE's Columbia TriStar
Television Group 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.
As of December 31, 1997, Sony operated 1,020 motion picture screens in 141
locations in the United States through Sony Retail Entertainment's Loews
Theatres division. In September 1997, Sony entered into an agreement to merge
its Loews Theatres division with the Cineplex Odeon chain of movie theaters. The
merger is expected to bring the number of movie theaters operated by Sony to
over 2,600 screens in approximately 460 locations in North America.
Insurance and Financing
Sony provides life insurance primarily for individuals in Japan through Sony
Life Insurance, which has adopted an innovative marketing approach and
experienced significant growth in revenue in recent years. Sony Life Insurance
recently received an "AA-" credit rating from Standard & Poor's Corporation.
Sony also engages in equipment financing and consumer financing in Japan for
Sony products through Sony Finance International, Inc.
20
<PAGE> 21
SALES AND DISTRIBUTION
The following table shows Sony's sales and operating revenue in each of its
major geographical markets for the periods indicated:
<TABLE>
<CAPTION>
-------------------------------------------------------------------
YEAR ENDED MARCH 31,
1995 1996 1997
------------------ ------------------ -------------------------------
(THOUSANDS
(MILLIONS (MILLIONS (MILLIONS OF
OF YEN) OF YEN) OF YEN) DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
Japan 1,105,152 27.7% 1,379,804 30.0% 1,590,820 12,829,193 28.1%
United States 1,152,081 28.9 1,259,926 27.4 1,639,334 13,220,435 29.0
Europe 905,416 22.7 1,054,010 23.0 1,304,491 10,520,089 23.0
Other Areas 827,934 20.7 898,825 19.6 1,128,489 9,100,718 19.9
--------- ------ --------- ------ --------- ---------- ------
Sales and Operating Revenue 3,990,583 100.0% 4,592,565 100.0% 5,663,134 45,670,435 100.0%
========= ====== ========= ====== ========= ========== ======
</TABLE>
Electronics Business
Sony's electronic products are sold throughout the world under the trademark
"Sony", which has been registered in 193 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.
Japan. In 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 in Japan. For non-consumer electronic products, the Company has a sales
company 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 United States. This subsidiary has 21
sales and distribution branches and offices throughout the United States. 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 12 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
United States under the "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 United States and Canada. SMEI's affiliates located outside the
United States conduct the aforesaid business in countries other than the United
States and Japan.
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 United States,
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.
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<PAGE> 22
SPE produces television programming and licenses it to network television for
prime-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 United States and to international television
stations and other broadcasters throughout the world.
The Pictures Group, through Sony Retail Entertainment's Loews Theatres division,
exhibits its own and other motion picture companies' films. SPE also distributes
its films for theatrical exhibition in theaters 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 ended March 31, 1997, Sony set up additional
manufacturing facilities in such countries as Hungary, Slovakia, Mexico, and
China. As of March 31, 1997, it operated 15 manufacturing facilities in the
United States, 12 in Europe, and 31 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 research and development, 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 United States, 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.
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 different
products and markets. In the Electronics Business, Sony competes primarily on
the basis of product innovation, quality and price. 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.
Sony's 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 research and development operations as part of an
overall corporate reorganization on April 1, 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 research and development
relating to the entire Sony Group, particularly the development of new key
technologies, is delegated to six corporate laboratories, the Research Center,
the Advanced Production Laboratory, the Architecture Laboratory, the Advanced
Development Laboratory, the Media Processing Laboratory, and the Information
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 research and development operations are
focusing on such fields as electronic materials technologies, basic devices,
semiconductor technologies, software and hardware architectures for information
and network products,
22
<PAGE> 23
optical discs and magnetic recording technologies, signal processing
technologies, computer technologies, as well as long-term research and
development themes based on visions of the 21st century.
In the United States, Sony operates Research Laboratories, which specialize in
fields such as digital signal processing, DTV, telecommunications, broadcasting
systems, semiconductors, and display technology. There are additional
development centers in the United Kingdom, Germany, Belgium, and Singapore.
Research and development expenses, principally for the Electronics Business,
were Y239.2 billion in the fiscal year ended March 31, 1995, Y257.3 billion in
the fiscal year ended March 31, 1996 and Y282.6 billion in the fiscal year ended
March 31, 1997.
Sony believes research and development activities are vital to its long-term
growth in electronics. Through its research and development activities, Sony has
recently developed:
- - A 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; and
- - A real-time MPEG2 video encoder LSI which features the industry's widest
motion search area and integrates MPEG2 encoding system controller 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 fast
camera movements.
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
Lucent Technologies Inc. covering semiconductors and has cross license
agreements with Philips Electronics 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 has 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 suppliers around the world, and Sony maintains
multiple suppliers for every category of parts and components.
EMPLOYEE RELATIONS
As of March 31, 1997, Sony had approximately 163,000 employees, of which
approximately 15% were members of labor unions. Approximately 68,000 employees
were located in Japan and 95,000 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.
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 does not expect such
lawsuits to have a material effect on Sony's financial condition or results of
operations.
23
<PAGE> 24
In December 1997, the staff of the Division of Enforcement of the Securities and
Exchange Commission advised the Company that, following an informal
investigation arising out of the November 1994 write-off of Y265 billion of
goodwill in the Pictures Group (see Note (2) to Notes to Selected Consolidated
Financial Data), the staff is considering recommending to the Commission that it
commence an enforcement action seeking to show that the Company's public
disclosures for the fiscal year ended March 31, 1994 and the quarter ended June
30, 1994 were false and misleading in violation of the Exchange Act because they
allegedly did not include certain information regarding the Pictures Group
disclosed in connection with the write-off. Previously, in June 1997, the United
States District Court for the Central District of California approved the
settlement of related claims asserted in a class action entitled Brandwine v.
Sony Corporation, Civ. No. 94-8282-JGD. The Company, while denying all charges
of wrongdoing and liability against it, paid $12.5 million in full settlement of
those claims.
