year ended march 31, 1999...1 page sony corporation annual report 1999 to our shareholders the...

SonyCorporation

Annual Report 1999Year Ended March 31, 1999

AnnualReport1999

F i n a n c i a l H i g h l i g h t sSony Corporation and Consolidated SubsidiariesYear ended March 31

T A B L E O F C O N T E N T S

To Our Shareholders 1Business Overview 6

Topics 8Review of Operations

Electronics 12Game 18Music 20

Pictures 22Insurance 24

Environmental Activities at Sony 26Management 28

29 Management’s Discussion and Analysis ofFinancial Condition and Results of Operations

43 Quarterly Financial and Stock Information44 Five-Year Summary of Selected Financial Data45 Composition of Sales and Operating Revenue

by Business and Geographic Segment46 Consolidated Balance Sheets48 Consolidated Statements of Income49 Consolidated Statements of Cash Flows50 Consolidated Statements of Changes in

Stockholders’ Equity52 Notes to Consolidated Financial Statements76 Reports of Independent Accountants78 Investor Information

Cautionary Statements With Respect to Forward-Looking StatementsStatements made in this annual report with respect to Sony’s current plans, estimates, strategies and beliefs and other statements that are nothistorical facts are forward-looking statements about the future performance of Sony. These statements are based on management’s assumptionsand beliefs in light of the information currently available to it and therefore you should not place undue reliance on them. Sony cautions you thata number of important factors could cause actual results to differ materially from those discussed in the forward-looking statements. Suchfactors include, but are not limited to (i) general economic conditions in Sony’s markets, particularly levels of consumer spending; (ii) exchangerates, particularly between the yen and the U.S. dollar, and other currencies in which Sony makes significant sales or in which Sony’s assets andliabilities are denominated; and (iii) Sony’s ability to continue to design and develop and win acceptance of its products and services, which areoffered in highly competitive markets characterized by continual new product introductions, rapid developments in technology (particularly inthe Electronics business), and subjective and changing consumer preferences (particularly in the Game, Music and Pictures businesses).

S o n y C o r p o r a t i o n A n n u a l R e p o r t 1 9 9 9

Dollars inYen in millions thousands except

except per share amounts per share amounts

OPERATING RESULTS 1998 1999 1999/1998 1999

FOR THE YEARSales and operating revenue . . . . . . . . . ¥6,755,490 ¥6,794,619 +0.6% $56,621,825Operating income . . . . . . . . . . . . . . . . 520,210 338,649 –34.9 2,822,075Income before income taxes . . . . . . . . . 453,749 368,128 –18.9 3,067,733Net income . . . . . . . . . . . . . . . . . . . . . 222,068 179,004 –19.4 1,491,700

Per share data:Net income–Basic . . . . . . . . . . . . . . ¥ 557.7 ¥ 436.9 –21.7% $ 3.64

–Diluted . . . . . . . . . . . . 483.4 391.0 –19.1 3.26Cash dividends . . . . . . . . . . . . . . . . 60.0 50.0 0.42

AT YEAR-ENDStockholders’ equity . . . . . . . . . . . . . . . ¥1,815,555 ¥1,823,665 +0.4% $15,197,208Total assets . . . . . . . . . . . . . . . . . . . . 6,403,043 6,299,053 –1.6 52,492,108

Number of employees . . . . . . . . . . . . . . 173,000 177,000Notes: 1. U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥120=U.S.$1, the approximate Tokyo foreign

exchange market rate as of March 31, 1999.2. As of March 31, 1999, Sony had 1,041 consolidated subsidiaries. It has applied the equity accounting method in respect to its 65 affiliated

companies.3. Cash dividends per share for the year ended March 31, 1999 include a year-end dividend of ¥25 ($0.21), which is subject to approval of the

ordinary general meeting of stockholders to be held on June 29, 1999.4. Income before income taxes and net income figures for the fiscal year ended March 31, 1999 include gains of ¥58.7 billion ($489 million)

and ¥30.7 billion ($256 million), respectively, which resulted from a contribution of securities to an outside trust for employee retirementbenefit purposes.

Percent change

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T o O u r S h a r e h o l d e r s

The fiscal year ended March 31, 1999 was not only a very challenging one but also a very

important one in which Sony began a reorganization focused on the future.

During the year under review, although Sony’s consolidated sales and operating revenuerose 0.6% to ¥6,794.6 billion ($56,622 million), operating income fell 34.9% to ¥338.6

billion ($2,822 million) compared with the previous year. Sony expects the difficult oper-

ating environment to continue for at least part of its current fiscal year which started inApril 1999.

In this environment, Sony took significant steps toward growth and reorganization. In

March 1999, Sony Computer Entertainment (SCE) announced the basic design of the nextgeneration PlayStation. In the same month, Sony also announced a wide-ranging corporate

reorganization and reinforcement of group management capabilities, including the reorga-

nizing and strengthening of our Electronics business as well as the privatization of threeSony Group subsidiaries.

These announcements appear to have been received favorably by investors. We recog-

nize that shareholders have considerable expectations of our management strategies, andwe are committed to the steady implementation of these strategies.

R E A L I G N I N G A N D S T R E N G T H E N I N G T H E E L E C T R O N I C S B U S I N E S S

As part of the new group framework, Sony reorganized the internal company structure of

the Electronics business in April 1999. The existing Electronics business was consolidated

into three main business units: the Home Network Company, the Personal IT Network Com-pany, and the Core Technology & Network Company. Separately, SCE, which is responsible

for the PlayStation business, was designated as another main business unit related to the

Electronics business.Research and support functions have been transferred from the group headquarters to

the three Network Companies. In addition, to encourage autonomy and independence, we

have transferred management authority to these Companies. Also, as appropriate, the Net-work Companies may independently or jointly create new ventures. With these steps, Sony

aims to flexibly take advantage of new business opportunities in today’s rapidly changing

digital network era.

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Furthermore, Sony operates Digital Network Solutions (DNS) directly under the group

headquarters in order to focus on building new network-related businesses. By developing

essential technologies and charting business strategies, DNS will strive to create networkbusiness platforms that directly link Sony with its customers. DNS aims to support the

building of network services for the distribution of not only digital content, such as music

and movies, but also insurance and financial services.Finally, to enhance the profitability of the Electronics business, we have continued to

review our cost structure. We will set concrete goals and make aggressive efforts to improve

our supply chain, reorganize our manufacturing infrastructure, and maintain proper em-ployment levels. With regard to manufacturing, we plan to consolidate our current 70 manufacturing

facilities into approximately 55 by the end of March 2003. With regard to human resources,

we intend to reduce the total group headcount by approximately 10% by the end of March2003, including normal attrition.

P R I V A T I Z I N G T H R E E S O N Y G R O U P S U B S I D I A R I E S

Sony Corporation has agreed with Sony Music Entertainment (Japan) Inc., Sony Chemicals

Corporation, and Sony Precision Technology Inc. to make each of these Sony Group compa-

nies a 100% owned subsidiary of Sony Corporation, with January 1, 2000 as a target date.Sony believes this action will enable it to deepen cooperation among its businesses, maxi-

mize the merits of working together, and implement group-wide strategies more quickly.

We plan to carry out these transactions through a share exchange mechanism that willbe permitted if certain proposed amendments to the Commercial Code, which are to be

considered during the 1999 ordinary session of the Japanese Diet, are adopted. If these

amendments are not adopted, we plan to privatize the three companies under existing law.We estimate that the integration of these companies will result in the issuance of approxi-

mately 33 million new shares of Sony Corporation common stock. Whichever method is

used, it will be necessary for the appropriate shareholder resolutions to be adopted both bySony Corporation and by each subsidiary.

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Norio Ohga Nobuyuki IdeiChairman and President andChief Executive Officer Co-Chief Executive Officer

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A I M I N G T O C R E A T E G R E A T E R S H A R E H O L D E R V A L U E

Our corporate reorganization aims to maximize shareholder value. To meet this goal, we are

working to increase the profitability of the Electronics business, our largest unit, and toreorganize our group companies and internal divisions for quicker decision-making and

execution in a rapidly changing environment. Furthermore, we have decided to review the

functioning of our group headquarters in order to clarify its role as an “active investor”that puts shareholder value above all else.

This reorganization also clarifies the Board’s role as a supervisor in order to improve its

monitoring ability. In addition, we included the top managers of each business unit inheadquarters’ Management Committee in order to promote closer mutual ties among busi-

ness units. With this reorganization, we are moving to separate the functions of the Board,

which serves to make decisions and supervise, and the Management Committee, which carriesout day-to-day management. In this way, we intend to facilitate quick decision-making

while maintaining steady corporate governance.

In addition, we will divide the function of Sony Corporation’s headquarters into twodistinct functions: a new group headquarters and business unit support services. We intend

to keep the size of our group headquarters to a minimum and to establish a structure that

can reorganize business units and reallocate management resources speedily and dynami-cally. Business unit support functions will be clarified, with certain functions being trans-

ferred to the business units or made autonomous. As for research and development functions,

projects that need to be commercialized quickly will be transferred to the appropriate businessunit. Research areas that involve long-term projects or business domains best supervised

by the group headquarters will remain at the corporate level.

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To form a basis for pursuing Value Creation Management (VCM), we also intend to intro-

duce in the fiscal year ending March 2000 a new system for evaluating performance that

better reflects our cost of capital. This system is based on the concept of economic profit,

which is obtained by deducting the cost of equity and debt from after-tax operating in-

come. Going forward, our group headquarters will establish goals for the creation of share-

holder value in all business units and ask each unit to design and implement strategies

accordingly. The group headquarters also intends to link compensation to these goals. As

these initiatives demonstrate, we intend to take a variety of specific actions based on

group management’s goal of creating shareholder value.

“ d o y o u d re a m i n S o n y ? ”As we have outlined above, Sony has embarked on a broad-based corporate realignment to

fulfill our mission of creating shareholder value. One aspect of Sony that has defined the

company since its inception, however, will remain unchanged. We will continue to provide

shareholders, customers , employees, business partners , and others who come into contact

with Sony with the opportunities to create and fulfill their dreams. With the “do you d ream

in Sony?” concept, which expresses the unifying theme of the Sony Group, we can offer a

place where talented engineers, artists, and other creative individuals will fully realize

their potential. And also with this concept, we can work to create new markets and offer

new lifestyles.

April 28, 1999

Norio Ohga Nobuyuki IdeiChairman and Chief Executive Officer President and Co-Chief Executive Officer

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Electronics business consists of Audio, Video, Televisions, Infor-mation and communications, and Electronic components and other.

Audio—Audio encompasses MD systems, CD players, headphonestereos, personal component stereos, hi-fi components, radio-

cassette tape recorders, tape recorders, IC recorders, radios, headphones,

car audio, professional-use audio equipment, audiotapes, andrecordable MDs.

Video—Video comprises 8mm/Digital8, DV- and VHS-format

VTRs, DVD-Video players, digital still cameras, broadcast- and

professional-use video equipment, and videotapes.

Televisions—Televisions includes color TVs, projection TVs, flatdisplay panels, personal LCD monitors, car TVs, and professional-

use monitors/projectors.

Information and communications—Information and communi-cations consists of computer displays, personal computers, com-

puter peripherals, satellite broadcasting reception systems, cellular

phones, telephones, car navigation systems, and video printers.

Electronic components and other—Electronic components andother consists of semiconductors, LCDs, electronic components,

CRTs, optical pickups, batteries, and FA systems.

E L E C T R O N I C S

Sales to Customers*(Billion ¥)

95 96 97 98 99

3,027 3,283 3,930 4,377 4,355

G A M E


Game consoles and software business is conducted mainly through

Sony Computer Entertainment.

95 96 97 98 99

35 201 408 700 760

B u s i n e s s O v e r v i e w

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Music business is conducted through Sony Music EntertainmentInc. (SMEI) and Sony Music Entertainment (Japan) Inc. (SMEJ).

SMEI encompasses Columbia Records Group; Epic Records Group; REDDistribution; Relativity Entertainment Group; Sony/ATV Music Pub-lishing; Sony Classical; Sony Discos; Sony Disc Manufacturing; Sony MusicDistribution; Sony Music International; Sony Music Nashville; and SonyMusic Studios.

SMEJ encompasses Sony Records; SME Records; Epic Records; Ki/on Records,and SMEJ International.

M U S I C


P I C T U R E S


95 96 97 98 99

282 317 439 643 540

I N S U R A N C E

Revenue from Customers*(Billion ¥)

95 96 97 98 99

113 207 228 291 339

O T H E R


95 96 97 98 99

52 78 88 84 81

95 96 97 98 99

481 506 570 660 719

Other business includes leasing and credit card businesses, satellite

distribution services, internet-related businesses, and other businesses.

Insurance business is conducted mainly through Sony Life InsuranceCo., Ltd.

Motion picture and television business is conducted mainly through

Sony Pictures Entertainment (SPE).

SPE includes the Columbia TriStar Motion Picture Group (Columbia Pictures,Screen Gems, Sony Pictures Classics, Sony Pictures Releasing, ColumbiaTriStar Film Distributors International); the Columbia TriStar TelevisionGroup (Columbia TriStar Television, Columbia TriStar Television Distri-bution, Columbia TriStar International Television, Game Show Network);Columbia TriStar Home Video; the Digital Studios Division; and SonyPictures Studios and The Culver Studios.

*Year ended March 31

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The latest additions toSony’s car audio systemlineup, this stereopower amplifier andspeaker set producesuperb sound quality.

This new IC recorder withan ultra-thin chassis canrecord continuously for upto 150 minutes. When the

separately sold dedi-cated PC connectionkit is used, vastamounts of audiodata can be trans-ferred to a PC.

In addition to a 5-disc MD changer and 5-disc CD changer, this MDpersonal component stereo system features the Direct Touch Editorfunction, making recording from CD to MD simple.

A new DVD-Video player designed with anemphasis on high quality and reliability.

A new digital still camera with Sony’sown 2.11 million-pixel CCD and aCarl Zeiss lens. Not only can high-resolution still images bestored on the MemoryStick IC recording me-dium, but the MPEGMovie function also al-lows recording of movingvideo images and sounds.

A broadcast- and professional-use Betacam SX VTRintroduced in the fall of 1998.

The first Super Audio CD player is scheduled to be launched in Japanin May 1999. The Super Audio CD is a next generation audio formatwhich achieves the ultimate in faithful sound reproduction.

This MD Walkman (above)with recording/editing capa-bility is small enough to fitin a shirt pocket. This play-back-only model (below) hasa backlit stick-type control-ler, enabling easy operationin a dark environment. It alsomeasures no larger than thejacket of an MD.

T o p i c s

E L E C T R O N I C S

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This model integrates both DV digital and S-VHS video formats in asingle deck. An i.LINK-compatible DV terminal on it allows for easyconnection to digital camcorders or PCs that are i.LINK-ready.

This LCD projection TV can reproduce sharplydefined, clear images by incorporating Sony’s ownDigital Reality Creation, a high quality imagecreation digital technology, in addition to a high-resolution LCD and a newly designed lens.

This portable CD-Rdrive, a mere 15mm inthickness and weighingonly 195 grams, iscapable of quad speed(4x) max recording.

Prototypes of the GMR(giant magneto resis-tive) head for harddisk drives developedby Sony.

This new computer display, employing an18.1-inch TFT LCD panel, was introducedin April 1999. Sony’s original image-processing technology produces highquality images.

This magneto-optical (MO) disk is designed forthe GIGAMO 3.5-inch MO disk system, newlydeveloped by Sony and Fujitsu Limited. Thismedium can store up to 1.3GB of data, which istwice as much as conventional MOs.