24
<PAGE> 25
DIRECTORS AND STATUTORY AUDITORS
Set forth below are the names of the Company's Directors and Statutory Auditors
as of the date hereof:
<TABLE>
<CAPTION>
DIRECTOR OR
STATUTORY
DIRECTORS AND STATUTORY AUDITORS AUDITOR SINCE
- --------------------------------------------------------------------------------------- -------------
<S> <C>
Chairman and Representative Director Norio Ohga 1964
Vice Chairman and Representative Director Tsunao Hashimoto 1980
President and Representative Director Nobuyuki Idei 1989
Executive Deputy Presidents and Representative Directors Minoru Morio 1988
Kozo Ohsone 1987
Yoshiyuki Kaneda 1986
Tamotsu Iba 1992
Directors Peter G. Peterson 1991
Kenichi Suematsu 1997
Hideo Ishihara 1997
Standing Statutory Auditors Nobuo Kanoi 1996
Akihisa Ohnishi 1993
Yoshisuke Mohri 1994
Statutory Auditor Kazuaki Morita 1995
</TABLE>
Except as noted below, the business address of all the above persons is c/o Sony
Corporation, 7-35, Kitashinagawa 6-chome, Shinagawa-ku, Tokyo 141-0001, Japan.
The business address of Mr. Kozo Ohsone is c/o Sony Corporation, 7-4, Kounan
1-chome, Minato-ku, Tokyo 108-0075, Japan, the business address of Mr. Yoshiyuki
Kaneda is c/o Sony Corporation, 10-18, Takanawa 4-chome, Minato-ku, Tokyo
108-0074, Japan, and the business address of Mr. Peter G. Peterson is c/o The
Blackstone Group, 345 Park Avenue, New York, NY 10154, U.S.A.
All of the above listed Directors and Statutory Auditors are engaged in the
business of the Company on a full-time basis with the exception of the
following, whose principal outside activities are set forth below:
<TABLE>
<S> <C>
Peter G. Peterson Chairman, The Blackstone Group
Kenichi Suematsu Advisor, The Sakura Bank, Limited
Hideo Ishihara Chairman, Goldman Sachs (Japan) Ltd.
Kazuaki Morita Chairman, Morita and Co.
</TABLE>
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 Board of Directors may elect from among its members a Chairman and Director,
a Vice Chairman and Director, a President and Director, and one or more
Executive Deputy Presidents and 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
25
<PAGE> 26
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 Commercial Code and the Law concerning Special Measures to the
Commercial Code with respect to Audit of Corporations, 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.
DESCRIPTION OF NOTES
The Notes are to be issued under an Indenture, to be dated as of March 4, 1998
(the "Indenture"), between the Company and The Chase Manhattan Bank, as Trustee
(the "Trustee"), a copy of which is filed as an exhibit to the Registration
Statement. The following summaries of certain provisions of the Indenture do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all the provisions of the Indenture, including the definitions
therein of certain terms. Wherever particular Sections or defined terms of the
Indenture are referred to, such Sections or defined terms are incorporated
herein by reference.
GENERAL
The Notes will be direct, unconditional, unsubordinated and unsecured
obligations of the Company and will rank pari passu and ratably without any
preference among themselves and (with the exception of obligations in respect of
national and local taxes and certain other statutory preferences) equally with
all other present and future unsecured and unsubordinated obligations of the
Company from time to time outstanding.
The Notes will be limited to $1,500,000,000 aggregate principal amount and will
mature at 100% of their principal amount on March 4, 2003. The Notes will bear
interest at the rate per annum shown on the front cover of this Prospectus from
March 4, 1998 or from the most recent Interest Payment Date to which interest
has been paid or provided for, payable semi-annually on March 4 and September 4
of each year, commencing September 4, 1998 to the Person in whose name the Note
(or any predecessor Note) is registered at the close of business on the
preceding February 18 or August 18, as the case may be. (sec.sec. 301 and 307)
The Indenture does not provide for any debt covenants that would afford the
Holders of Notes any protection in the event of a highly leveraged transaction.
NEGATIVE PLEDGE ON EXTERNAL INDEBTEDNESS
The Company will not, so long as any of the Notes remains outstanding, create or
permit to subsist any mortgage, charge, pledge or other security interest upon
the whole or any part of its property, assets or revenues, present or future, to
secure for the benefit of the holders of any External Indebtedness (i) payment
of any sum due in respect of such External Indebtedness or (ii) any payment
under any guarantee of such External Indebtedness or (iii) any payment under any
indemnity or other like obligation relating to such External Indebtedness
without at the same time according to the Notes either the same security as is
granted to or is outstanding in respect of such External Indebtedness,
guarantee, indemnity or other like obligation or such other security or
guarantee not materially less beneficial to the Holders or as shall be approved
by at least a majority in principal amount of the Notes. (sec.1009)
"External Indebtedness" means any indebtedness of the Company or any other
person in the form of or represented by bonds, notes, debentures or other
securities which (1) either (a) are denominated or payable in, or by reference
to, or may at the option of the person entitled thereto be or become payable in,
or by reference to, a currency or currencies other than yen, or (b) are
denominated or payable in yen and more than 50% of the aggregate principal or
face amount of which is initially distributed by or with the authorization of
the Company or, if not the Company, the issuer thereof outside Japan, (2) are
not repayable (otherwise than at the option, or due to the default, of the
obligor) within one year from the date of their issue, and (3) are, or are
capable of being, quoted, listed or ordinarily traded on any stock exchange or
on any over-the-counter securities market outside Japan. (sec.101)
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The foregoing negative pledge does not apply to yen-denominated securities
issued by the Company in Japan, and would not preclude the Company from issuing
secured yen-denominated indebtedness in Japan ranking senior to the Notes.
FORM, DENOMINATION AND REGISTRATION
The statements set forth herein under "-- Form, Denomination and Registration"
and "-- Definitive Notes" include summaries of certain rules and operating
procedures of DTC, Euroclear and Cedel Bank which affect transfers of interests
in the Global Note.
The Notes will be issued in the form of the Global Note registered in the name
of Cede & Co., as nominee of DTC. The Global Note will be held by the The Chase
Manhattan Bank, as custodian for DTC. The Notes will be issued only in fully
registered form, without coupons, in denominations of $1,000 and any integral
multiple thereof. (sec.302)
Except as set forth below, the Global Note may be transferred, in whole and not
in part, only to DTC, another nominee of DTC or to a successor DTC or its
nominee.
Beneficial interests in the Global Note will be represented through accounts of
financial institutions acting on behalf of beneficial owners as direct and
indirect participants in DTC. Investors may hold Notes directly through DTC,
Cedel Bank or Euroclear, if they are participants in such systems, or indirectly
through organizations which are participants in such systems. Cedel Bank and
Euroclear will hold securities on behalf of their participants through
customers' securities accounts in their respective names on the books of their
respective depositaries, which in turn will hold such securities in customers'
securities accounts in the depositaries' names on the books of DTC. Chase will
initially act as depositary for Cedel Bank and Morgan will act as depositary for
Euroclear.
DTC may grant proxies or otherwise authorize DTC participants (or persons
holding beneficial interests in the Notes through such DTC participants) to
exercise any rights of a Holder or take any other actions which a Holder is
entitled to take under the Indenture. Under its usual procedures, DTC mails an
omnibus proxy to the Company assigning Cede & Co.'s consenting or voting rights
to those DTC participants to whose accounts the Notes are credited on a record
date as soon as possible after such record date. Cedel Bank or Euroclear, as the
case may be, will take any action permitted to be taken by a Holder under the
Indenture on behalf of a Cedel Bank participant or Euroclear participant only in
accordance with its relevant rules and procedures and subject to its
depositary's ability to effect such actions on its behalf through DTC.
Persons who are not DTC participants may beneficially own Notes held by DTC only
through direct or indirect participants in DTC (including Euroclear and Cedel
Bank). So long as Cede & Co., as the nominee of DTC, is the registered owner of
the Global Note, Cede & Co. for all purposes will be considered the sole Holder
of the Notes under the Indenture. Except as provided below, Holders of
beneficial interests in the Global Note will not be entitled to have Notes
registered in their names, will not receive or be entitled to receive physical
delivery of Notes in definitive form, and will not be considered the Holders
thereof under the Indenture.
PAYMENT
Payment of principal of and interest on the Global Notes will be made to Cede &
Co., the nominee for DTC, as the registered owner. The principal of and interest
on the Notes will be payable in U.S. dollars or in such other coin or currency
of the United States of America as at the time of payment is legal tender for
the payment of public and private debts.
Upon receipt of any payment of principal of or interest on the Global Note, DTC
shall immediately credit DTC participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amounts
of the Global Note as shown on the records of DTC. Payments by DTC participants
to owners of beneficial interests in the Global Note held through such
participants will be the responsibility of such participants, as is now the case
with securities held for the accounts of customers registered in "street name."
Distributions with respect to Notes held through Cedel Bank or Euroclear will be
credited to the cash accounts of Cedel Bank participants or Euroclear
participants in accordance with the relevant system's rules and procedures, to
the extent received by its depositary. Neither the Company nor the Trustee will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests in the Global Note
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interest.
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DEFINITIVE NOTES
If DTC is at any time unwilling or unable to continue as depositary and a
successor depositary is not appointed by the Company within 90 days, the Company
will issue Notes in definitive form in exchange for the Global Note. (sec.305)
The Company will also issue Notes in definitive form upon 90 days' written
request of a holder of a beneficial interest in the Global Note. Such written
request shall be made through the DTC participant in which such holder owns his
beneficial interest in the Notes. Such DTC participant shall promptly forward
such written request to The Chase Manhattan Bank, as Security Registrar. Notes
so issued in definitive form will be issued only in fully registered form
without coupons, in denominations of $1,000 or any integral multiple thereof.
(sec.305)
PAYMENT OF ADDITIONAL AMOUNTS
The Company will pay to Holders of the Notes who are not Japanese corporations
or residents of Japan for Japanese tax purposes such additional amounts
("Additional Amounts") as may be necessary in order that every net payment of
the principal and interest on the Notes, after deduction or withholding for or
on account of any present or future tax, assessment or other governmental charge
imposed upon or as a result of such payment by Japan or any political division
or taxing authority thereof or therein, will not be less than the amount
provided for in the Notes to be due and payable; provided, however, that the
foregoing obligation to pay Additional Amounts will not apply to any one or more
of the following:
(a) Any tax, assessment or other governmental charge which would not
have been so imposed but for the existence of any present or former
connection between such Holder (or between a fiduciary, settler,
beneficiary, member or shareholder of such Holder, if such Holder is an
estate, a trust, a partnership, or a corporation) and Japan;
(b) any estate, inheritance, gift, sales, transfer, personal property or
any similar tax, assessment or government charge;
(c) any tax, assessment or other governmental charge which is payable
otherwise than by deduction or withholding from payments of principal of or
interest on the Notes; or
(d) any tax, assessment or other governmental charge which would not
have been so imposed but for the presentation by the Holder of the Notes
for payment on a date more than 30 days after the date on which such
payment became due and payable or the date on which payment thereof is duly
provided for, whichever occurs later;
nor will Additional Amounts be paid with respect to any payment of principal of
or interest on the Notes to any Holder who is a fiduciary or partnership or
other than the sole beneficial owner of any such payment to the extent of a
beneficiary or settler with respect to such fiduciary, a member of such a
partnership or the beneficial owner would not have been entitled to the
Additional Amounts had such beneficiary, settlor, member or beneficial owner
been the Holder of the Notes. (sec.1008)
Whenever there is mentioned in the Indenture or the Notes, in any context, any
payment of, or in respect of, the principal of, or interest on, any Notes, such
mention shall be deemed to include mention of the payment of Additional Amounts
to the extent that, in such context, Additional Amounts are, were or would be
payable in respect thereof, and any express mention of the payment of Additional
Amounts in any provisions of the Indenture or the Notes shall not be construed
as excluding Additional Amounts in those provisions where such express mention
is not made.