Sporting a built-in CCDvideo camera, Sony’scompact-size VAIOnotebook PC enablesrecording of both stilland moving video im-ages. Captured imagescan easily be sentthrough e-mail.

Sony’s cdmaOneTM digital cellularphone, offered in Japan, has beenpraised for its excellent soundquality.

This digital satellitebroadcast receptionsystem, for Japan’s SKYPerfecTV!, to be launchedby Sony in May 1999 iscapable of handling newinteractive broadcastingservices as well as con-ventional digital satellitebroadcasts.

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A photographic image of the Graphics Syn-thesizer for the next generation PlayStationdeveloped by Sony Computer Entertainment(SCE). This processor incorporates a massivelyparallel rendering engine.

An image from a demonstration programcreated by SCE for the next generationPlayStation. This demonstration program isbased on data from Gran Turismo, SCE’ssuper-hit game title for PlayStation.

Celine Dion sold over 60 million albums duringa single 30-month period.

Charlotte Church isthe youngest artistever to reach the #1classical spot in theUnited Kingdom.

An image from Um Jammer Lammy, a popular gametitle introduced by SCE in the fiscal year underreview.

Debuted in July 1998, Ami Suzuki’s firstalbum SA posted strong sales in Japan.

Dixie Chicks’ Wide Open Spaces sold morealbums than all other U.S. country groupscombined in 1998, and is the biggest sell-ing debut album ever by a country group.

Ricky Martin’s “La Copa de la Vida,” theofficial song of the World Cup France ’98,was a #1 single in more than 30 countries.

G A M E

M U S I C

Will Smith has become one of the leadingmusic, television, and film stars in theworld.

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Godzilla ranked among the ten most popular movies at the U.S.box office in the 1998 calendar year.

The touching family drama Stepmom rounded out Sony PicturesEntertainment’s top hits in 1998, demonstrating the box officedraw of leading actresses Julia Roberts and Susan Sarandon.

Wheel of Fortune has been thehighest-rated game show in theUnited States for the past 13years and has been renewedthrough the 2003/4 televisionseason.

The family drama Party of Five is now in its fifth season inprime time and debuted in syndication in the fall of 1998.

Dawson’s Creek, a coming of age drama that pre-miered in 1997, continues to attract its targetaudience—teens.

P I C T U R E S

Now in its 26th year, TheYoung & the Restless is thehighest-rated soap operaon all U.S. networks andearned 21 Emmy® nomina-tions in 1998, more thanany other single program.

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In the field of electronics, digitization has improved dramatically both the performanceand functions of products while at the same time promoting their networking capability.

Furthermore, in addition to altering the very nature of products, digitization and the spread

of networks are also transforming the entire spectrum of business processes, from develop-ment and production to marketing.

A N E W S Y S T E M A I M E D A T R E A L I G N I N G T H E E L E C T R O N I C S B U S I N E S S

In order to respond quickly in this environment, in April 1999, Sony reorganized its Elec-

tronics business into a structure that is centered on three Network Companies: the Home

Network Company, the Personal IT Network Company, and the Core Technology & NetworkCompany. This reorganization aims to make decisions faster by delegating increased authority

to these Network Companies while at the same time adding more value to products and

enhancing the efficiency of the production system. Each of these Network Companies isclosely focused on fostering growth in new businesses, while concurrently reviewing exist-

R E V I E W O F O P E R AT I O N S

E l e c t r o n i c s

S H I Z U O T A K A S H I N OPresident &Chief Operating OfficerHome Network Company

ing activities with the aim of reallocating resources to businesses with the

highest potential.

The Home Network Company (HNC) includes color TVs, video decks,audio products, and related businesses. HNC strives to develop hardware

such as digital TVs (DTVs) and high capacity optical disk recorders as well

as support technologies for such products. HNC also endeavors to developproducts that take maximum advantage of Sony’s technological strengths

which can facilitate the creation of home networks. Accordingly, HNC is

moving to offer new ways to enjoy home audiovisual (AV) products byconnecting what until now have been stand-alone TVs, video decks, and

audio devices to a DTV-centered network.

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This digital theater system, con-sisting of a Wega color TV withflat-surface CRT, a DVD-Videoplayer, an AV center amplifier, anactive super woofer, and a speakersystem, enables customers toenjoy easily in their own homesa theater-like listening and view-ing experience that inspires thefeeling of actually being there.The simulated picture shows as c e n e f r o m S o n y P i c t u r e sEntertainment ’s hit f i lm TheMask of Zorro.

The Personal IT Network Company (PNC) encompasses telecommunica-tions products, home-use PCs, digital imaging devices, and related busi-

nesses. Besides strengthening existing products such as Digital Handycam

home-use camcorders and VAIO home-use PCs, PNC aims to create totallynew forms of enjoyment in the network-centric era by merging AV tech-

nologies first with computers and then with telecommunications and net-

work technologies.The Core Technology & Network Company (CNC) comprises semicon-

ductors, storage media, batteries, electronic components, circuit boards,

factory automation (FA) systems, and related businesses. CNC aggressivelyworks to supply both within Sony and to customers the key devices of the

digital era that are expected to be in increasing demand, such as optical

pickups, lithium-ion batteries, LCDs, and system LSIs for digital AV prod-ucts. CNC will focus more on maximizing profits as an independent unit

and will work toward contributing to improving the Sony Group’s share-

holder value through such activities as supplying the key devices criticalto next generation digital AV products.

In the field of broadcast-use video equipment, through its Broadcast-

ing & Professional Systems Company, Sony is working to satisfy the needsof broadcasters. During the year, Sony added new models in the Betacam

SX series, which conforms to the industry-standard MPEG2 digital video

compression technology. By enhancing its complete lineup of systems fromshooting to editing and transmitting, Sony has won praise as the leader in

the field of broadcast-use video equipment. Sony’s products and services

have been well-received by broadcasters; for example, at the April 1999

K U N I T A K E A N D OPresident &Chief Operating OfficerPersonal IT NetworkCompany

S U E H I R O N A K A M U R APresident &Chief Operating OfficerCore Technology &Network Company

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National Association of Broadcasters (NAB) Show in Las Vegas, Sony won significant ordersfrom major U.S. TV network CBS, Italian national broadcaster RAI, and Canadian national

public broadcaster CBC. Separately, in the field of professional-use video equipment, Sony is

promoting a broad range of new businesses by leveraging its image compression technologyand other expertise that have earned a reputation for excellence in the field of broadcast-

use video equipment.

To create new network-related businesses, Sony also operates Digital Network Solutions(DNS), a business unit under the direct supervision of the group headquarters. DNS devel-

ops platforms for network-related businesses that are closely tailored to the needs of cus-

tomers. DNS intends to support the building of network services for the distribution of notonly digital content, such as music and movies, but also insurance and financial services.

Sony Communication Network Corporation (SCN), which is under the supervision of DNS,

operates So-net, an internet service. So-net has quickly grown into one of Japan’s largestinternet service providers since starting operations in January 1996. As of March 1999,

So-net had more than 500,000 registered subscribers. Future plans at SCN call for more

network services to fuel further growth in the user base. In this way, SCN will continueworking toward establishing its site as an attractive internet portal.

P R O D U C T S F O R T H E D I G I T A L N E T W O R K E R A

During the year, products including Digital Handycam home-use camcorders, MiniDisc (MD)

systems, VAIO home-use PCs, and Wega color TVs performed well. These products have such

features as quality images and sound as well as easy operation and sophisticated designs.In addition, Sony has been quick to incorporate network era technologies and functions.

Through the new Network Company structure, Sony aims to enhance the competitiveness of

its products and to offer entirely new forms of enjoyment by combining digital and net-work technologies.

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In home-use camcorders, Sony had considerable success by continuing to develop modelsthat are smaller, lighter, and have better picture quality as well as extended operating

times, a feature highlighted by the global product theme “stamina.” A new addition to the

Digital Handycam series made its global debut in the spring of 1999. Features include upto nine hours of continuous recording along with a high-grade lens and other improve-

ments to enhance picture quality. And by incorporating a slot for the Sony-developed

Memory Stick IC recording medium, this new camcorder allows still images to be trans-ferred with ease to a PC or other device.

In MD systems, Sony continues to increase market demand for MD products by expand-

ing its lineup in all categories, including MD Walkman models, MD personal componentsystems, MD decks, and car MD systems. An MD deck that Sony will introduce in June 1999

can be used with a digital music distribution service that will start in Japan and be carried

through the SKY PerfecTV! digital satellite broadcasting service. When connected to a digi-tal satellite broadcast reception system via an i.LINK cable, the deck can digitally down-

load music.

Sony’s VAIO home-use PC, sold in Japan, the United States, and Europe, has won praisefrom consumers in all three regions. Besides offering unique new functions and designs,

Sony has created new ways to enjoy the VAIO series in combination with digital AV equip-

ment. During the year, Sony began selling in Japan and the United States compact-sizeVAIO notebook PC models with built-in miniature CCD video cameras. This opened the

door to a new market by making it easy to capture moving or still images and store them

in a computer. In Japan and the United States, Sony also introduced VAIO desktop PCmodels that have large LCD monitors and, true to the Sony tradition, compact yet highly

functional designs.

During the year, Sony introducedthese new VAIO desktop PC andDigital Handycam models. Both in-corporate built-in slots for thenewly developed Memory Stick ICrecording medium, allowing imagestaken with the digital camcorder tobe easily transferred to the PC forediting and processing.

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With the Wega series, Sony pioneered the market for color TVs with flat-surface cathoderay tubes (CRTs). Sony has continued to expand its lineup in the worldwide market. Supporting

their popularity is a broad product line, extending from standard 4:3 dimensions to wide-

screen models and from small to large screens. Some models feature Sony’s new DigitalReality Creation: Multi-Function (DRC-MF), a digital technology which creates high quality

images from standard TV signals by doubling the density of vertical and horizontal lines.

Another advantage of DRC-MF is the reduction of flickering in still text images.

P R O D U C T I O N A N D S U P P L Y S Y S T E M S F O R T H E D I G I T A L N E T W O R K E R A

Digitization and the spread of networks are drastically changing the production and supplysystems of electronics products. Sony is continuously striving to review its structure

with the aim of establishing optimum production and supply systems by improving its

supply chain, reorganizing its manufacturing infrastructure, and maintaining proper em-ployment levels.

Improving supply chain management systems means enhancing cost competitiveness

and supplying products quickly as demanded by the marketplace. To this end, Sony isreviewing all business processes, from product development, design, procurement, and

production through logistics and sales. In this way, Sony is striving to carry out a compre-

hensive reorganization through such steps as inventory reductions, compression of leadtimes from manufacturing to sale, and more rapid decision-making.

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Front line from the left■ High-resolution color CCD for digi-

tal still cameras (1/2-inch, 2.11million pixels)

■ Digital signal processing systemLSI for CD-ROM drives up to 48xspeed

■ Optical pickup for CD applications

Back line from the left■ Lithium-ion polymer battery■ Transparent color LCD (2.0-inch,

200,000 dots)

N E W M A R K E T I N G S Y S T E M S

Sony is taking many initiatives to create the new marketing methods needed to take ad-

vantage of the rapid proliferation of digital networks. In the United States, Sony sells

VAIO home-use PCs, peripherals, digital still cameras, and AV accessories through its SonyVAIO Direct and Sony Extras Direct internet web sites. In February 1999, the VAIO Direct

site began offering configure-to-order VAIO notebook PCs, allowing customers to specify a

particular CPU, memory, and hard disk drive capacity. In addition to customized services,this service offers delivery in a short period. From now on, after carefully selecting

products best suited to network-based distribution systems, Sony plans to establish new

marketing methods.

O F F E R I N G N E W F O R M S O F E N J O Y M E N T

In the digital network era, Sony is working to offer new forms of enjoyment for customersby using cutting-edge technologies that allow the creation of unique, high quality, and

easy-to-use products. At the same time, in order to maximize shareholder value, Sony is

striving to build new business models appropriate for the network-centric era.

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M E S S A G E F R O M T O P M A N A G E M E N T

Ever since the first PlayStation game console went on sale in December

1994, Sony Computer Entertainment (SCE) has made a concerted effort to

grow rapidly in Japan, North America, and Europe. As a result, PlayStationis now a widely popular game console in each of these regions.

In March 1999, SCE announced the basic design for its next generation

PlayStation game console, thus setting the stage for a new phase of progressin the field of entertainment. The goal is to establish an entirely new

paradigm of computer entertainment. The new console will do this by serv-

ing the market for video games that was created by the current PlayStation

K E N K U T A R A G IPresident andChief Executive OfficerSony Computer Entertainment Inc.

game console, while taking advantage of dramatic advances in graphics rendering capabilities.

For existing PlayStation game consoles, SCE plans to attract a wider spectrum of users bycontinuing to develop new genres of software. Our intention is to leverage the resulting

expansion in the PlayStation format to lift video games to the same level of entertainment

popularity as music and movies.

T H E P L A Y S T A T I O N F O R M A T C O N T I N U E S T O E X P A N D

During the year under review, SCE retained its focus on further boosting the popularity ofPlayStation game consoles, particularly outside Japan. To further stimulate demand, SCE

reduced game console prices in North America and Europe in the summer of 1998 and in

Japan in January 1999. In concert with these actions, SCE raised monthly productioncapacity of game consoles to 2.5 million units during the last three months of 1998 to

meet the global demand for this product.

By the end of March 1999, cumulative production shipments worldwide of PlayStationgame consoles reached 54.42 million units. Broken down by region, this figure was 15.26

million, 20.62 million, and 18.54 million in Japan, North America, and Europe, respec-

tively. During the year, substantial volume gains were recorded in North America and Europe,but in Japan, the increasing saturation of the market for the current generation PlayStation

caused game console sales volume to drop below the level of the previous fiscal year.


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PlayStation home-use game console

A W E A L T H O F C A P T I V A T I N G T I T L E S

A wide range of game software developers in Japan and other countries produced a steady

stream of hit titles in each region during the year. In Japan, Final Fantasy VIII from

SQUARE CO., LTD. was a huge success, selling more than three million units. Additionally,SCE’s XI [sái] and Crash Bandicoot 3: WARPED both surpassed one million units. In North

America and Europe, Tomb Raider III from the U.K.’s Eidos Interactive Limited was a big hit

during the year. SCE’s Gran Turismo, which was extremely popular in Japan, proved to bejust as successful in North America and Europe. Cumulative worldwide sales of this title

topped the six million unit mark.

T H E N E X T G E N E R A T I O N P L A Y S T A T I O N

The next generation PlayStation aims to open up a whole new world of expressiveness,

such as delicate facial expressions and the fluttering of clothing in the wind, all on areal-time basis. This will permit the rendering of subtle nuances such as the unique char-

acteristics and emotions of individual characters. Offering backward compatibility with

the current system, the next generation PlayStation will enable users to enjoy all 3,000PlayStation software titles that have been released thus far worldwide. SCE plans to launch

the new system in Japan prior to the end of the fiscal year ending March 31, 2000.

Two key semiconductors will be at the heart of the next generation PlayStation gameconsole: the Emotion Engine 128-bit CPU and a massively parallel rendering engine called

the Graphics Synthesizer. SCE plans to invest a total of ¥120 billion in production facili-

ties for these chips. To fabricate the Emotion Engine, SCE and Toshiba Corporation intendto form a new joint venture and to build new production lines at Toshiba’s facilities in

Oita, Japan. These lines will employ next generation 0.18-0.15 micron process technology.