OPTIONAL TAX REDEMPTION
The Notes are to be redeemable, at the Company's option, as a whole but not in
part, upon not less than 30 nor more than 60 days' notice mailed to each Holder
at his address appearing on the Security Register, at any time, at a Redemption
Price equal to 100% of the principal amount, together with accrued interest
(including Additional Amounts, if any) to the Redemption Date if the Company
determines that, as a result of any change in, amendment to, non-renewal of, or
judicial decision relating to the laws (including regulations, rulings and
treaties) of Japan or any political subdivision or taxing authority thereof or
therein, or any change in the official interpretation or application of such
law, which change, amendment, non-renewal or decision becomes effective on or
after the date of this Prospectus, the Company would be required to pay
Additional Amounts with respect to the Notes on the next succeeding Interest
Payment Date as described under "-- Payment of Additional Amounts," provided
that (i) no such notice of redemption may be given earlier than 60 days prior to
the earliest date on which the Company would be obligated to
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pay any such Additional Amounts were a payment in respect of the Notes then due
and (ii) at the time such notice is given, such obligation to pay such
Additional Amounts remains in effect. Prior to the giving of any such notice of
redemption, the Company will deliver to the Trustee (a) a certificate stating
that the Company is entitled to effect such redemption and setting forth a
statement of facts showing that the conditions precedent to the right to the
Company so to redeem have occurred and (b) an opinion of independent counsel or
a certificate of an independent accountant of recognized standing selected by
the Company and reasonably satisfactory to the Trustee to the effect that the
Company has or will become obligated to pay such Additional Amounts as a result
of such change or amendment. The Company's right to redeem the Notes shall
continue, as long as the Company is obligated to pay such Additional Amounts,
notwithstanding that the Company shall have made payments of Additional Amounts.
(sec.1101, 1103)
LIMITATIONS ON MERGERS AND CONSOLIDATIONS
The Indenture will provide that the Company shall not consolidate with or merge
into any other person or convey, transfer or lease its properties and assets
substantially as an entirety to any person, unless (a) any successor person
shall be organized and validly existing under the laws of Japan and shall
expressly assume all the Company's obligations with respect to all the Notes
outstanding, including every covenant of the Indenture to be performed or
observed by the Company and certain other conditions (including payment of
Additional Amounts, if any, resulting from any person succeeding the Company),
and (b) immediately after giving effect to such transaction, no Event of
Default, and no event which, after notice or lapse of time or both, would become
an Event of Default, shall have occurred and be continuing. (sec.801)
EVENTS OF DEFAULT
The following will be Events of Default under the Indenture: (a) failure to pay
principal of any Note when due; (b) failure to pay any interest on any Note when
due, continued for 30 days; (c) failure to perform any other covenant of the
Company in the Indenture, continued for 90 days after written notice as provided
in the Indenture; (d) default in respect of any bonds, debentures, notes or
other instruments of indebtedness or any other similar evidences of indebtedness
("Indebtedness") having an aggregate outstanding principal amount of at least
$25,000,000 or its equivalent in any other currency or currencies of the Company
(other than the Notes) which results in repayment of such Indebtedness being
accelerated by reason of such default, provided, however, that if any such
default shall be cured by the Company or waived by the holders of such
Indebtedness, or of a specified percentage thereof entitled so to waive, then
the default under the Indenture by reason thereof shall be deemed likewise to
have been cured and waived; and (e) certain events in bankruptcy, insolvency or
reorganization. (sec.501) Subject to the provisions of the Indenture relating to
the duties of the Trustee in case an Event of Default (as defined) shall occur
and be continuing, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request or direction of any of
the Holders, unless such Holders shall have offered to the Trustee reasonable
indemnity. (sec.603) Subject to such provisions for the indemnification of the
Trustee, the Holders of a majority in aggregate principal amount of the
Outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee. (sec.512)
If an Event of Default (as defined) shall occur and be continuing, either the
Trustee or the Holders of at least 25% in aggregate principal amount of the
Outstanding Notes may accelerate the maturity of all Notes; provided, however,
that after such acceleration, but before a judgment or decree based on
acceleration, the Holders of a majority in aggregate principal amount of
Outstanding Notes may, under certain circumstances, rescind and annul such
acceleration if all Events of Default, other than the non-payment of accelerated
principal, have been cured or waived as provided in the Indenture. (sec.502) For
information as to waiver of defaults, see "-- Modification and Waiver".
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default (as defined) and unless also the Holders of at least 25% in aggregate
principal amount of the Outstanding Notes shall have made written request, and
offered reasonable indemnity, to the Trustee to institute such proceeding as
trustee, and the Trustee shall not have received from the Holders of a majority
in aggregate principal amount of the Outstanding Notes a direction inconsistent
with such request and shall have failed to institute such proceeding within 60
days. (sec.507) However, such limitations do not apply to a suit instituted by a
Holder of a Note for enforcement of payment of the principal of or interest on
such Note on or after the respective due dates expressed in such Note. (sec.508)
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The Company will be required to furnish to the Trustee annually a statement as
to the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance. (sec.1004)
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company and the
Trustee with the consent of the Holders of a majority in aggregate principal
amount of the Outstanding Notes; provided, however, that no such modification or
amendment may, without the consent of the Holder of each Outstanding Note
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, (b) reduce the principal amount of, or
interest on, any Note, or change the obligation to pay Additional Amounts, (c)
change the currency of payment of principal of, or interest on, any Note or
remove the place of such payment from the Borough of Manhattan, The City of New
York, or (so long as the Notes are listed on the London Stock Exchange and such
exchange shall so require) London, (d) impair the right to institute suit for
the enforcement of any payment on or with respect to any Note, (e) reduce the
above-stated percentage of Outstanding Notes necessary to modify or amend the
Indenture or (f) reduce the percentage of aggregate principal amount of
Outstanding Notes necessary for waiver of compliance with certain provisions of
the Indenture or for waiver of certain defaults. (sec.902)
The Holders of a majority in aggregate principal amount of the Outstanding Notes
may waive compliance by the Company with certain restrictive provisions of the
Indenture. (sec.1010) The Holders of a majority in aggregate principal amount of
the Outstanding Notes may waive any past default under the Indenture, except a
default in the payment of principal or interest. (sec.513)
DEFEASANCE
Under the terms of the Indenture and the Notes, the Company will be discharged
from any and all obligations in respect of the Notes and the Indenture (except
in each case for certain obligations to register the transfer or exchange of
Notes, replace stolen, lost or mutilated Notes, maintain paying agencies and
hold moneys for payment in trust) if the Company irrevocably deposits with the
Trustee, as trust funds in trust for the purpose, an amount of money in the
currency in which such Notes are payable sufficient to pay and discharge all the
principal of and interest on the Notes on the dates such payments are due in
accordance with the terms of the Notes and if the Company satisfies certain
other conditions under the Indenture, including delivery of an officer's
certificate and an opinion of counsel to the Trustee relating to the
satisfaction and discharge of the Indenture. The Trustee shall execute
instruments acknowledging the discharging of the Indenture upon the Company's
delivery to the Trustee of such officer's certificate and opinion of counsel.