Also, for the Graphics Synthesizer, SCE is founding a wholly owned subsidiary and is cur-rently constructing a plant at Sony Nagasaki Corporation, which will be equipped with

0.18 micron embedded process technology.

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M E S S A G E F R O M T O P M A N A G E M E N TSony Music Entertainment Inc. (SMEI), responsible for Sony’s Music businessoutside Japan, achieved a record year, reaching new heights financially, cre-atively, and competitively. We bettered the previous fiscal year’s results byexpanding our artist and business development efforts and anticipating mar-ketplace changes.

We are also effectively deploying our resources to meet the challenges of thedigital era. The advent of internet technologies presents us with new ways toextend the impact of our artists, while digital distribution will provide us withenhanced means of reaching consumers. As new lifestyles, businesses, and forms

T H O M A S D . M O T T O L AChairman andChief Executive OfficerSony Music Entertainment Inc.


M u s i c

of entertainment emerge, SMEI’s global resources, infrastructure, and talent position us to takeadvantage of these opportunities and play a key role in redefining the future of our business.

H I G H N O T E SSMEI increased its investment and involvement in artist development, successfully introducingon a world stage new million-selling artists from every major region around the world.

Albums by Mariah Carey, Celine Dion, and Lauryn Hill, and the Titanic soundtrack, each soldmore than eight million units, while releases from Ricky Martin, George Michael, Offspring,Savage Garden, Will Smith, and Dixie Chicks, and the Armageddon and Kuch Kuch Hota Haisoundtracks, each sold over five million units worldwide. More than 35 other releases soldbetween one and five million units.

A R T I S T A N D B U S I N E S S D E V E L O P M E N TDebut and developing artists selling over one million units during the year included B*Witched,Eagle-Eye Cherry, Charlotte Church, Des’ree, Dixie Chicks, Fatboy Slim, Ginuwine, Lauryn Hill,KoRn, Maxwell, Shawn Mullins, Offspring, and Savage Garden.

SMEI expanded and protected its participation in the digital domain as a founding memberof the Secure Digital Music Initiative, and furthered its internet capabilities through strategicalliances, investments, and acquisitions. SMEI realized worldwide agreements with leading mu-sic and family entertainment producers such as Emilio Estefan, Rodney Jerkins, Chiquititas, andSunbow Productions.

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Lauryn Hill and her solo debutalbum received more GrammyAward nominations (10) andawards (5) than any female artistin history.

I N T E R N A T I O N A L G R O W T HSMEI expanded its global network of label affiliations and increased overall sales, in spite ofweakness in Brazil, with global bestsellers and regional successes by CoCo Lee, Harlem Yu, andthe Kuch Kuch Hota Hai soundtrack (Asia); B*Witched, Monica Naranjo, Oasis, and the DreamDance 9, Kuschelrock 12, and Notre Dame de Paris projects (Europe); and Ricardo Arjona, ZeZe deCamargo y Luciano, Roberto Carlos, Chayanne, Elvis Crespo, Alejandro Fernandez, Julio Iglesias,Ricky Martin, and Shakira (Latin America).

C L A S S I C A L M O V E M E N T SSMEI benefited from multimillion unit sales of Sony Classical’s Titanic and Back To Titanicrecordings, and strong sales of Charlotte Church’s Voice of an Angel, Abba Pater, Christmas inVienna, and Yo-Yo Ma’s Simply Baroque albums. The label’s Shakespeare in Love soundtrack wonthe Academy Award for Best Original Musical or Comedy Score.

M U S I C P U B L I S H I N GSMEI’s joint venture Sony/ATV Music Publishing acquired the Buddy Kaye catalogue and signedpublishing agreements with Jack Blades, Rick ‘Dutch’ Cousins, Ray Davies, Lara Fabian, FarelJean, John Mellencamp, and Dante Ross. Administration agreements were reached for the AmericanRecordings and Kassner catalogues, and subpublishing agreements for the world outside NorthAmerica for the Foreign Imported Production & Publishing, Journey, and UB40 catalogues.

S O N Y M U S I C E N T E R T A I N M E N T ( J A P A N ) I N C . ( S M E J )SMEJ celebrated its 30th anniversary in 1998. During the year, sales in Japan were essentiallyflat and were negatively impacted by delays in new releases from major artists and weak sales forpreviously introduced titles. Operating results deteriorated significantly in Japan primarily be-cause of weak sales and increased advertising and promotion expenses.

During the year, SMEJ pursued structural reforms to reinforce its core music business. To thisend, SMEJ took actions to strengthen its local artist and repertoire development as well as toreorganize its sales and distribution operations. As part of these actions, SMEJ is concentratingon discovering and fostering promising new artists. For this purpose, SMEJ formed a series ofproduction organizations called “Producers Label,” mainly with talented record producers fromoutside SMEJ.

During the year, hits included releases by Ami Suzuki, L’Arc~en~Ciel, and the brilliant green.

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Looking at our performance during the year under review, we are confident

that we are on track to achieving our goal of becoming a consistent global

entertainment leader.In a period in which we celebrated the 75th anniversary of Columbia

Pictures, our flagship production company, both of our core businesses—

motion picture and television production—delivered solid earnings. Theresults show the stability and marketing-driven focus that were the year’s

primary objectives. Our reorganization of the Motion Picture group to increase

J O H N C A L L E YChairman andChief Executive OfficerSony Pictures Entertainment Inc.

production, efficiency, and strategic focus is designed to enable the delivery of a well-balanced film portfolio on a consistent, long-term basis. Additionally, our global expansion

into local language film production in Europe and Asia will further increase the diversity of

our annual film slate. Our Television group now produces programming on five continentsand continues to be the leading independent programming supplier in the United States.

At the same time, we made real progress in positioning Sony Pictures Entertainment

(SPE) for global leadership in the digital era. We established SPE as a state-of-the-artleader in digital production capabilities and are leveraging our content and technology to

create digital content for global distribution. We are now a recognized leader in releasing

recent and library films in the latest and increasingly popular digital video format, DVD.

S O L I D P E R F O R M A N C E I N M O T I O N P I C T U R E S A N D H O M E V I D E O

The Columbia Pictures Group delivered a number of hits including The Mask of Zorro, Stepmom,

and I Still Know What You Did Last Summer. To enhance our performance in the years ahead,

SPE formed a new brand—Screen Gems—to acquire and produce low budget, targeted films

to round out our annual slate, and also established a new “kids-oriented” family entertain-ment unit to create and acquire properties and characters we can market across all lines of

business. Columbia TriStar Home Video maintained steady profit levels in a challenging


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The romantic action adventuremovie The Mask of Zorro generatedsignificant box office receiptsworldwide and was a leader inhome video sales.

market, was the leader in providing titles in the sell-through market in categories otherthan “family entertainment,” and released over 170 current and library titles in DVD.

C O N T E N T L E A D E R S H I P A N D N E T W O R K E X P A N S I O N I N T E L E V I S I O N

During the year, Columbia TriStar Television continued to report consistently high earnings

with a total of 34 programs (including 17 network prime time series) on air in the United

States—more than any other independent supplier. Our game shows—Wheel of Fortune andJeopardy!—and soap operas—Days of Our Lives and The Young & the Restless—remain the

top-rated shows in their categories. The Nanny and Party of Five joined the long list of

other SPE hit series in syndication. SPE’s television business continued its commitment toglobal content creation and distribution by successfully launching new shows, including

King of Queens, Dilbert, and LA Doctors, and new branded international channels, expand-

ing our action channel AXN into Spain and Japan and starting up a Japanese animationchannel—ANIMAX. Together with certain partners, SPE also acquired Telemundo Group,

Inc., a network and station group focused on the Latino audience in the United States.

G L O B A L P R E S E N C E , G R O U N D W O R K F O R T H E D I G I T A L F U T U R E

SPE’s global content creation now includes local language film production in Germany,

Hong Kong, France, and the United Kingdom and television programming in eight lan-guages. SPE has more than 25 international channel ventures with an existing global audi-

ence of approximately 120 million viewers. International revenues from licensing films and

programs from the studio’s library of more than 3,500 motion pictures and 40,000 televi-sion episodes continue to make a significant contribution to SPE’s revenue strength.

Our Digital Studios group earned a technical Emmy® for high definition film mastering,

and expanded its computer generated imaging and DVD capabilities. We continued to ex-plore digital content distribution strategies with other Sony units, preparing to fulfill our

role in the Sony family of the digital era.

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Sony Life Insurance Co., Ltd. will celebrate its 20th anniversary in August

1999. Our mission is to ensure the financial security and stability of our

customers by offering effective life insurance and quality services. Thisthinking is consistent with the “helping dreams come true” philosophy of

the entire Sony Group. Over the years, Sony Life has made every effort to

bolster its operating base and the soundness of management. Standard &Poor’s has assigned Sony Life an AA- IFS (Insurer Financial Strength)

rating. This is a reflection of our growth potential, profitability, the qual-

ity of our assets, the balance between our assets and liabilities, and our

K E N I WA K IPresident andChief Operating OfficerSony Life Insurance Co., Ltd.

strong capital base. In addition, aiming to use our experience in Japan to enter life insur-

ance markets abroad, Sony Life established Sony Life Insurance (Philippines) Corporation

in the Republic of the Philippines with Sony and its local subsidiary in August 1998, andplans to start operations in the fall of 1999.

B U S I N E S S E X P A N S I O N C O N T I N U E S

In recent years, insurance-in-force and total assets at Japan’s life insurance companies

have in general been declining. Despite this challenging climate, Sony Life has consis-

tently achieved a high growth rate in insurance-in-force and total assets based on U.S.accounting standards. Sony Life also maintained a 13th-month persistency ratio of more

than 90%, a level that has been preserved for the past five years. This ratio, which is the

percentage of policies that are still in force in their 13th month, is an indicator of thesurrender and lapse of contracts. Sony Life’s performance is testimony to the widespread

recognition by customers of the quality consulting provided by Lifeplanners, collectively

the greatest attribute of Sony Life. At the end of March 1999, Sony Life had 4,156 Lifeplannerssupporting growth. At the same time, Sony Life had an extensive service network of 92


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Lifeplanners are experienced ineva lua t ing and ana lyz ing acustomer’s present and futurerequirements. By utilizing thisinformation in conjunction withsophisticated computer software,Lifeplanners offer a tailor-madeplan for each customer.

Lifeplanner branch offices, 26 regional sales offices, and 1,356 independent agencies. Thesolvency margin ratio was 1,429%, far above the 200% level of the administrative guide-

lines for life insurers in Japan.

Anticipating more pressure on policy rates as competition intensifies, Sony Life plansto implement a rigorous cost control program from a long-term perspective. To ensure the

ability to respond accurately to shifts in customers’ needs due to changes in the environ-

ment over time, Sony Life plans to conduct a radical review of business processes spanningall aspects of operations.

Sony is applying for a license and is planning to commence a new business line of

selling individual automobile insurance in Japan in the fall of 1999.

L O O K I N G A H E A D T O M O R E G R O W T H

Consulting services offered by Lifeplanners will remain the mainstay of Sony Life’s salesactivities. To address customers’ needs, Sony Life is exploring ways to supplement these

activities with other channels. For example, direct sales to customers through its call

center started during the year. In June 1998, in a first for a Japanese life insurance com-pany, Sony Life began offering via the internet an excess interest dividend educational

endowment, previously available only through the call center. Customers can use Sony

Life’s web site to structure their desired insurance policy and submit an application.In April 1999, Sony Life initiated direct sales of mutual funds through its call center.

Adding these funds to items sold by Lifeplanners is now under consideration. Sony Life

hopes to be the first choice of customers by providing financial consultants who can offerassistance in asset management and investments.

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Recognizing that environmental conservation is one of the most pressing issues facing mankindtoday, Sony incorporates a sound respect for nature in its business activities. Based on this philosophy,Sony conducts environmental programs under a global action plan.

During the year under review, an environmental strategy was incorporated as a key element ofSony’s medium-term business plan. Sony’s environmental strategy sets forth targets for environmen-tal conservation and other activities, with the ultimate goal of helping to create an environmentallyself-sustaining society in which resources move through a cycle of reuse. Based on this strategy,Sony has set targets for operations in Japan, North America, Latin America, Europe, and Asia.

D E V E L O P I N G T E C H N O L O G I E S T O P R O T E C T T H E E N V I R O N M E N TSony is striving to promote R&D programs that focus on the environment. In Japan, the EnvironmentalTechnology Center, located within the Frontier Science Laboratories, is developing a broad range oftechnologies that protect the environment. Outside Japan, the Environmental Product Laboratory wasset up in Stuttgart, Germany to study methods for assessing the environmental impact of Sony products.

In the field of recycling technologies, Sony opened during the year the Sony Limonene ExpandedPolystyrene Recycle Research Center in Japan’s Aichi Prefecture to study the reuse of waste styrene

foam as high quality polystyrene by using liquidlimonene, a substance extracted from citrus rinds.Sony applied this technology to recycle styrene foamas TV packaging material and plans to apply the sametechnology to other products. In 1996, Sony deviseda method to transform polystyrene, found in videocassette shells and other products, into a water-solublepolymer. This polymer can then be used as a polymerflocculant agent for treating waste water. Sony isconducting tests to introduce this technology at itsown manufacturing facilities as well as joint experi-ments with other companies in order to apply thistechnology more widely.

E n v i r o n m e n t a l A c t i v i t i e sa t S o n y

The reduction process for styrene foam, using limonene

expandedpolystyrene(125 cm3)

after 1 min. after 3 min.

R E D U C I N G T H E E N V I R O N M E N T A L I M P A C T O F S O N Y P R O D U C T SSony has been working to reduce the environmental impact of its products, starting with the planningand design stages. To this end, the Greenplus Project, involving the whole Sony Group, commenced in1994. Its aim is to reduce the environmental impact of all Sony products by the end of March 2001.

Sony is making efforts to increase the use of single/double-sided printed wiring boards (PWBs)that do not use a halogenated flame retardant, which may generate toxic substances such as dioxinsat the time of incineration. As a start, these boards have been used in color TVs and video decks

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produced and sold in Europe. In addition, during the year, Sony succeeded indeveloping multi-layer PWBs that do not use a halogenated flame retardant andwill install these PWBs in DVD-Video players to be introduced in Japan, the UnitedStates, and Europe. These technologies will be applied to a growing range of prod-ucts in coming years.

In the United States, Sony Electronics Inc. (SEL) is committed to increasing thenumber of products that meet the Energy Star standard for energy conservation, astandard in the Energy Star program conducted by the U.S. Environmental Protec-tion Agency (EPA). Some of SEL’s color TVs, for example, consume less than onewatt of power in the standby mode, far below the three-watt minimum required forEnergy Star certification. Due to its efforts, SEL won the EPA’s Energy Star HomeElectronics Partner of the Year Award in March 1999.

ISO-14001 Certified Sony Manufacturing and Non-manufacturing Bases

EUROPEManufacturing: 11/12Non-manufacturing: 6/9

ASIA (excluding JAPANand CHINA)Manufacturing: 18/22Non-manufacturing: 7/16

JAPANManufacturing: 38/38Non-manufacturing: 5/42

NORTH ANDLATIN AMERICAManufacturing: 20/28Non-manufacturing: 0/19

(As of April 1999)

CHINA, AUSTRALIAManufacturing: 4/6Non-manufacturing: 0/2

Newly developed multi-layerPWB that does not use ahalogenated flame retardant

B U I L D I N G E N V I R O N M E N T A L L Y S E N S I T I V E B U S I N E S S P R O C E S S E SSony is striving to build an environmental management system based on the ISO-14001 internationalstandard in order to reduce its environmental impact systematically and efficiently. As part of thisinitiative, Sony is working toward obtaining ISO-14001 certification, and as of April 1999, 109locations worldwide have gained certification under this standard. Sony plans to obtain such certifi-cation at 204 locations, covering all major bases in the world, by the end of March 2001.