(sec.401)
GOVERNING LAW; JURISDICTION; SERVICE OF PROCESS
The Notes and the Indenture shall all be governed by and construed in accordance
with the laws of the State of New York. (sec.112)
The Company has irrevocably appointed Sony Corporation of America, currently
located at 550 Madison Avenue, 33rd Floor, New York, New York 10022-3211, as its
agent upon which process may be served in any legal action or proceeding which
may be instituted by any Holder or the Trustee in any Federal or State court in
the Borough of Manhattan, The City of New York, arising out of or relating to
the Notes or the Indenture. The Company has also irrevocably submitted to the
non-exclusive jurisdiction of any such courts with respect to any such legal
action or proceeding. (sec.114)
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GLOBAL CLEARANCE AND SETTLEMENT
Although DTC, Cedel Bank and Euroclear have agreed to the procedures provided
below in order to facilitate transfers of Notes among participants of DTC, Cedel
Bank and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
Neither the Company nor the Trustee will have any responsibility for the
performance by DTC, Cedel Bank or Euroclear or their respective participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
THE CLEARING SYSTEMS
DTC
DTC is a limited purpose trust company organized under the laws of the State of
New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the Uniform Commercial Code and a "Clearing Agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934. DTC was created to hold securities for its participants and
facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates. DTC participants include securities brokers and dealers, banks,
trust companies and clearing corporations and may include certain other
organizations such as the Underwriters. Indirect access to the DTC system also
is available to indirect DTC participants such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
DTC participant, either directly or indirectly.
Because DTC can only act on behalf of DTC participants, who in turn act on
behalf of indirect DTC participants and certain banks, the ability of a holder
of a beneficial interest in the Global Note to pledge such interest to persons
or entities that do not participate in the DTC system, or otherwise take actions
in respect of such interest, may be limited by the lack of a physical
certificate for such interest.
Euroclear and Cedel Bank
Euroclear and Cedel Bank hold securities for participating organizations and
facilitate the clearance and settlement of securities transactions between their
respective participants through electronic book-entry changes in accounts of
such participants. Euroclear and Cedel Bank provide to their participants, among
other things, services for safekeeping, administration, clearance and settlement
of internationally traded securities and securities lending and borrowing.
Euroclear and Cedel Bank interface with domestic securities markets. Euroclear
and Cedel Bank participants are recognized financial institutions around the
world, including underwriters, securities brokers and dealers, banks, trust
companies and certain other organizations and include certain of the
Underwriters. Indirect access to Euroclear or Cedel Bank is also available to
others such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Euroclear or Cedel Bank participant
either directly or indirectly.
Initial Settlement
Investors electing to hold their Notes through DTC will follow the settlement
practices applicable to U.S. corporate debt obligations. Investor securities
custody accounts will be credited with their holdings against payment in
same-day funds on the settlement date.
Investors electing to hold their Notes through Cedel Bank or Euroclear accounts
will follow the settlement procedures applicable to conventional eurobonds in
registered form. Notes will be credited to the holders of securities custody
accounts at Cedel Bank and Euroclear on the business day following the
settlement date against payment for value on the settlement date.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC participants. Secondary market trading between DTC
participants will be settled using the procedures applicable to U.S. corporate
debt obligations in same-day funds.
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Trading between Cedel Bank and/or Euroclear participants. Secondary market
trading between Cedel Bank participants and/or Euroclear participants will be
settled using the procedures applicable to conventional eurobonds in same-day
funds.
Trading between DTC seller and Cedel Bank or Euroclear purchaser. When Notes
are to be transferred from the account of a DTC participant to the account of a
Cedel Bank participant or a Euroclear participant, the purchaser will send
instructions to Cedel Bank or Euroclear through a participant at least one
business day prior to settlement. Cedel Bank or Euroclear will instruct Chase or
Morgan, respectively, as the case may be, to receive the Notes against payment.
Payment will include interest accrued on the Notes from and including the last
payment date to and excluding the settlement date on the basis of a calendar
year consisting of twelve 30-day calendar months. For transactions settling on
the 31st day of the month, payment will include interest accrued to and
excluding the first day of the following month. Payment will then be made by
Chase or Morgan to the DTC participant's account against delivery of the Notes.
After settlement has been completed, the Notes will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the Cedel Bank participant's or Euroclear participant's
account. The Notes credit will appear the next day (European time) and the cash
debit will be back-valued to, and the interest on the Notes will accrue from,
the value date (which would be the preceding day when settlement occurred in New
York). If settlement is not completed on the intended value date (i.e., the
trade fails), the Cedel Bank or Euroclear cash debit will be valued instead as
of the actual settlement date.
Cedel Bank participants and Euroclear participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel Bank or Euroclear. Under this
approach, they may take on credit exposure to Cedel Bank or Euroclear until the
Notes are credited to their accounts one day later.
As an alternative, if Cedel Bank or Euroclear has extended a line of credit to
them, participants can elect not to preposition funds and allow that credit line
to be drawn upon to finance settlement. Under this procedure, Cedel Bank
participants or Euroclear participants purchasing Notes would incur overdraft
charges for one day, assuming they cleared the overdraft when the Notes were
credited to their accounts. However, interest on the Notes would accrue from the
value date. Therefore, in many cases the investment income on the Notes earned
during that one-day period may substantially reduce or offset the amount of such
overdraft charges, although this result will depend on each participant's
particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending Notes to Chase or
Morgan for the benefit of Cedel Bank participants or Euroclear participants. The
sale proceeds will be available to the DTC seller on the settlement date. Thus,
to the DTC participant a cross-market transaction will settle no differently
than a trade between two DTC participants.