Sony has set up environmental audit programs in Japan, North America, Latin America, Europe, andAsia and is conducting environmental audits. In the area of environmental risk management, Sony hasalready accumulated know-how in the United States and is applying this know-how in other regions.

The Organization for Economic Cooperation and Development (OECD) recommended that the Japa-nese government implement the Pollutant Release and Transfer Register (PRTR). In response, theJapan Federation of Economic Organizations (Keidanren) issued a series of guidelines. During theyear, Sony conducted surveys at 40 locations in Japan and reported the results to Keidanren. Further-more, Sony business sites in the United States annually submit a toxic chemical material releaseinventory to U.S. government authorities in accordance with the EPA’s Toxics Release Inventory system.Sony intends to conduct surveys and disclosure activities in other regions. Looking ahead, Sony willcontinue to work on reducing releases and transfers of pollutants and take other steps to bolster itsglobal environmental risk management capabilities.

K E E P I N G T H E P U B L I C W E L L - I N F O R M E DSony discloses its environmental record in line with its conviction that companies have an account-ability to explain their environmental activities to the public. Sony’s third Environmental Report waspublished in April 1999. Starting May 1999, Sony will display the results of selected environmentalconservation initiatives at the Sony Eco Plaza exhibition space, which is located at its head office.

* Key: Certified locations/Total number of locations targeted for certification

WORLDWIDEManufacturing: 91/106Non-manufacturing: 18/98Total: 109/204

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[Statutory Auditors]

Standing Statutory Auditors

Nobuo KanoiAkihisa OhnishiYoshisuke Mohri

Statutory Auditor

Kazuaki Morita

[Founder and Honorary Chairman]

Akio Morita

[Board of Directors] *Corporate Executive Officer

Norio Ohga*Chairman andRepresentative Director,Chief Executive Officer

Nobuyuki Idei*President andRepresentative Director,Co-Chief Executive Officer

Minoru Morio*Executive Deputy President andRepresentative Director

Kozo Ohsone*Executive Deputy President andRepresentative Director

Yoshiyuki Kaneda*Executive Deputy President andRepresentative Director

Tamotsu Iba*Executive Deputy President andRepresentative Director

Peter G. PetersonDirector(Chairman of The Blackstone Group)

Kenichi SuematsuDirector(Counsellor of The Sakura Bank, Limited)

Corporate Vice Presidents

Toshitada DoiSeiichi WatanabeKenji HoriKatsuaki TsurushimaTakeo EguchiShigeyuki OchiNobuyuki WatanabeSunobu HorigomeTadasu KawaiMitsuru OhkiYoshio NishiYutaka NakagawaYukio KubotaKatsumi IharaMitsuyuki WatanabeTadakatsu HasebeKenichiro YonezawaYoshihide NakamuraAkira KubotaTakeo MinomiyaMitsuo Kurobe

M a n a g e m e n t

[Group Executive Officers]

Ken IwakiJunichi KoderaYoshio IshigakiShugo MatsuoShigeo MaruyamaSumio SanoTeruaki AokiMotoyasu KanasugiToshiyuki YamadaMasahiro HayashiToshiharu SawadaMasao MoritaKen KutaragiTeruo MasakiHoward StringerThomas D. MottolaJohn Calley

(As of April 28, 1999)

[Corporate Executive Officers]

Corporate Executive Vice Presidents

Kiyoshi YamakawaSuehiro NakamuraKenichi OyamaTeruhisa Tokunaka

Corporate Senior Vice Presidents

Hideo NakamuraMasayuki TakanoYasumasa MizushimaMasayoshi MorimotoShizuo TakashinoMario TokoroKunitake Ando

Akiyoshi Kawashima*Senior Managing Director


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L I Q U I D I T Y A N D C A P I T A L R E S O U R C E S

Debt Finance and Liquidity ManagementSony’s financial policy is to maintain the strength of itsbalance sheet while assuring adequate liquidity and financ-ing for its operations. Among Sony’s principal objectives infulfilling that policy are seeking to assure liquidity by main-taining adequate liquid assets and, to avoid excessive useof its balance sheet, committed facilities, assuring that long-term funding requirements are financed with long-term fi-nancing and administering its financial requirements on aregional basis.

It is a principal policy of Sony to keep total liquid as-sets equal to at least 80% of the sum of the amount of thelargest expected monthly gross sales and the amount ofthe largest expected monthly debt redemption during theyear. Liquid assets consist of cash and cash equivalents,time deposits, and marketable securities. In addition tothese, Sony also includes committed lines as liquid assetsbecause funds are available from such lines during the pe-riod of the contracts. By utilizing committed lines, Sonyintends to reduce excess cash items, in order to enhancethe efficiency of its use of assets. Sony, including its fi-nance subsidiaries, has entered into contracts for commit-ted lines with banks in a total amount of 230.9 billion yenat March 31, 1999. As a principal policy, Sony selects banksrated “C” or above in Moody’s Bank Financial Strength rat-ings for its contracts for committed lines, and enters intocontracts with banks rated “A” or “B” with respect to morethan 70% of the total amount.

Sony’s primary financial policy for debt financing is tomatch the duration of its funding requirements to the termsof its debt. Long-term debt financing is utilized to meetbasic funding requirements, such as for investments in manu-facturing facilities. Sony funds its short-term requirementswith a combination of short-term and long-term financing.Sony uses long-term debt to fund a portion of its short-term requirements because such funds are necessary on anongoing basis. Sony’s long-term debt principally comprisesnotes including convertible bonds. Sony issued 1.5 billionU.S. dollars of unsecured Notes in a global bond offering inMarch 1998. In addition, Sony’s finance subsidiary in theU.S. maintains a 3 billion U.S. dollar medium term note(MTN) program and a 2 billion U.S. dollar Euro MTN pro-gram. In addition, Sony’s finance subsidiary in the United

Kingdom maintains a 1 billion U.S. dollar Euro MTNprogram. At March 31, 1999, the total outstanding balanceof MTNs was 172.7 billion yen. Sony maintains its flexiblefinancing ability in each market through these programs. Inaddition to the above, SPE financed approximately 39.7billion yen during the fiscal year ended March 31, 1999 inGermany for its film production in the form of a film financ-ing through a limited partnership associated with certainthird party investors.

In the U.S., Europe, and Asia, Sony carries out financ-ing functions regionally through its finance subsidiaries inorder to minimize interest expenses and manage liquidityefficiently. Finance subsidiaries in the U.S. and the UnitedKingdom have U.S. commercial paper (CP) programs of 6billion U.S. dollars and 1 billion U.S. dollars, respectively,and finance requirements for operating funds through theseprograms. During the year, peak month-end outstandingbalances were approximately 131.4 billion yen and appro-ximately 55.5 billion yen, respectively. In Japan, SonyCorporation centralizes cash management functions of itssubsidiaries, excluding Sony Life Insurance Co., Ltd. andlisted subsidiaries, through inter-company loans anddeposits, and maintains 300 billion yen of Japanese CPissuance capacity. There was no CP issuance during the year.Furthermore, in the U.S., Sony set up a 0.9 billion U.S. dollaraccounts receivable financing facility to enhance its short-term financing capacity.

Sony’s financial condition remains strong. Sony believesthat its cash, other liquid assets, free cash flows and accessto capital markets, taken together, provide adequate re-sources to fund ongoing operating requirements and futurecapital expenditures related to the expansion of existingbusinesses and development of new projects.

Assets, Liabilities and Stockholders’ EquityTotal assets decreased by 104.0 billion yen, or 1.6%, to6,299.1 billion yen at March 31, 1999. This was principallyattributable to the appreciation of the yen at the end of thefiscal year compared with the previous fiscal year-end, whileinvestment assets and deferred insurance acquisition costsincreased as a result of net increases in life insurance-in-force. (It is estimated that total assets would have in-creased by approximately 3% compared with the previousfiscal year-end if the value of the yen had remained thesame at March 31, 1999 as at the previous fiscal year-end.)

M a n a g e m e n t ’ s D i s c u s s i o n a n d A n a l y s i s o f F i n a n c i a l C o n d i t i o na n d R e s u l t s o f O p e r a t i o n s


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Current assets decreased by 198.1 billion yen, or 6.1%,to 3,069.4 billion yen at March 31, 1999. Among currentassets, liquid assets, comprising cash and cash equivalents,time deposits, and marketable securities increased. Cash andcash equivalents increased and marketable securities de-creased because Sony Corporation shifted its short-term in-vestments from marketable securities to cash equivalents.Notes and accounts receivable, trade decreased by 95.2 bil-lion yen, or 7.7%, to 1,135.6 billion yen at March 31, 1999principally due to the appreciation of the yen. Inventoriesdecreased by 116.0 billion yen, or 11.7%, to 877.9 billionyen at March 31, 1999. Sony aggressively reduced produc-tion volume in the second half of the fiscal year and furtherpromoted supply chain management. In addition, apprecia-tion of the yen also impacted the decrease in inventories.However, the inventory turnover ratio to cost of sales (basedon the average of inventories at March 31, 1998 and 1999)remained 2.42 months, which was the same level of theprevious fiscal year.

Investments and advances increased by 130.3 billionyen, or 15.3%, to 980.7 billion yen at March 31, 1999. Thiswas principally due to an increase in investment assets inthe Insurance business and the deconsolidation of thePictures business’ Theatrical exhibition group, Loews Theatres,due to the merger of Loews Theatres with Cineplex OdeonCorporation creating Loews Cineplex Entertainment Corpo-ration (“Loews”) during the fiscal year ended March 31, 1999.As a result of the merger, Loews is now reported on theequity basis. (Investment in Loews at March 31, 1999 was30.7 billion yen.) In addition, Sony invested 27.4 billionyen in General Instrument Corp. (“GI”), 15.1 billion yen inTelemundo group (“Telemundo”), and 11.0 billion yen inS.T. Liquid Crystal Display Corp. (“ST-LCD”). This increasewas partially offset by the contribution of marketable equitysecurities held by Sony Corporation to an employee retire-ment benefit trust (refer to Note 9 of Notes to ConsolidatedFinancial Statements).

Tangible fixed assets decreased by 97.4 billion yen, or7.2%, to 1,249.8 billion yen at March 31, 1999, due princi-pally to the impact of the deconsolidation of Loews Theatresin connection with the aforementioned merger of theTheatrical exhibition group.

Total current and long-term liabilities decreased by 122.4billion yen, or 2.7%, to 4,339.3 billion yen at March 31,1999. (It is estimated that total liabilities would have

increased by approximately 0.1% compared with the previ-ous fiscal year-end if the value of the yen had remained thesame as at the previous fiscal year-end.) Among currentliabilities, short-term borrowings and debt declined sharply,principally due to the redemption of debt by subsidiaries inJapan and the U.S. Notes and accounts payable, trade de-clined due principally to the effect of reductions in produc-tion. Accrued income and other taxes decreased principallyin line with Sony Corporation’s decline in profit. Amonglong-term liabilities, the large decline in long-term debtwas principally attributable to redemption of debt by sub-sidiaries in Japan and the U.S. and the conversion of con-vertible bonds of Sony Corporation. As a result, the total ofshort-term borrowings, current portion of long-term debt,and long-term debt declined by 137.7 billion yen, or 10.6%,to 1,166.2 billion yen at March 31, 1999. Accrued pensionand severance costs decreased due to the aforementionedcontribution of marketable securities to an employee re-tirement benefit trust. Future insurance policy benefits andother increased in line with net increases in life insurance-in-force.

Stockholders’ equity increased by 8.1 billion yen, or 0.4%,to 1,823.7 billion yen at March 31, 1999, mostly reflectingearnings. The ratio of stockholders’ equity to total assetsincreased from 28.4% to 29.0%. Based on the number ofshares outstanding at March 31, 1999, stockholders’ equityper share declined to 4,448.69 yen from 4,461.39 yen atthe previous fiscal year-end. Foreign currency translationadjustments at March 31, 1999 increased in amount as areduction of stockholders’ equity to 284.4 billion yen from140.7 billion yen at the previous fiscal year-end, principallydue to the yen’s appreciation.

Cash FlowsCash and cash equivalents increased by 168.9 billion yen,or 39.9%, to 592.2 billion yen during the fiscal year endedMarch 31, 1999, which includes the negative effect of ex-change rate changes on cash and cash equivalents of 14.9billion yen.

Net cash provided by operating activities during the fiscalyear ended March 31, 1999 increased by 50.9 billion yen, or8.3%, to 663.3 billion yen from the previous fiscal year.This increase was principally due to a decrease in invento-ries in the Electronics business and a decrease in notes andaccounts receivable. This increase in net cash provided by


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operating activities was partially offset by a decrease innotes and accounts payable and a decrease in net income,which also included a 58.7 billion yen (pre-tax) non-cashitem representing the aforementioned gain on securitiescontribution to employee retirement benefit trust. Depre-ciation and amortization increased by 5.5 billion yen, or1.8%, to 307.2 billion yen. This comprises depreciation offixed assets of 267.5 billion yen, amortization of intangibleassets of 19.0 billion yen, and amortization of deferred in-surance acquisition costs of 20.7 billion yen.

Net cash used in investing activities during the fiscalyear ended March 31, 1999 decreased by 231.4 billionyen, or 38.7%, to 367.3 billion yen. This decrease wasprincipally attributable to a decrease in marketable se-curities of Sony Corporation and time deposits, along withproceeds from the merger of Loews Theatres with CineplexOdeon Corporation.

Payments for purchases of fixed assets during the yeardecreased by 9.7 billion yen, or 2.6%, to 368.4 billion yen.Capital expenditures (additions to fixed assets) decreased34.2 billion yen, or 8.8%, to 353.7 billion yen. In the Elec-tronics business, capital expenditures aggregated 252.4 bil-lion yen, principally in the areas of semiconductors, displays,and recording media. Capital expenditures for the Music busi-ness amounted to 45.2 billion yen, principally for officesand plants in Japan. Capital expenditures for the fiscal yearending March 31, 2000 are expected to amount to approxi-mately 430 billion yen. These expenditures include approxi-mately 100 billion yen in connection with the nextgeneration game console and an aggregate of approximately240 billion yen in the Electronics business.

Increase in payments for investments and advances andincrease in proceeds from sales of investment securities andcollection of advances are principally attributable to an activerebalancing of the portfolio in the Insurance business dueto volatile bond market conditions in Japan during the year.Payments for investments and advances include the afore-mentioned investments in GI, Telemundo, and ST-LCD inthe aggregated amount of 53.5 billion yen.

Net cash used in financing activities during the fiscalyear ended March 31, 1999 increased by 94.5 billion yen, or532%, to 112.2 billion yen at March 31,1999. The increasewas principally attributable to the increase in redemptionof short-term debt and the decrease in long-term debt.