Trading between Cedel Bank or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, Cedel Bank or Euroclear participants may employ
their customary procedures for transactions in which Notes are to be transferred
by the respective clearing system, through Chase or Morgan, to a DTC
participant. The seller will send instructions to Cedel Bank or Euroclear
through a participant at least one business day prior to settlement. In these
cases Cedel Bank or Euroclear will instruct Chase or Morgan, as appropriate, to
credit the Notes to the DTC participant's account against payment. Payment will
include interest accrued on the Notes from and including the last payment date
to and excluding the settlement date on the basis of a calendar year consisting
of twelve 30-day calendar months. For transactions settling on the 31st day of
the month, payment will include interest accrued to and excluding the first day
of the following month. The payment will then be reflected in the account of the
Cedel Bank participant or Euroclear participant the following day, and receipt
of the cash proceeds in the Cedel Bank or Euroclear participant's account would
be back-valued to the value date (which would be the preceding day, when
settlement occurred in New York). Should the Cedel Bank or Euroclear participant
have a line of credit with its respective clearing system and elect to be in
debit in anticipation of receipt of the sale proceeds in its account, the
back-valuation may substantially reduce or offset any overdraft charges incurred
over that one-day period. If settlement is not completed on the intended value
date (i.e., the trade fails), receipt of the cash proceeds in the Cedel Bank or
Euroclear participant's account would instead be valued as of the actual
settlement date.
Finally, day traders that use Cedel Bank or Euroclear and that purchase Notes
from DTC participants for credit to Cedel Bank participants or Euroclear
participants should note that these trades would automatically fail on the sale
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side unless affirmative action were taken. At least three techniques should be
readily available to eliminate this potential problem:
(1) borrowing through Cedel Bank or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel Bank or
Euroclear accounts) in accordance with the clearing system's customary
procedures;
(2) borrowing the Notes in the United States from a DTC participant no
later than one day prior to settlement which would give the Notes
sufficient time to be reflected in their Cedel Bank or Euroclear account in
order to settle the sale side of the trade; or
(3) staggering the value dates for the buy and sell sides of the trade
so that the value for the purchase from the DTC participant is at least one
day prior to the value date for the sale to the Cedel Bank participant or
Euroclear participant.
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TAXATION
JAPANESE TAXATION
The following summary of Japanese taxes is based on the advice of Tsunematsu
Yanase & Sekine with respect to Japanese tax laws in force on the date of this
Prospectus. It is not intended to constitute a complete analysis of the
consequences under Japanese law of the purchase, ownership and sale of the Notes
by non-residents of Japan or non-Japanese corporations. The payment of interest
in respect of the Notes to a non-resident of Japan or a non-Japanese corporation
will not be subject to any Japanese income or corporation tax payable by way of
withholding. Furthermore, such payment will not be subject to any other Japanese
income or corporation tax, unless such non-resident or non-Japanese corporation
has a permanent establishment in Japan and the payment is attributable to the
business of such non-resident or non-Japanese corporation carried on in Japan
through such permanent establishment.
Gains derived from the sale outside Japan of Notes by a non-resident of Japan or
a non-Japanese corporation are in general not subject to Japanese income or
corporation taxes. Gains derived from the sale in Japan of Notes by a non-
resident of Japan or 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, wherever resident, who has acquired Notes as
legatee, heir or donee. No stamp, issue, registration or similar taxes or duties
will, under present Japanese law, be payable by Holders in connection with the
issue of the Notes.
If the Notes are sold or transferred within Japan, a securities transaction tax
will be imposed on the seller or transferor. If Notes are sold or transferred in
a transaction conducted and settled wholly outside of Japan, a securities
transaction tax will generally not be imposed.
Certain amendments to the Japanese Special Taxation Measures Law relating to
taxation on interest payments on debt securities issued by Japanese corporations
outside Japan will become effective on April 1, 1998. However, such amendments
will not be applicable to the Notes.
UNITED STATES TAXATION
The following summary of the principal United States federal income tax
consequences of the ownership of Notes is based upon the opinion of Sullivan &
Cromwell, counsel to the Company. It deals only with Notes held as capital
assets by investors who purchase the Notes in the offering at the offering
price, and not with special classes of holders, such as dealers in securities or
currencies, traders in securities that elect to mark to market, banks,
tax-exempt organizations, life insurance companies, persons that hold Notes as a
hedge (or hedged against) currency or interest rate risks or that are part of a
straddle or conversion transaction, or persons whose functional currency is not
the U.S. dollar. Investors who purchase the Notes at a price other than the
offering price should consult their tax advisor as to the possible applicability
to them of the amortizable bond premium or market discount rules. This summary
is based on the Internal Revenue Code of 1986, as amended (the "Code"), its
legislative history, existing and proposed regulations thereunder, published
rulings and court decisions, all as currently in effect and all subject to
change at any time, perhaps with retroactive effect.
PROSPECTIVE PURCHASERS OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING
THE CONSEQUENCES, IN THEIR PARTICULAR CIRCUMSTANCES, UNDER THE CODE AND THE LAWS
OF ANY OTHER TAXING JURISDICTION, OF THE OWNERSHIP OF NOTES.
United States Holders
Payments of Interest. Interest on a Note will be taxable to a United States
Holder, as defined below, as ordinary income at the time it is received or
accrued, depending on the United States Holder's method of accounting for tax
purposes. A United States Holder is a beneficial owner that is (i) a citizen or
resident of the United States, (ii) a domestic corporation, (iii) an estate the
income of which is subject to United States federal income tax without regard to
its source or (iv) a trust if a United States court is able to exercise primary
supervision over administration of the trust and one or more United States
persons have authority to control all substantial decisions of the trust.
Interest paid by the Company on the Notes constitutes income from sources
outside the United States, but, with certain exceptions, will be "passive" or
"financial services" income, which is treated separately from other types of
income for purposes of computing the foreign tax credit allowable to a United
States Holder.
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<PAGE> 35
Purchase, Sale, Retirement and Other Disposition of the Notes. A United States
Holder's tax basis in the Note generally will be its cost. Upon the sale,
exchange or retirement of a Note, a United States Holder will generally
recognize capital gain or loss equal to the difference between the amount
realized (not including any amounts attributable to accrued and unpaid interest)
and the Holder's tax basis in the Note. Long-term capital gain of a non-
corporate United States Holder is generally subject to a maximum tax rate of 28%
in respect of property held for more than one year and to a maximum rate of 20%
in respect of property held for more than 18 months.