R E S U L T S O F O P E R A T I O N S

(The fiscal year ended March 31, 1999 compared to thefiscal year ended March 31, 1998)

The general economic and operating environment furtherworsened toward the end of the fiscal year ended March31, 1999, reflecting factors which included economic weak-ness in Asia excluding Japan (“Asia”), Russia and EasternEurope, and Latin America, as well as a rapid appreciationin the value of the yen in the second half of the year.Under these circumstances, Sony’s consolidated sales andoperating revenue (“sales”) increased by only 0.6%, andoperating income decreased by 34.9%. The low growth rateof sales was primarily attributable to declines in sales inthe Electronics and Pictures businesses. On the other hand,sales in the Game, Music, Insurance, and Other businessesincreased. The large decrease in operating income was pri-marily attributable to a substantial decline in profitabilityin the Electronics business. Operating income in theElectronics business declined sharply due to increases incost of sales and selling, general and administrativeexpenses as well as the decrease in sales. Also, operatingincome in the Music and Insurance businesses decreased,while the Other business has posted operating losses forthe second consecutive year. However, the Game businessmaintained positive momentum principally outside Japan.In the Pictures business, operating income also increased.

Impact of Foreign Exchange Fluctuations and BasicCountermeasuresDuring the year, sales outside Japan accounted for approxi-mately 72% of Sony’s consolidated sales. Although the valueof the yen against foreign currencies began rising sharplyin October 1998, the average value of the yen depreciated4.1%, 4.8%, and 5.8% against the U.S. dollar, British pound,and German marks, respectively, during the year (i.e., 127.0yen, 207.7 yen, and 72.8 yen against the U.S. dollar, Brit-ish pound, and German marks, respectively). This decline inthe average value of the yen positively impacted the re-ported financial results translated into the yen. It is esti-mated that sales and operating income would have declinedby approximately 2% and 49%, respectively, compared withthe previous fiscal year if the value of the yen had remainedthe same as in the previous fiscal year. (Note that these


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estimates are obtained by applying the yen’s average ex-change rate in the previous fiscal year to foreign currency-denominated sales, cost of sales, and selling, general andadministrative expenses of the fiscal year. Constant cur-rency basis comparisons discussed in the Results by Busi-ness Segment below are also calculated in the same way asabove.) However, the high volatility of the yen exchangerate made it difficult to manage global procurement ofmaterials, manufacturing, and sales activities as planned,and adversely affected Sony’s business results, particularlyfor the second half of the fiscal year.

Sony employs foreign exchange forward contracts andforeign currency option contracts to hedge against foreignexchange risks that arise from its export and import trans-actions. Furthermore, particularly in the Electronics busi-ness, to minimize the adverse effects of foreign exchangefluctuations on its financial results and to reduce inventoryand cost, Sony seeks, when appropriate, to localize mate-rial and parts procurement, design, and manufacturing op-erations outside Japan.

SalesDuring the year, sales rose by 39.1 billion yen, or 0.6%, to6,794.6 billion yen compared with the previous fiscal year.

Cost of Sales and Selling, General and AdministrativeExpenses (Excluding the Insurance Business)During the year, cost of sales rose by 14.8 billion yen, or0.3%, to 4,633.8 billion yen and the ratio of cost of sales toconsolidated sales increased from 71.5% to 71.8%, prima-rily due to increases in research and development, person-nel, and depreciation and amortization expenses. Theseincreases were partially offset by decreases in expensesresulting from lower production volume. Research and

development expenses increased by 57.3 billion yen, or18.0%, to 375.3 billion yen, principally for technologiesrelated to the next generation game console, semicon-ductors, broadcast-use equipment, and digital networks, androse from 4.9% to 5.8% as a percentage of sales.

Selling, general and administrative expenses increasedby 155.3 billion yen, or 11.5%, to 1,500.9 billion yen, androse from 20.8% to 23.3% as a percentage of sales. Thiswas primarily due to increases in advertising, personnel,and service expenses.

Operating IncomeOperating income during the year declined by 181.6 billionyen, or 34.9%, to 338.6 billion yen. Operating margin de-creased from 7.7% to 5.0%.

Other Income and ExpensesOther income increased by 68.9 billion yen, or 82.1%, to152.9 billion yen, while other expenses decreased by 27.0billion yen, or 17.9%, to 123.4 billion yen.

The large increase in other income principally representsa 58.7 billion yen gain on securities contribution to em-ployee retirement benefit trust. Sony Corporation contrib-uted marketable equity securities to an outside trust foremployee retirement benefit purposes and realized the gain.In addition, Sony recorded a 5.2 billion yen gain resultingfrom the merger of the Theatrical exhibition group in thePictures business with Cineplex Odeon Corporation. Interestand dividends income also increased by 2.3 billion yen, or11.1%, to 23.3 billion yen, principally because of an in-crease in the average outstanding balances of cash and timedeposits and marketable securities at subsidiaries princi-pally outside Japan.

Sales and Operating Revenue*(Billion ¥)

Net Income*(Billion ¥)

Net Income per Share (Diluted)*(¥)

97 98 99

5,663 6,755 6,795

97 98 99

139 222 179

97 98 99

309 483 391

*Year ended March 31


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To hedge risks from exchange rate fluctuations, Sonyprimarily employs foreign exchange forward contracts andforeign currency option contracts. Foreign exchange gain,net, decreased by 7.2 billion yen, or 71.3%, to 2.9 billionyen, as subsidiaries principally in Asia recorded foreign ex-change losses while Sony Corporation and certain subsidiar-ies in Japan recorded foreign exchange gains.

The decrease in other expenses is principally due to thedecrease in interest expenses. Interest expenses decreasedby 14.2 billion yen, or 22.8%, to 48.3 billion yen, due princi-pally to a decline in the average outstanding balance of debtin the U.S. As a result, the balance of interest and dividendsincome, less interest expense, improved by 16.6 billion yenand net interest expense came to 25.0 billion yen.

Income before Income TaxesIncome before income taxes during the year declined by85.6 billion yen, or 18.9%, to 368.1 billion yen.

Income TaxesIncome taxes decreased by 37.9 billion yen, or 17.6%, to177.0 billion yen, while the percentage of income taxes toincome before income taxes (the effective tax rate) rosefrom 47.4% to 48.1%. The recalculation of deferred taxliabilities to reflect a reduction in the Japanese corporatestatutory income tax rate effective April 1, 1999 caused atax benefit of 13.4 billion yen, which had the effect of low-ering the effective tax rate by 3.6 percentage points. How-ever, the effective tax rate increased compared to theprevious year due primarily to losses at certain electronicsand music subsidiaries for which there was no tax benefit.

Deferred tax assets are recognized on operating losscarryforwards for tax purposes since these losses may reducefuture taxable income. However, a valuation allowance isestablished against those deferred tax assets that are notexpected to be realized because sufficient taxable incomeis not expected to be generated before those loss carry-forwards expire. Sony has recognized a valuation allowancefor deferred tax assets mainly relating to operating losscarryforwards of consolidated subsidiaries in the U.S.

Net IncomeNet income fell by 43.1 billion yen, or 19.4%, to 179.0 billionyen. As a percentage of sales, net income decreased from3.3% to 2.6%, and the return on stockholders’ equity (usingthe average of such amounts at March 31, 1998 and at March

31, 1999) decreased from 13.6% to 9.8%. Net income in-cludes 30.7 billion yen (net of tax) for the aforementionedgain on securities contribution to employee retirement benefittrust which was recorded in other income.

Basic net income per share was 436.9 yen compared to557.7 yen in the previous fiscal year, and diluted net incomeper share was 391.0 yen compared to 483.4 yen in the pre-vious fiscal year.

Results by Business SegmentThe following discussion is based on segment information.Sales in each business segment include intersegment trans-actions. In the Electronics business, sales and operatingrevenue by product category represent sales to customers,which do not include intersegment transactions (Refer toNote 19 of Notes to Consolidated Financial Statements).

ElectronicsDuring the year, sales in the Electronics business declinedby 21.7 billion yen, or 0.5%, to 4,668.4 billion yen. Operat-ing income also declined by 184.7 billion yen, or 58.7%, to129.9 billion yen (down approximately 3% and 78%, re-spectively, on a constant currency basis), and operatingmargin was 2.8%, down from 6.7%.

The lower sales were primarily attributable to intensi-fied price competition in many product categories and lowersales due to weak economic conditions in Asia, Russia andEastern Europe, and Latin America. By area, sales increasedin Japan and slightly increased in the U.S. and in WesternEurope, while sales sharply declined in Asia, Russia and East-ern Europe, and Latin America.

The large decline in operating income was principallyattributable to sluggish sales and increases in cost of salesand selling, general and administrative expenses. In cost ofsales, research and development expenses, principally fortechnologies related to semiconductors, broadcast-use equip-ment, and digital networks, personnel expenses, and depre-ciation of production equipment of semiconductorsincreased. In selling, general and administrative expenses,personnel, advertising, and service expenses increased. Thesecost increases had a substantial negative impact on profit-ability in the Electronics business. In addition, aggressivereductions in production in the second half of the year forthe purpose of inventory reductions further deteriorated grossprofit margins. By product category, a large profit in home-use camcorders was offset by significant losses in cellularphones, computer displays, and semiconductors.


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Aiming at reducing inventories and costs, Sony reorga-nized facilities in North America (Mexico) and in EasternEurope (Slovakia and Hungary) and integrated certainfacilities in Asia (Malaysia and Indonesia) during the year.

Performance by Product CategoryIn the “Audio” category, sales decreased by 55.2 billionyen, or 4.9% (down approximately 7% on a constantcurrency basis), to 1,072.6 billion yen. Lower sales prin-cipally reflected a steep decline in sales of home stereosand radio-cassette tape recorders in Asia, Russia andEastern Europe, and Latin America. Sales of compactcassette headphone stereos decreased worldwide, par-ticularly in Asia. Also, intensified price competition inthe U.S. and Western Europe hurt sales. However, salesof MD headphone stereos increased primarily in Japanand Western Europe.

In the “Video” category, sales increased by 98.3billion yen, or 11.3% (up approximately 8% on a con-stant currency basis), to 969.1 billion yen. Home-usecamcorders, digital still cameras, and DVD-Video playersin the U.S. and in Western Europe were responsible formuch of this growth. Strong sales of home-usecamcorders particularly contributed to profitability.During the year, digital models attained approximately60% (compared to approximately 56% in the previousyear) of Sony’s unit sales of camcorders in Japan andthis ratio is also growing on a worldwide basis. In home-use VHS video decks, sales were weak principally in theU.S., Russia and Eastern Europe, and Latin America. Inbroadcast- and professional-use video equipment, salesincreased only slightly, primarily due to the diversifica-tion of competitors in line with digitization and inten-sified price competition. Reflecting increased demandsof broadcasters for digital equipment, sales of digitalsystems, including video servers equipped with harddisk drives and news editing terminals, increased prin-cipally in the U.S. and Western Europe. However, asignificant sales decline in analog video systems and anincrease in research and development expenses due tothe aforementioned digitization reduced profitability inthis product area.

In the “Televisions” category, sales decreased by 6.4billion yen, or 0.9% (down approximately 3% on a con-stant currency basis), to 702.6 billion yen. Sales of color

TVs declined substantially in Asia, Russia and EasternEurope, and Latin America. However, the Wega series ofcolor TVs, which incorporates flat surface CRTs, performedextremely well in Japan and the U.S. partially due to anexpansion of its lineups during the year, and also con-tributed to earnings. Sales of large-screen rear projec-tion TVs also increased in the U.S. and Western Europe.The Wega series reached approximately 45% (comparedto approximately 20% in the previous year) of Sony’sunit sales of color TVs in Japan. This ratio is expected togrow worldwide as Sony has established productioncapabilities for high value-added flat surface CRTs inJapan, the U.S., Western Europe, and Asia.

In the “Information and communications” category,sales increased by 19.3 billion yen, or 2.2% (downapproximately 1% on a constant currency basis), to 914.1billion yen. The slow growth was primarily attributableto a decline in sales of computer displays and cellularphones. In the computer display business, sales andoperating income substantially decreased, principally inthe U.S., due to severe industry-wide price competitionresulting from pricing pressures from manufacturers inAsia, an oversupply of product, and weak demand. Inthe cellular phones business, sales and operating incomedecreased in Europe and Japan principally due to inten-sified price competition and a delay in new productintroductions. Sales and operating income in the U.S.were negatively impacted by the sales decline and anincrease in service expenses, resulting primarily fromquality issues of certain types of cellular phones includ-ing the impact of correcting power emission levels. Thecombined impact of the computer display and cellularphone businesses adversely affected the overall resultsof the Electronics business. In the PC business, sales inthe U.S. decreased because notebook PC OEM sales, whichrecorded strong sales in the previous fiscal year, ceasedand because of intensified price competition in desktopPCs. However, overall PC sales increased primarily dueto much higher sales of both notebook and desktop VAIOPCs in Japan. In terms of earnings, the positive contri-bution from notebook PCs in the second half of the yearwas overshadowed by the overall negative impact ofdesktop PCs. In computer peripherals, CD-RW drives,which permit repeated recordings of massive data,recorded strong sales growth in the U.S. and WesternEurope, while sales of CD-ROM drives declined.


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Sony is promoting the development of next generationflat displays. Sony is co-developing large flat-panel dis-plays using plasma-addressed liquid crystal (PALC) tech-nologies based on an agreement entered into in July1997 with Philips Electronics N.V. in the Netherlandsand Sharp Corporation. In October 1998, Sony enteredinto an agreement with Candescent Technologies Inc. inthe U.S. to jointly develop high-voltage Field EmissionDisplays (FED) for next generation flat-panel computerdisplays. In addition, Sony made a further capital infu-sion during the year in ST-LCD. ST-LCD was jointlyestablished between Sony and Toyoda Automatic LoomWorks, Ltd. in order to manufacture the next generationof LCD panels, and started manufacturing such LCD panelsin April 1999.

In the “Electronic components and other” category,sales decreased by 78.4 billion yen, or 10.1% (downapproximately 15% on a constant currency basis), to696.5 billion yen. The significant decline in sales is prin-cipally due to weak sales of semiconductors and elec-tronic components including CRTs for computer displays.Semiconductor sales declined, principally in Asia, dueto a decision to shrink the memory business, which hadlow profit margins, and to weak sales of signal process-ing LSI devices for video CD players and other applica-tions. Financial performance worsened because thereduced sales heightened the impact of depreciation ofproduction equipment. Sales and operating income ofCRTs for computer displays also deteriorated, principallyin Europe, due to increased price competition and weakdemand. Sales of lithium-ion batteries rose due to grow-ing demand for notebook PCs, while profitability dete-riorated due to such factors as downward pressure onmarket prices.

As a strategy for next generation semiconductors, Sonystarted cooperative work with Fujitsu Limited in develop-ing and manufacturing 0.18 micron meter generationsystem LSI under an agreement made in June 1998.

GameThe Game business continued to achieve overall favorableresults both in PlayStation game consoles and software. Salesincreased by 61.3 billion yen, or 8.5% (up approximately7% on a constant currency basis), to 783.8 billion yen.

In Japan, despite strong sales of software, total salesdeclined by 52.7 billion yen, or 16.5%, from the previous

fiscal year due to slowing sales of game consoles as a resultof such factors as the high penetration ratio of game con-soles among Japanese households. On the other hand, inthe U.S. and Europe, sales increased by 100.9 billion yen, or27.7% (up approximately 26% on a constant currencybasis), as aggressive pricing strategies and increases in soft-ware titles resulted in further demand for game consolesand software.

Worldwide production shipments of game consoles were21.60 million units for the year compared with 19.37 mil-lion units in the previous fiscal year, resulting in cumula-tive shipments of 54.42 million units as of March 31, 1999.With respect to software, worldwide production shipments(including both Sony and third parties under Sony licenses)were 194 million units for the year compared with 138 mil-lion units in the previous fiscal year, resulting in cumula-tive shipments of 430 million units as of March 31, 1999.

Operating income increased by 19.6 billion yen, or 16.7%(up approximately 11% on a constant currency basis), to136.5 billion yen. Operating margin rose from 16.2% to17.4%. Advertising expenses increased due to aggressiveadvertising and promotion aiming for further expansion ofsales. In addition, research and development expenses in-creased by 10.0 billion yen, or 250%, to 14.0 billion yen,principally for the development of the next generation ofgame console. However, despite these cost increases, a sub-stantial increase in profit was achieved because of salesexpansion in the U.S. and Europe.

For future business development, Sony Computer Enter-tainment (“SCE”) has substantially completed its co-development with Toshiba Corporation of new technology,comprising the 128 bit CPU dubbed the “Emotion Engine”.In order to process graphic information at maximum speeds,its data bus, cache memory, and all registers are 128 bitand are integrated on a single chip of LSI. SCE and ToshibaCorporation agreed upon establishment of a joint venturecompany to produce the Emotion Engine. Also, SCE hasdeveloped a Graphics Synthesizer incorporating a massiveparallel rendering engine. SCE plans capital expenditurestotaling approximately 120 billion yen in the next two yearsto permit volume production of these new technologies.

MusicDuring the year, the Music business excluding Japan achievedrecord results in terms of sales, operating income, marketshare, and chart share, despite weak performance in theBrazilian market. Despite a flattening in worldwide growth


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for the music industry, sales in the Music business increasedby 65.6 billion yen, or 9.4% (up approximately 7% on aconstant currency basis), to 760.3 billion yen.

Sales in Japan were virtually flat compared with the pre-vious fiscal year despite the delayed release of several majorJapanese artists’ albums until the fiscal year ending March31, 2000. Sales in Brazil were negatively impacted by de-clining economic conditions and the currency devaluation.

Operating income decreased by 15.9 billion yen, or 29.5%(down approximately 30% on a constant currency basis), to38.1 billion yen. Operating margins decreased from 7.8% to5.0%. The significant decline in operating income was pri-marily attributable to the Music business in Japan as a resultof increased advertising and promotion costs associated withestablishing new labels and artists in Japan. Current yearresults outside Japan benefited from successful releases byglobal and local artists as well as increased license fees froma new direct marketing arrangement. These positive resultsoutside Japan were partially offset by lower results in Braziland increased costs associated with advancing Music’s onlineinitiatives. Increased production and improved operatingefficiencies in compact disc manufacturing plants, whichsupply disks for the Game business and for third parties inaddition to the Music business, also contributed to earnings.

PicturesIn the Pictures business, sales decreased by 103.0 billionyen, or 16.0% (down approximately 19% on a constant cur-rency basis), to 540.2 billion yen, while operating incomeincreased by 1.8 billion yen, or 5.1% (virtually flat com-pared to the previous year on a constant currency basis), to37.4 billion yen. Operating margin rose from 5.5% to 6.9%.

The decline in sales is primarily due to the deconsoli-dation of the Theatrical exhibition group, the inclusion ofthirteen months of activity in the previous fiscal year dueto a change in the Pictures business fiscal year and lesssuccessful theatrical releases by comparison with the previ-ous year’s strong Motion Picture group results. The reduc-tion in highly successful theatrical releases also resulted ina reduction in home video sales as fewer current year pic-tures were released as sell-through titles compared to theprevious year. These results were partially offset by increasedsales from the Television group.

During the first quarter of this fiscal year, Sony mergedits Theatrical exhibition group, Loews Theatres, with Cineplex

Odeon Corporation in Canada to create one of the world’slargest theatrical exhibition companies, Loews CineplexEntertainment Corporation (“Loews”). Subsequent to themerger, Loews completed a public offering of its commonstock. After these transactions, Sony’s ownership in Loewsis 39.5%. As a result of these transactions, Sony no longerconsolidates the results of Loews; Loews results are nowreported on the equity basis. The previous year’s resultsinclude sales and operating income of 56.3 billion yen and2.5 billion yen, respectively, for the Theatrical exhibitiongroup. After adjusting the previous year for thedeconsolidation of the Theatrical exhibition group, salesdecreased by 46.7 billion yen, or approximately 8%, andoperating income increased by 4.3 billion yen, or approxi-mately 13%. In connection with the Loews merger and thesubsequent public offering, Sony received proceeds of 53.0billion yen and recorded a gain of 5.2 billion yen, which isrecorded in other income.

For comparative purposes, if the impact of the Theatri-cal exhibition group’s revenue and the thirteenth month ofactivity are removed from the reported figures, sales for thePictures business were essentially flat compared to the pre-vious year.

Despite the decline in sales, operating income benefitedfrom steady profit contributions from the Television group,higher profits on home video acquisitions and a reductionin losses in the Digital Studio group’s special effects studiooperations, partially offset by lower profits from the MotionPicture group and losses on strategic investments in theTelevision group. The positive results from the Televisiongroup reflected significant profit contributions from off-network syndication, game shows and soap operas. Thesefavorable results for the Television group were partially off-set by losses on strategic investments, including Telemundo,a U.S. based Spanish language television network and sta-tions group, and certain international cable channel invest-ments. During the year, Sony invested 15.1 billion yen inTelemundo, resulting in a 50% interest in the TelemundoNetwork group and a 24.9% interest in the Telemundo Sta-tions group. Profit for the Motion Picture group decreasedas a result of fewer break-through hits in the release slate.Profit margins were hurt by the release of certain films,which generated significant revenues but had a negativeeffect on operating income.


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InsuranceIn the Insurance business, despite the sluggish insurancemarket in Japan, revenue increased by 48.3 billion yen, or16.6%, to 339.4 billion yen. Operating income, however,decreased by 2.3 billion yen, or 11.2%, to 18.0 billion yen.Operating margin decreased from 7.0% to 5.3%.

The revenue increase was due to significant net increasesin individual and group insurance-in-force of Sony Life Insur-ance Co., Ltd. (“Sony Life”) in Japan resulting from strongsales of traditional insurance products such as term-life insur-ance and whole-life insurance as well as medical insurance.

The decrease in operating income was principally theresult of lower returns on fixed income investments in Japan,where extremely low interest rates have prevailed, whileSony Life conservatively managed its investment assets prin-cipally through government and corporate bonds.

For future business development, Sony Insurance Plan-ning Inc. was established in October 1998 in order to startdirect sales of individual automobile insurance in Japan.Sony Insurance Planning Inc. is currently applying for a

license and setting up operational infrastructure to start itsbusiness in the fall of 1999.

Condensed Insurance Business Balance SheetThe Insurance business is included on a consolidated basisin Sony’s consolidated financial statements. The followingschedule shows unaudited condensed balance sheets for theInsurance business and for Sony with the Insurance busi-ness’ financial position reflected on the equity basis.(Although inter-business balances between Insurance busi-ness and businesses other than Insurance business are noteliminated in the respective balance sheets, such amountsare not material.) While this presentation differs from thatprovided under U.S. GAAP used in Sony’s consolidatedfinancial statements, because the Insurance business isdifferent in nature from Sony’s Electronics, Game, Music,and Pictures businesses, management believes that this typeof comparative presentation helps the understanding andanalysis of Sony’s consolidated balance sheet.

Sony with InsuranceInsurance business business on the equity basis

Dollars in Dollars inYen in millions thousands Yen in millions thousands

March 31 March 31, March 31 March 31,1998 1999 1999 1998 1999 1999

ASSETSCash and time deposits . . . . . . . . . ¥ 76,135 ¥ 114,695 $ 955,792 ¥ 454,290 ¥ 501,819 $ 4,181,825Marketable securities . . . . . . . . . . 51,942 62,112 517,600 117,267 55,745 464,542Other current assets . . . . . . . . . . . 9,400 10,000 83,333 2,558,561 2,326,837 19,390,308Investments and advances . . . . . . 573,858 720,020 6,000,167 276,604 260,716 2,172,633Investments in insurance business . — — — 115,032 133,546 1,112,883Deferred insurance

acquisition costs . . . . . . . . . . . 163,120 199,868 1,665,567 — — —Other long-term assets . . . . . . . . . 24,561 22,310 185,916 2,098,535 2,027,909 16,899,242

¥899,016 ¥ 1,129,005 $9,408,375 ¥5,620,289 ¥ 5,306,572 $44,221,433

LIABILITIES AND STOCKHOLDERS’ EQUITYFuture insurance policy benefits

and other . . . . . . . . . . . . . . . . ¥713,970 ¥ 913,937 $7,616,142 ¥ — ¥ — $ —Other liabilities and

minority interest . . . . . . . . . . . 69,766 81,226 676,883 3,804,734 3,482,907 29,024,225Total liabilities and

minority interest . . . . . . . . . . . 783,736 995,163 8,293,025 3,804,734 3,482,907 29,024,225Stockholders’ equity . . . . . . . . . . . 115,280 133,842 1,115,350 1,815,555 1,823,665 15,197,208

¥899,016 ¥ 1,129,005 $9,408,375 ¥5,620,289 ¥ 5,306,572 $44,221,433


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OtherThe Other business consists of various operating activities,primarily including leasing and credit card businesses, abusiness focused on parts trading services within the Sonygroup, satellite distribution services including program sup-plying businesses in Japan, internet-related businesses inthe U.S., and development of location-based entertainmentcomplexes. Sales in Other business grew by 39.1 billion yen,or 15.8%, to 287.3 billion yen but Other businesses con-tinued to post an operating loss.

The sales increase was due principally to the new con-solidation of certain subsidiaries, and a sales increase in afinancial subsidiary in Japan whose major business is leas-ing and credit cards. Approximately 70 percent of sales inOther business reflected intersegment transactions in thefiscal year ended March 31, 1999.

Operating losses were incurred in the start-up of long-term strategic businesses, including satellite distributionservices in Japan, internet-related businesses in the U.S.,and location-based entertainment complex businesses.

Development of location-based entertainment complexesis in progress in San Francisco, Berlin, and Tokyo. In SanFrancisco, an entertainment complex including stores andtheatres will open in June 1999. The budget for this projectwas approximately 13.8 billion yen. In Berlin, Germany, abuilding complex to house Sony’s European headquarters,rental office space, stores, residences, a movie and broad-casting museum with educational facilities, and entertain-ment space is currently under construction. The structure islocated in Potsdamer Platz. This project is being carried outby a partnership controlled and operated by Sony, TishmanSpeyer Properties, Inc. in the U.S., and Kajima Corporationin Japan. Completion is scheduled for 2000. The budget forthis project is approximately 1.5 billion German marks, ofwhich approximately 1.0 billion German marks has been ar-ranged by the partnership in the form of non-recourse projectfinancing. Sony contributed the land and 19.8 billion yenin cash in the form of preferred equity in the partnership.Sony also plans to construct a similar entertainment com-plex in Tokyo, Japan, with completion scheduled in the springof 2000. For this project, Sony will lease commercial spacefrom Battery Town 21 Co., Ltd. The budget for this projectis approximately 13.0 billion yen.

S T R A T E G I E S A N D O U T L O O K

This section contains forward-looking statements aboutthe future performance of Sony and should be read inlight of the cautionary statement on that subject, whichappears on inside front cover page and applies to thisentire document.

Sony’s management is endeavoring to develop the mostappropriate plans for its businesses, considering the cur-rent general economic and operating environment and avail-able information. The following is a summary of certain ofSony’s current basic strategies and outlook for its fiscal yearending March 31, 2000.

It is expected that difficult business and economic cir-cumstances will continue, including economic difficultiesin Russia and Eastern Europe and in Latin America, furtherappreciation in the value of the yen, and increasing pricecompetition. In these circumstances, Sony seeks to holdthe decrease in its sales to a minimum for the fiscal yearending March 31, 2000 compared with that for the fiscalyear ended March 31, 1999. However, earnings are expectedto decline substantially.

Digitization is accelerating in the business of audiovi-sual equipment, where Sony has maintained its ‘core com-petence’. Accordingly, competition is intensifying because,in addition to current competitors, many others with newtechnologies are participating in the market. In order toachieve growth in these circumstances, Sony believes thekey factors are to maintain its brand value in the marketand to accelerate the pace of changes within Sony. In termsof maintaining brand value, Sony intends to enhance re-search and development activities and streamline manufac-turing systems, with the goal of enhancing the value ofproducts and expanding market share. In terms of accelera-tion of changes, Sony’s management has reorganized itsgroup structure so as to enhance prompt decision-making.At the same time, while delegating increased authority toits newly formed business units, Sony is strengthening itsgovernance necessary for its group management.

On March 9, 1999, Sony Corporation announced changesin its group structure to prepare Sony for a network-centricera. Effective April 1, 1999, the existing Electronics businesswas consolidated into three main business units. Separately,Sony Computer Entertainment (“SCE”), which is responsible


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for the Game business, was designated as another mainbusiness unit related to the Electronics business.

As a part of this reorganization, Sony Corporation alsointends, subject to stockholders’ approvals, to take 100%ownership of three listed subsidiaries, Sony Music Entertain-ment (Japan) Inc. (“SMEJ”), Sony Chemicals Corporation(“SCC”), and Sony Precision Technology Inc. (“SPT”), with atarget date of January 1, 2000. It is contemplated that eachone share of SMEJ, SCC, and SPT owned by minority share-holders will be exchanged for 0.835, 0.565, and 0.203 shareof Sony Corporation, respectively. (Any of the aforementionedexchange ratios may be amended upon mutual deliberationbetween Sony Corporation and the relevant subsidiary if anymaterial change occurs in respect of conditions based uponwhich the relevant ratio is determined.) As a result, approxi-mately 33 million shares of Sony Corporation would be issuedand the total capital (common stock and additional paid-incapital) would increase by approximately 348 billion yen. Theexcess of the amount over the book value of the subsidiaries’net equity will be recorded as tangible and intangible fixedassets (including goodwill) and amortized as an expense overthe useful lives of these assets.

In the Electronics business, given the economic andbusiness difficulties described above, and although Sonywill endeavor to minimize any sales decline, profitability isexpected to decline substantially for the fiscal year endingMarch 31, 2000. This outlook principally reflects deteriora-tion of gross profit margins in line with reductions in pro-duction, particularly in the first half of the fiscal year endingMarch 31, 2000, intensifying price competition, and neces-sary investments relating to digitization, networking, andexpansion of Sony’s alliance strategy for necessary new tech-nology. During this process of digitization, Sony intends tomaintain high research and development expenses. Sonyunderstands the life cycle of audiovisual products is becom-ing shorter in line with rapid technology changes; for thisreason, Sony considers it important to accelerate the speedof its own changes in this transitional period of technol-ogy. To this end, Sony intends to increase research anddevelopment expenses and seek strategic alliances whennecessary. Furthermore, Sony intends to accelerate thestreamlining of its manufacturing facilities and supply chainmanagement.

In the Game business, Sony seeks to promote integra-tion with the Electronics business. Sony has achieved a

leading position in the game market. However, because themarket for existing game consoles is becoming saturated,Sony is aiming at further business development by intro-ducing the next generation game console. An introductionof the next generation game console with an improvedgraphic rendering feature is targeted in Japan prior to theend of the fiscal year ending March 31, 2000. The corre-sponding depreciation in connection with capital expendi-tures for the Emotion Engine and the Graphics Synthesizerfor the new game console will begin to be recorded prior totheir introduction. This depreciation is expected to have aslight negative impact on Sony’s profitability for the fiscalyear ending March 31, 2000.