Backup Withholding and Information Reporting
Payments of Principal and Interest. In general, information reporting
requirements will apply to payments of principal and interest on a Note within
the United States (including payments made by wire transfer from outside the
United States to an account maintained by the holder with a fiscal or paying
agent in the United States) to non-corporate holders, and "backup withholding"
at a rate of 31% will apply to such payments if the holder fails to provide an
accurate taxpayer identification number or is notified by the Internal Revenue
Service that it has failed to report all interest and dividends required to be
shown on its federal income tax returns.
Proceeds from the Sale of a Note. Payment of the proceeds from the sale of a
Note to or through the United States office of a broker may be subject to
information reporting and backup withholding. Payment of the proceeds from the
sale of a Note made to or through a foreign office of a broker generally will
not be subject to information reporting or backup withholding. If, however, the
broker is a United States person, a controlled foreign corporation for United
States tax purposes or a foreign person 50% or more of whose gross income is
effectively connected with a United States trade or business for a specified
three-year period, information reporting (but not backup withholding) may apply
to such payments.
JAPANESE FOREIGN EXCHANGE CONTROLS
The Foreign Exchange and Foreign Trade Control Law of Japan and the cabinet
orders and ministerial ordinances thereunder (the "Foreign Exchange
Regulations") and the amendments thereto which will be applicable from April 1,
1998 govern certain aspects relating to the issue of the Notes by the Company.
The Company has obtained a designation, dated January 26, 1998, by the Minister
of Finance of Japan declaring that the issue and offering by the Company of any
securities outside Japan will be exempted from prior notification requirements
under the Foreign Exchange Regulations currently in effect. Accordingly, the
Company can issue and offer the Notes outside Japan as contemplated herein.
Under the Foreign Exchange Regulations as currently in effect and the amendments
referred to above, payment of principal of (premium, if any) and interest on the
Notes, and any additional amounts payable pursuant to the terms of the Notes,
may be made without any restriction.
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<PAGE> 36
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each of
such Underwriters, for whom Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner
& Smith Incorporated and J.P. Morgan Securities Inc. are acting as
representatives, has severally agreed to purchase, the principal amount of the
Notes set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
UNDERWRITER OF NOTES
-------------------------------------------------------------------- --------------
<S> <C>
Goldman, Sachs & Co................................................. $ 470,000,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated........................................... 470,000,000
J.P. Morgan Securities Inc.......................................... 470,000,000
ABN AMRO Bank N.V................................................... 30,000,000
Midland Bank plc.................................................... 30,000,000
UBS Limited......................................................... 30,000,000
--------------
Total.................................................. $1,500,000,000
==============
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the Underwriters
are committed to take and pay for all of the Notes, if any are taken.
The Underwriters propose to offer the Notes in part directly to the public at
the initial public offering price set forth on the cover page of this Prospectus
and in part to certain securities dealers at such prices less a concession of
.2% of the principal amount of the Notes. The Underwriters may allow, and such
dealers may reallow, a concession not to exceed .1% of the principal amount of
the Notes to certain brokers and dealers. After the Notes are released for sale
to the public, the offering price and other selling terms may from time to time
be varied by the representatives.
The Notes are a new issue of securities with no established trading market. The
Company has been advised by the representatives of the Underwriters that the
representatives intend to make a market in the Notes but are not obligated to do
so and may discontinue market making at any time without notice. No assurance
can be given as to the liquidity of the trading market for the Notes.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
In connection with the offering, the Underwriters may purchase and sell the
Notes in the open market. These transactions may include over-allotment and
stabilizing transactions and purchases to cover syndicate short positions
created in connection with the offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the Notes; and syndicate short positions involve the sale
by the Underwriters of a greater number of Notes than they are required to
purchase from the Company in the offering. The Underwriters also may impose a
penalty bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the securities sold in the offering for their
account may be reclaimed by the syndicate if such Notes are repurchased by the
syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Notes, which may
be higher than the price that might otherwise prevail in the open market; and
these activities, if commenced, may be discontinued at any time. These
transactions may be effected on the London Stock Exchange, in the
over-the-counter market or otherwise.
Certain of the Underwriters have from time to time performed various investment
banking services for the Company and its subsidiaries, for which customary
compensation has been received.
The Notes are being offered for sale in those jurisdictions in the United
States, Europe and Asia other than Japan where it is legal to make such offers.
The Notes have not been and will not be registered under the Securities and
Exchange Law of Japan and each Underwriter has represented and agreed that it
has not offered or sold, and it will not offer or sell, directly or indirectly,
any of the Notes in or to or for the benefit of any resident of Japan or to any
persons for reoffering or resale, directly or indirectly, in Japan or to or for
the benefit of any resident of Japan except pursuant to an exemption from the
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<PAGE> 37
registration requirements of the Securities and Exchange Law available
thereunder and in compliance with the other relevant laws and regulations of
Japan.
Each Underwriter has represented and agreed that (1) it has not offered or sold
and will not offer or sell any Notes to persons in the United Kingdom prior to
admission of the Notes to listing in accordance with Part IV of the FSA except
to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which have not resulted and will
not result in an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations 1995 or the FSA, (2) it has complied
and will comply with all applicable provisions of the FSA with respect to
anything done by it in relation to the Notes in, from or otherwise involving the
United Kingdom and (3) it has only issued or passed on and will only issue or
pass on in the United Kingdom any document received by it in connection with the
issue of the Notes, other than any document which consists of or any part of
listing particulars, supplementary listing particulars or any other document
required or permitted to be published by the listing rules under Part IV of the
FSA, to a person who is of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 (as
amended) or is a person to whom such document may otherwise lawfully be issued
or passed on.
Neither the Company nor any of the Underwriters represents that the Notes may at
any time be lawfully sold in compliance with any applicable registration or
other requirements in any jurisdiction, or pursuant to an exemption available
thereunder, or assumes any responsibility for facilitating such sales.
RATINGS
The Notes have received a rating of "Aa3" from Moody's Investors Service Inc.
and "A" from Standard & Poor's Corporation. The ratings reflect the timely
payment of principal of and interest on the Notes. The ratings do not address
the payment of Additional Amounts. The credit ratings accorded the Notes are not
a recommendation to purchase, hold or sell the Notes inasmuch as such ratings do
not comment as to market price or suitability for a particular investor. There
can be no assurance that the ratings will remain in effect for any given period
or that the ratings will not be revised by the rating agencies in the future if
in their judgment circumstances so warrant.