In the Music business, competition is expected to in-tensify as music industry sales are expected to slow downfrom the levels of recent years. This industry slowdownreflects the impact of such factors as the saturation of theCD market, sluggishness in certain geographic markets,especially in Brazil, an increase in worldwide piracy withinthe industry and changing demographics. Under such cir-cumstances, overall sales for the Music business are expectedto decrease slightly. Sony intends to meet these challengesby creating new growth drivers such as the development ofnew artists and the creation of digital distribution channelsthrough the internet. A turnaround for the Music businessin Japan due to cost reductions, principally lower adver-tising expenses, is expected to improve earnings. Thisearnings improvement, however, is expected to be offsetpartially by increased costs for the overall Music businessassociated with further advancing online and other new tech-nology initiatives.

In the Pictures business, the Motion Picture group ex-pects to deliver a well-balanced film portfolio on a consis-tent, long-term basis and to expand local language filmproduction in Europe and Asia. However, the comparativelylower theatrical results from the previous year release slateare expected to reduce sales from the home video and paytelevision markets resulting in lower total sales for the MotionPicture group in the fiscal year ending March 31, 2000. Thisdecline in sales is expected to be partially offset by salesgrowth in the Television group. Due to a large slate of filmproduction for the fiscal years ending March 31, 2000 and2001, the Pictures business is expected to have significantfinancing requirements. These financing requirements areexpected to be met through funding within the Sony group.


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In October 1998, the Accounting Standards ExecutiveCommittee (“AcSEC”) of the American Institute of CertifiedPublic Accountants issued an exposure draft of a proposedStatement of Position, “Accounting by Producers andDistributors of Films” (“Exposure Draft”) which, if adoptedas issued, would significantly change the current account-ing for the motion picture and television business. TheExposure Draft proposes, among many changes, that theat-rical advertising expense be amortized over a significantlyshorter period, that advertising expenses for other marketsbe expensed as incurred and that revenue from televisionsyndication contracts be recognized over the contract periodrather than upon initial availability of the product to thelicensee. The transition from Sony’s current accounting prac-tices to those required by the Exposure Draft would result ina cumulative charge to Sony’s results of operations in theperiod of adoption, although there would be no cash flowimpact. Comments on the Exposure Draft are being reviewedby AcSEC and the Financial Accounting Standards Board.Depending on the nature, scope, and merits of the commentletters, the Exposure Draft may be modified in part or in itsentirety. Accordingly, the impact to Sony is not currentlyknown, as it may vary significantly depending on the finalStatement of Position as well as the exact date it becomeseffective. For illustrative purposes, if the Exposure Draft wereimplemented as issued without change, as of March 31, 1999,the cumulative non-cash charge would be approximately 950million U.S. dollars. The date of issuance of the final State-ment of Position has not yet been determined; however, ascurrently drafted, the earliest required implementation datefor Sony would be April 1, 2000.

In the Insurance business, the life insurance businessin Japan faces increasing competition due to deregulationand a continuation of the difficult environment for manag-ing assets. However, Sony believes that its life insurancebusiness in Japan has been well-positioned in the marketthrough a strong sales force represented by approximately4,200 Lifeplanners. Sony expects to incur start-up expensesfor its planned automobile insurance business in Japan,which is scheduled to commence in October 1999.

In the Other business, operating losses are expected tocontinue due to start-up expenses at such long-term strate-gic businesses as satellite distribution services includingprogram supplying businesses in Japan, and location-basedentertainment complexes in San Francisco, Berlin, and Tokyo.

E U R O

On January 1, 1999, the introduction of the Euro in elevencountries created a single-currency market (the EMU) in muchof Western Europe. For a transitional period from January 1,1999 through January 1, 2002, the former national curren-cies of the EMU member states will also remain legal tender.

Most of Sony’s subsidiaries were fully prepared to handleEuro transactions with third parties from January 1, 1999.However, ongoing system implementation projects delayedfull Euro compliance in some countries. The temporary al-ternative procedures that have been put in place to addressthis situation have not generated and are not expected togenerate an increase in administrative costs in the future.Very few customers have so far requested transactions inEuro; therefore, at this time there has been no direct im-pact on product pricing in Europe directly attributable tothe introduction of the Euro.

Regarding transactions within Sony, the majority of thesehave been switched to the Euro from the former nationalcurrencies of the EMU countries since April 1, 1999. In ad-dition, the reporting of Sony subsidiaries in the EMU zoneand of European consolidated financial statements have beenmade in Euro since April 1, 1999. The switch to the Euro hasresulted in a reduction in foreign exchange commissionsand hedging costs.

Several revisions to the information systems of Sonysubsidiaries in Europe were carried out in the fiscal yearended March 31, 1999, in order to accommodate the differ-ent types of Euro transactions and reporting. These revi-sions have not generated a material adverse effect onconsolidated operations and financial results.

While additional investments to accounting informationsystems for the Euro will be required in the subsidiariesoperating in EMU countries, the impact is not material.

T H E Y E A R 2 0 0 0 I S S U E

Sony’s Year 2000 ProjectSony recognizes the importance of the Year 2000 issue inrelation to business continuity risks and customer service,and has initiated a comprehensive corporate-wide projectto implement a smooth transition into the year 2000. Theproject is coordinated and supervised by the Corporate Year2000 Office, which is principally composed of corporate stafffrom Sony’s information systems department and customer


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service department and reports directly to Sony Corporation’sChief Financial Officer with respect to corporate riskmanagement. The Corporate Year 2000 Office also reportsthe status of the project to Sony Corporation’s ExecutiveCommittee and Board of Directors.

State of readinessCustomer Products;By the end of October 1997, Sony completed its initialidentification and assessment project in respect of thepotential impact of the Year 2000 issue on its productsand since then has continued its identification and as-sessment activities with respect to its products. By theend of May 1998, Sony established a structure to enableit to address this issue around the world. Sony is takingsteps intended to ensure that customers around the worldwill be able to depend on Sony products in and after theyear 2000. In the broadcast- and professional-use prod-uct field, Sony continues to work with its customers toaddress the Year 2000 issue, and expects completion bythe end of September 1999.

Sony’s Year 2000 policy and compliance, and coun-termeasures for Year 2000 problems found in certainmodels of Sony products as well as contact points forcustomers’ inquiries, are available through the Sony Year2000 Web site at www.world.sony.com/year2000/index.html.

Information Systems and Manufacturing;As of the end of January 1999, Sony had completedapproximately 90% of its estimated total remediationfor major internal information systems and engineeringand production systems, and expects to fully completesuch remediation by the end of October 1999. Sony con-siders that integrated tests are needed for the majorsystems in Japan and the U.S., and plans to completethem by the end of September 1999 in Japan and by theend of June 1999 in the U.S.

For software and hardware which comprise Sony’sinformation systems and major non-IT systems such asproduction equipment which contain microcontrollers,Sony has taken steps to assess the level of risk by ac-quiring information from external vendors and, wherenecessary, asking for written reports to confirm the statusof compliance measures for the Year 2000 issue. As for theinformation systems provided by external vendors, Sonyhas been obtaining confirmations from external service

suppliers and is conducting tests where necessary.Sony is also addressing the Year 2000 readiness of

major parts and raw material suppliers by confirmingthe readiness of not only their information systems butalso their management, production, and other facilitiesand activities. Sony is also checking the status of order-ing systems connected to major suppliers, sales distribu-tors, and dealers by electronic data interchange.

Facilities and Infrastructure;Sony is addressing the Year 2000 readiness of controlunits of plants and buildings, such as clean room facili-ties, telephone exchanges, networks, and 24-hour work-ing facilities, by obtaining confirmations andmaintenance instructions from certain third party ser-vice providers. In addition, Sony is confirming the Year2000 readiness of third party service providers such ascompanies which transport products distributed by Sony.

CostsThe external cost to modify software programs for internalinformation systems for compliance with the Year 2000issue is estimated to be approximately 8.4 billion yen, ofwhich approximately 5.3 billion yen was expensed as in-curred by the end of the fiscal year ended March 31, 1999.Additionally, while extremely difficult to estimate precisely,the cost to replace certain internal information systems,including hardware, relating to the Year 2000 issue is esti-mated to be approximately 12.2 billion yen, of which ap-proximately 8.6 billion yen was expensed as incurred by theend of the fiscal year ended March 31, 1999. This costincludes other elements such as enhancement of function-ality of current systems. The cost to Sony for services per-formed by third parties associated with the Year 2000 issuefor Sony products is currently expected to be approximately0.6 billion yen. The Year 2000 external cost relating to manu-facturing and facility equipment is not separately trackedand such cost is principally included in the general expenseswith respect to each facility. Due to the difficulty of precisetracking, Sony also generally does not separately track itsinternal costs, which are principally related payroll costs,incurred for the Year 2000 project.

Sony does not expect its total cost for replacement,modification, and third party services related to its currentprogram of Year 2000 compliance to have a material ad-verse effect on consolidated operations or financial results.


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RisksThe Year 2000 issue could have an adverse effect on Sony’soperations due to the following factors.

Customer Products;Customers’ inquiries for Year 2000 issues of productsmay increase near the end of calendar year 1999 beyondSony’s projections. Sony’s sales and service division maynot be able to manage the inquiries sufficiently duringthat period. Sony is not able to assure that its productsdo not contain undetected Year 2000 problems.

Information Systems and Manufacturing;Errors in programs and data in Sony’s internal informa-tion systems may occur. Software such as operatingsystems purchased from third party vendors may alsofail to function properly.

Because Sony obtains information from major sup-pliers of parts and raw materials, and such informationrelies on compliance programs of third parties, and it isdifficult for Sony to estimate potential non-complianceof such suppliers, Sony is not able to assure that manu-facturing operations will not be affected by failures ofsuppliers to comply with Year 2000 requirements.

Facilities and Infrastructure;Although cessation or interruption of utilities, such aswater and power supply, due to Year 2000 problems wouldadversely affect Sony’s operations, Sony has no controlover such events and is unable to determine the likeli-hood of a negative impact on its performance at thistime. Communication networks may be affected if thirdparty vendors such as network service carriers fail to beYear 2000 compliant. Logistics of Sony’s global opera-tions may be affected if vendors, customers, freightforwarders, shipping companies, and other similarparties fail to remedy their systems. Sony also recog-nizes the possibility of environmental disruption relatedto its facilities, especially those dealing with chemicalmaterials. Year 2000 problems in banking, transporta-tion, and customs services could also adversely affectSony’s operations.

Contingency PlansIf the anticipated modifications and conversions are notcompleted on a timely basis, or if the systems of third partieson which Sony’s systems and operations rely are not made

compliant on a timely basis, the Year 2000 issue could havean adverse effect on Sony’s operations.

Sony recognizes the importance of readiness for potentialworst case scenarios. To minimize both internal and exter-nal risks, Sony is in the process of making contingency plans,including the establishment of emergency action plans andescalation procedures for each area of operation, includingcustomer services, information systems, manufacturing, andfacility management.

Additional Year 2000 Cautionary StatementSony has made the aforementioned statements consid-ering various risk factors. However, many factors maycause Sony’s actual experience to differ materially fromthose stated above. This is because the Year 2000 issueincludes many uncontrollable factors, such as inter-relation of many third parties. While Sony operates as aglobal company in many different countries, the Year2000 problem may not be addressed consistently in alllocations, including by third parties, and Sony may notbe able to rely on the same approaches in all areas. As aresult, there may be unforeseen problems in differentparts of the world. All of these factors make it impos-sible for Sony to ensure that it will be able to resolve allYear 2000 problems in a timely manner to avoid materi-ally adverse effects on its operations or business orexposure to third party liability.

C O M P L I A N C E W I T H S T A T E M E N T S O F

F I N A N C I A L A C C O U N T I N G S T A N D A R D S

In June 1998, the Financial Accounting Standards Boardissued Statement of Financial Accounting Standards No. 133,“Accounting for Derivative Instruments and HedgingActivities”. This standard, which is effective for fiscal yearsbeginning after June 15, 1999, requires all derivatives tobe recognized in the balance sheet as either assets orliabilities and measured at fair value. To implement thisstandard, all hedging relationships must be reassessed. Sonyis now in the process of assessing the impact that thisstandard will have on Sony’s results of operations and con-solidated financial position.

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Q u a r t e r l y F i n a n c i a l a n d S t o c k I n f o r m a t i o nSony Corporation and Consolidated Subsidiaries(Unaudited)Year ended March 31

Yen in billions except per share amounts

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

1998 1999 1998 1999 1998 1999 1998 1999

Sales and operating revenue . . . . ¥1,430.3 ¥1,617.3 ¥1,638.5 ¥1,751.1 ¥2,012.7 ¥1,948.0 ¥1,674.0 ¥1,478.3Operating income (loss) . . . . . . . 97.3 92.5 140.4 110.0 223.7 179.4 58.9 (43.3)Interest income (expense), net . . . (9.8) (6.2) (10.5) (8.1) (11.6) (7.4) (9.6) (3.3)Foreign exchange gain(loss), net . . . . . . . . . . . . . . . 6.4 (1.1) (6.8) 0.9 6.8 7.0 3.6 (3.9)

Income (loss) beforeincome taxes . . . . . . . . . . . . . . 91.9 92.1 110.2 101.3 214.3 232.0 37.4 (57.3)

Income taxes . . . . . . . . . . . . . . 54.6 47.6 48.6 53.5 96.9 112.4 14.8 (36.5)Net income (loss) . . . . . . . . . . . 34.8 40.9 56.1 45.1 110.4 112.3 20.8 (19.4)

Net income (loss) per shareBasic . . . . . . . . . . . . . . . . . . ¥ 89.8 ¥ 100.1 ¥ 141.7 ¥ 110.0 ¥ 274.4 ¥ 274.0 ¥ 51.0 ¥ (47.2)

Diluted . . . . . . . . . . . . . . . . . 76.3 89.5 122.1 98.5 239.0 243.5 45.9 (47.2)

Depreciation and amortization* . . ¥ 65.6 ¥ 69.2 ¥ 72.9 ¥ 78.0 ¥ 78.3 ¥ 78.2 ¥ 84.8 ¥ 81.8Capital expenditures(additions to fixed assets) . . . . . . 79.0 76.0 88.8 86.2 83.3 82.5 136.9 109.0

R&D expenses . . . . . . . . . . . . . . 69.7 79.9 80.5 96.3 79.6 85.7 88.2 113.4

Tokyo Stock Exchange priceper share of Common Stock:High . . . . . . . . . . . . . . . . . . ¥ 10,100 ¥ 12,040 ¥ 12,600 ¥ 13,490 ¥ 12,200 ¥ 9,420 ¥ 12,700 ¥ 11,930Low . . . . . . . . . . . . . . . . . . . 8,520 10,430 9,550 8,760 9,320 7,230 10,400 7,290

New York Stock Exchange priceper American Depositary Share:High . . . . . . . . . . . . . . . . . . $ 88 7/8 $ 89 5/16 $103 11/16 $97 $ 98 7/16 $ 76 7/8 $ 97 3/16 $ 100 3/4

Low . . . . . . . . . . . . . . . . . . . 69 1/2 77 1/2 85 1/16 66 15/16 74 1/2 60 1/4 82 5/16 65 1/2

* Including amortization of deferred insurance acquisition costs

Notes: 1. Basic net income (loss) per share (EPS) is computed based on the average number of shares of common stock outstanding during eachperiod and diluted EPS assumes the dilution that could occur if securities or other contracts to issue common stock were exercised orconverted into common stock or resulted in the issuance of common stock.