EXPERTS
The financial statements and financial statement schedule of Sony as of March
31, 1997 and 1996 and for each of the three years in the three year period ended
March 31, 1997, included in the 1997 20-F and incorporated by reference in this
Prospectus, have been audited by Price Waterhouse, independent accountants, as
indicated in their report with respect thereto, and have been so incorporated in
reliance upon such report, given on the authority of said firm as experts in
auditing and accounting.
VALIDITY OF NOTES
The validity of the Notes will be passed upon by Tsunematsu Yanase & Sekine,
Japanese counsel for the Company, and Sullivan & Cromwell, United States counsel
for the Company, and by Davis Polk & Wardwell, United States counsel for the
Underwriters. Tsunematsu Yanase & Sekine will rely on Sullivan & Cromwell with
respect to all matters of New York law, and Sullivan & Cromwell and Davis Polk &
Wardwell will rely on Tsunematsu Yanase & Sekine with respect to all matters of
Japanese law. All statements in the Prospectus with respect to or involving
matters of Japanese law have been passed upon by Tsunematsu Yanase & Sekine, and
are stated herein on their authority. Statements as to United States taxation in
this Prospectus under the caption "United States Taxation" have been passed upon
by Sullivan & Cromwell and are stated herein on their authority.
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<PAGE> 38
GENERAL INFORMATION
1. The listing of the Notes on the London Stock Exchange will be in U.S.
dollars expressed as a percentage of their principal amount. Transactions
will normally be effected for settlement in U.S. dollars and for delivery on
the fifth working day after the date of the transaction. It is expected that
listing on the London Stock Exchange will be granted for the Notes on March
5, 1998, subject only to the issue of the Global Note. Prior to the official
listing, however, dealings in the Notes will be permitted by the London
Stock Exchange in accordance with its rules.
2. The Notes have been accepted for clearance through Euroclear and Cedel Bank.
The common code for the Notes is 8486492.
3. The Company has obtained all necessary consents, approvals and
authorizations in connection with the issue and performance of the Notes.
The issue of the Notes was authorized by a resolution of the Board of
Directors of the Company passed on January 29, 1998.
4. Except as disclosed herein, there has been no significant change in the
financial or trading position, nor any material adverse change in the
financial position or prospects, of the Company or the Company and its
subsidiaries, taken as a whole, since March 31, 1997, being the date of the
latest published audited consolidated financial statements of Sony.
5. Copies of the latest annual report containing audited annual consolidated
financial statements in English and of the unaudited quarterly consolidated
financial statements in English of Sony may be obtained, and copy of the
Indenture will be available for inspection, at the specified office of the
Trustee during normal business hours, so long as any of the Notes is
outstanding.
6. Neither the Company nor any of its subsidiaries is involved in any legal or
arbitration proceedings which may have or have had during the 12 months
preceding the date of this document, a significant effect on the financial
position of the Company or the Company and its subsidiaries, taken as a
whole, nor, as far as the Company is aware, are any such proceedings pending
or threatened.
7. The reports by Price Waterhouse, Certified Public Accountants (who have been
independent auditors of the Company for the three financial years ended
March 31, 1997) were not qualified.
8. Copies of the following documents may be inspected on any weekday (Saturdays
and public holidays excepted) during usual business hours at the offices of
The Chase Manhattan Bank, Trinity Tower, 9 Thomas More Street, London E1
9YT, for a period of 14 days from the date of this Prospectus: (a) the
Articles of Incorporation and the Regulations of the Board of Directors of
the Company (together with English transactions); (b) the audited
consolidated financial statements of Sony including the auditor's report
appertaining thereto for the two financial years ended March 31, 1997; (c)
the Underwriting Agreement; (d) the Indenture (including the form of the
Global Note); and (e) the legal opinion of Tsunematsu Yanase & Sekine.
9. Tsunematsu Yanase & Sekine, Sullivan & Cromwell and Price Waterhouse have
given and have not withdrawn their consent to the inclusion herein of
statements and opinions attributed to them in the form and context in which
they appear and have authorized the contents of that part of the Listing
Particulars for the purpose of Section 152(1) of the FSA .
10. The Company may at any time purchase Notes in the open market or otherwise
at any price. Any purchase by tender shall be made available to all Holders
alike.
11. Under New York law claims arising from non-payment of principal of and
interest on the Notes will be barred after six years from the relevant due
date for payment in respect thereof, which, in respect of the principal, is
March 4, 2003.
12. The paying agent in the United Kingdom is The Chase Manhattan Bank, Trinity
Tower, 9 Thomas More Street, London E1 9YT.
13. As long as the Notes are listed on the London Stock Exchange, the Company
will maintain a paying agent having a specified office in London.
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<PAGE> 39
REGISTERED HEAD OFFICE OF THE COMPANY
7-35, Kitashinagawa 6-chome
Shinagawa-ku, Tokyo 141-0001
Japan
INDEPENDENT ACCOUNTANTS TO THE COMPANY
Price Waterhouse
Yebisu Garden Place Tower
20-3, Ebisu 4-chome
Shibuya-ku, Tokyo 150-6013
Japan
TRUSTEE FOR THE HOLDERS
The Chase Manhattan Bank
450 West 33rd Street, 15th Floor
New York, NY 10001-2697
PRINCIPAL PAYING AGENT
The Chase Manhattan Bank
450 West 33rd Street, 15th Floor
New York, NY 10001-2697
LEGAL ADVISORS
To the Company
<TABLE>
<S> <C>
as to Japanese law: as to U.S. law:
Tsunematsu Yanase & Sekine Sullivan & Cromwell
Sumitomo Sarugakucho Building Tokio Kaijo Building Shinkan
8-8, Sarugakucho 2-chome 2-1, Marunouchi 1-chome
Chiyoda-ku, Tokyo 101-0064 Chiyoda-ku, Tokyo 100-0005
Japan Japan
</TABLE>
To the Underwriters
Davis Polk & Wardwell
Akasaka Twin Tower East
17-22, Akasaka 2-chome
Minato-ku, Tokyo 107-0052
Japan
LISTING AGENT
J.P. Morgan Securities Ltd.
60 Victoria Embankment
London EC4Y OJP
<PAGE> 40
SONY LOGO