2. Income before income taxes and net income figures for the third quarter of the fiscal year ended March 31, 1999 include gains of ¥58.7billion ($489 million) and ¥30.7 billion ($256 million), respectively, which resulted from a contribution of securities to an outside trustfor employee retirement benefit purposes.

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F i v e - Y e a r S u m m a r y o f S e l e c t e d F i n a n c i a l D a t aSony Corporation and Consolidated Subsidiaries • Year ended March 31

Dollars inYen in millions thousands except

except per share amounts per share amounts

1995 1996 1997 1998 1999 1999

FOR THE YEARSales and operating revenue . . . ¥3,990,583 ¥4,592,565 ¥5,663,134 ¥6,755,490 ¥6,794,619 $56,621,825

Operating income (loss) . . . . . (166,640) 235,324 370,330 520,210 338,649 2,822,075Income (loss) before incometaxes . . . . . . . . . . . . . . . . . (220,948) 138,159 312,429 453,749 368,128 3,067,733

Income taxes . . . . . . . . . . . . 65,173 77,158 163,570 214,868 176,973 1,474,775Net income (loss) . . . . . . . . . (293,356) 54,252 139,460 222,068 179,004 1,491,700

Per share data:Net income (loss)

— Basic . . . . . . . . . . . . ¥ (784.7) ¥ 145.1 ¥ 367.7 ¥ 557.7 ¥ 436.9 $ 3.64— Diluted . . . . . . . . . . . (784.7) 134.0 309.2 483.4 391.0 3.26

Cash dividends. . . . . . . . . . 50.0 50.0 55.0 60.0 50.0 0.42

Depreciation and amortization* . . ¥ 226,984** ¥ 227,316 ¥ 266,532 ¥ 301,665 ¥ 307,173 $ 2,559,775Capital expenditures(additions to fixed assets) . . . 250,678 251,197 298,078 387,955 353,730 2,947,750

R&D expenses . . . . . . . . . . . . 239,164 257,326 282,569 318,044 375,314 3,127,617

AT YEAR-ENDNet working capital . . . . . . . . ¥ 537,733 ¥ 816,361 ¥ 843,500 ¥1,151,152 ¥1,126,848 $ 9,390,400Stockholders’ equity . . . . . . . . 1,007,802 1,169,147 1,459,332 1,815,555 1,823,665 15,197,208Stockholders’ equityper share . . . . . . . . . . . . . . ¥ 2,695.31 ¥ 3,125.53 ¥ 3,798.62 ¥ 4,461.39 ¥ 4,448.69 $ 37.07

Total assets . . . . . . . . . . . . . ¥4,223,914 ¥5,045,699 ¥5,680,246 ¥6,403,043 ¥6,299,053 $52,492,108

Number of shares issued atyear-end (thousands of shares) 373,911 374,068 384,185 407,195 410,439

* Including amortization of deferred insurance acquisition costs**Excluding write-off of goodwill

Notes: 1. U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥120=U.S.$1, the approximate Tokyo foreignexchange market rate as of March 31, 1999, as described in Note 3 of Notes to Consolidated Financial Statements.

2. Basic net income (loss) per share (EPS) is computed based on the average number of shares of common stock outstanding during eachperiod and diluted EPS assumes the dilution that could occur if securities or other contracts to issue common stock were exercised orconverted into common stock or resulted in the issuance of common stock.

3. Cash dividends per share for the year ended March 31, 1999 include a year-end dividend of ¥25 ($0.21), which is subject to approval of theordinary general meeting of stockholders to be held on June 29, 1999.

4. Income before income taxes and net income figures for the fiscal year ended March 31, 1999 include gains of ¥58.7 billion ($489 million)and ¥30.7 billion ($256 million), respectively, which resulted from a contribution of securities to an outside trust for employee retirementbenefit purposes.

5. The consolidated results for the fiscal year ended March 31, 1995 reflect the write-off of goodwill of ¥265 billion in the Pictures segmentand losses in the Pictures segment of approximately ¥50 billion arising from a combination of unusual items, such as abandoning a largenumber of projects in development and providing for settlement of outstanding lawsuits and contract claims.

250,678 251,197 298,078 387,955 353,730 2,947,750

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Dollars inYen in millions thousands**

1995 1996 1997 1998 1999 1999

BY BUSINESS SEGMENT*Electronics . . . . . . . . . . . . . . . . . . ¥3,027,434 ¥3,283,234 ¥3,930,292 ¥4,377,346 ¥4,355,001 $36,291,675

75.9% 71.5% 69.4% 64.8% 64.1%

Game . . . . . . . . . . . . . . . . . . . . . . 35,449 200,894 408,335 699,574 760,071 6,333,9250.9 4.4 7.2 10.4 11.2

Music . . . . . . . . . . . . . . . . . . . . . . 481,021 506,455 570,119 660,407 718,878 5,990,65012.0 11.0 10.1 9.8 10.6

Pictures . . . . . . . . . . . . . . . . . . . . 281,677 317,382 438,551 642,714 540,109 4,500,9087.1 6.9 7.7 9.5 7.9

Insurance . . . . . . . . . . . . . . . . . . . 112,831 206,802 227,920 291,061 339,368 2,828,0672.8 4.5 4.0 4.3 5.0

Other . . . . . . . . . . . . . . . . . . . . . . 52,171 77,798 87,917 84,388 81,192 676,6001.3 1.7 1.6 1.2 1.2

Consolidated total . . . . . . . . . . . . . ¥3,990,583 ¥4,592,565 ¥5,663,134 ¥6,755,490 ¥6,794,619 $56,621,825

* Sales and operating revenue to customersNote: As a result of a change in the accounting period in Pictures, results for the year ended March 31, 1998 in the segment include the thirteen-

month period from March 1, 1997 to March 31, 1998.

« Electronics Sales and Operating Revenue to Customers by Product Category » Audio . . . . . . . . . . . . . . . . . . . . ¥ 900,180 ¥ 900,400 ¥1,029,961 ¥1,127,788 ¥1,072,621 $ 8,938,508

29.7% 27.4% 26.2% 25.8% 24.6%

Video . . . . . . . . . . . . . . . . . . . . 685,802 731,097 816,582 870,854 969,129 8,076,07522.6 22.3 20.8 19.9 22.3

Televisions . . . . . . . . . . . . . . . . 544,255 554,023 704,075 709,043 702,620 5,855,16718.0 16.9 17.9 16.2 16.1

Information and communications . . 413,445 540,719 764,512 894,810 914,140 7,617,83313.7 16.5 19.4 20.4 21.0

Electronic components and other . . 483,752 556,995 615,162 774,851 696,491 5,804,09216.0 16.9 15.7 17.7 16.0

Total . . . . . . . . . . . . . . . . . . . . ¥3,027,434 ¥3,283,234 ¥3,930,292 ¥4,377,346 ¥4,355,001 $36,291,675

Note: The above table is a breakdown of Electronics sales and operating revenue to customers by product category. The Electronics business ismanaged as a single operating segment by Sony’s management. However, Sony believes that the information in this table is useful toinvestors in understanding the sales contributions of the products in this business segment. Operating income information by productcategory is not available.

BY GEOGRAPHIC SEGMENTJapan . . . . . . . . . . . . . . . . . . . . . ¥1,105,152 ¥1,379,804 ¥1,590,820 ¥1,843,149 ¥1,908,600 $15,905,000

27.7% 30.0% 28.1% 27.3% 28.1%

United States . . . . . . . . . . . . . . . . 1,152,081 1,259,926 1,639,334 2,101,907 2,157,061 17,975,50928.9 27.4 29.0 31.1 31.8

Europe . . . . . . . . . . . . . . . . . . . . . 905,416 1,054,010 1,304,491 1,567,121 1,666,714 13,889,28322.7 23.0 23.0 23.2 24.5

Other Areas . . . . . . . . . . . . . . . . . 827,934 898,825 1,128,489 1,243,313 1,062,244 8,852,03320.7 19.6 19.9 18.4 15.6

Consolidated total . . . . . . . . . . . . . ¥3,990,583 ¥4,592,565 ¥5,663,134 ¥6,755,490 ¥6,794,619 $56,621,825

Note: Classification of Geographic Segment Information shows sales and operating revenue recognized by location of customers.

** U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥120=U.S.$1, the approximate Tokyo foreign exchangemarket rate as of March 31, 1999, as described in Note 3 of Notes to Consolidated Financial Statements.

C o m p o s i t i o n o f S a l e s a n d O p e r a t i n g R e v e n u eb y B u s i n e s s a n d G e o g r a p h i c S e g m e n tSony Corporation and Consolidated SubsidiariesYear ended March 31

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C o n s o l i d a t e d B a l a n c e S h e e t sSony Corporation and Consolidated Subsidiaries • March 31

Dollars in thousandsYen in millions (Note 3)

1998 1999 1999

ASSETSCurrent assets:Cash and cash equivalents (Note 12) . . . . . . . . . . . . . . . . . . . ¥ 423,286 ¥ 592,210 $ 4,935,083Time deposits (Note 12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107,139 24,304 202,533Marketable securities (Note 9) . . . . . . . . . . . . . . . . . . . . . . . 169,209 117,857 982,142Notes and accounts receivable, trade (Note 8). . . . . . . . . . . . . 1,230,799 1,135,598 9,463,317Allowance for doubtful accounts and sales returns . . . . . . . . . . (114,911) (122,015) (1,016,792)Inventories (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 993,927 877,898 7,315,817Deferred income taxes (Note 14) . . . . . . . . . . . . . . . . . . . . . . 121,189 102,588 854,900Prepaid expenses and other current assets . . . . . . . . . . . . . . . 336,839 340,953 2,841,275

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,267,477 3,069,393 25,578,275

Noncurrent inventories—film (Note 7) . . . . . . . . . . . . . . . . . 249,066 244,537 2,037,808

Investments and advances:Affiliated companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,912 116,786 973,217Securities investments and other (Note 9) . . . . . . . . . . . . . . . 784,550 863,950 7,199,583

850,462 980,736 8,172,800

Property, plant and equipment (Notes 10 and 17):Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184,427 191,434 1,595,283Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 864,324 781,876 6,515,633Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,947,454 1,952,276 16,268,967Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,799 76,736 639,467

3,092,004 3,002,322 25,019,350Less—Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . 1,744,877 1,752,571 14,604,758

1,347,127 1,249,751 10,414,592

Other assets:Intangibles, net (Notes 5 and 13) . . . . . . . . . . . . . . . . . . . . . 124,817 123,272 1,027,267Goodwill, net (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160,491 139,888 1,165,733Deferred insurance acquisition costs (Note 11) . . . . . . . . . . . . . 163,120 199,868 1,665,567Other (Note 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240,483 291,608 2,430,066

688,911 754,636 6,288,633

¥6,403,043 ¥6,299,053 $52,492,108

The accompanying notes are an integral part of these statements.

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1998 1999 1999

LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent liabilities:Short-term borrowings (Notes 10 and 12) . . . . . . . . . . . . . . . . ¥ 114,617 ¥ 40,877 $ 340,642Current portion of long-term debt (Notes 10, 12 and 17) . . . . . 84,794 87,825 731,875Notes and accounts payable, trade (Note 8) . . . . . . . . . . . . . . 768,152 722,690 6,022,417Accounts payable, other and accrued expenses (Note 13) . . . . . 676,547 670,631 5,588,591Accrued income and other taxes . . . . . . . . . . . . . . . . . . . . . . 157,123 107,031 891,925Other (Note 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315,092 313,491 2,612,425

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 2,116,325 1,942,545 16,187,875

Long-term liabilities:Long-term debt (Notes 10, 12 and 17) . . . . . . . . . . . . . . . . . . 1,104,420 1,037,460 8,645,500Accrued pension and severance costs (Note 13) . . . . . . . . . . . . 186,871 129,115 1,075,958Deferred income taxes (Note 14) . . . . . . . . . . . . . . . . . . . . . . 147,116 120,822 1,006,850Future insurance policy benefits and other (Note 11) . . . . . . . . 713,970 913,937 7,616,142Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193,000 195,382 1,628,183

2,345,377 2,396,716 19,972,633

Minority interest in consolidated subsidiaries . . . . . . . . . . . 125,786 136,127 1,134,392

Stockholders’ equity (Notes 15 and 18):Common stock, ¥50 par value—

Authorized: 1,350,000,000 sharesIssued and outstanding: 1998 — 407,195,271 shares . . . . . . 406,196

1999 — 410,439,111 shares . . . . . . 416,373 3,469,775Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 548,422 559,236 4,660,300Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 965,083 1,123,591 9,363,258Accumulated other comprehensive income—

Unrealized gains on securities (Note 9) . . . . . . . . . . . . . . . . 45,173 23,483 195,692Minimum pension liability adjustment (Note 13) . . . . . . . . . (5,714) (8,999) (74,992)Foreign currency translation adjustments . . . . . . . . . . . . . . (140,725) (284,380) (2,369,833)

(101,266) (269,896) (2,249,133)

Treasury stock, at cost(1998 — 246,714 shares, 1999 — 506,175 shares) . . . . . . . (2,880) (5,639) (46,992)

1,815,555 1,823,665 15,197,208

Commitments and contingent liabilities (Note 18)¥6,403,043 ¥6,299,053 $52,492,108

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1997 1998 1999 1999

Sales and operating revenue:Net sales (Note 8) . . . . . . . . . . . . . . . . . . . . . . . ¥5,383,911 ¥6,424,805 ¥6,415,418 $53,461,816Insurance revenue . . . . . . . . . . . . . . . . . . . . . . . 227,920 291,061 339,368 2,828,067Other operating revenue . . . . . . . . . . . . . . . . . . . 51,303 39,624 39,833 331,942

5,663,134 6,755,490 6,794,619 56,621,825

Costs and expenses:Cost of sales (Note 16). . . . . . . . . . . . . . . . . . . . 3,930,107 4,618,961 4,633,787 38,614,891Selling, general and administrative (Note 16) . . . . 1,153,876 1,345,584 1,500,863 12,507,192Insurance expenses . . . . . . . . . . . . . . . . . . . . . . 208,821 270,735 321,320 2,677,667

5,292,804 6,235,280 6,455,970 53,799,750

Operating income . . . . . . . . . . . . . . . . . . . . . . 370,330 520,210 338,649 2,822,075

Other income:Interest and dividends (Note 8) . . . . . . . . . . . . . 19,406 20,976 23,313 194,275Foreign exchange gain, net . . . . . . . . . . . . . . . . 18,085 10,094 2,895 24,125Gain on securities contribution to employeeretirement benefit trust (Note 9) . . . . . . . . . . . . — — 58,698 489,150

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,152 52,893 67,999 566,658

92,643 83,963 152,905 1,274,208

Other expenses:Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,892 62,524 48,275 402,292Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,652 87,900 75,151 626,258

150,544 150,424 123,426 1,028,550

Income before income taxes . . . . . . . . . . . . . . . 312,429 453,749 368,128 3,067,733

Income taxes (Note 14):Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169,060 210,113 158,386 1,319,883Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,490) 4,755 18,587 154,892

163,570 214,868 176,973 1,474,775Income before minority interest . . . . . . . . . . . . 148,859 238,881 191,155 1,592,958Minority interest in consolidated subsidiaries . . 9,399 16,813 12,151 101,258

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 139,460 ¥ 222,068 ¥ 179,004 $ 1,491,700

Yen Dollars (Note 3)

Per share data (Note 4):Net income — Basic . . . . . . . . . . . . . . . . . . . . . ¥367.7 ¥557.7 ¥436.9 $3.64

— Diluted . . . . . . . . . . . . . . . . . . . . 309.2 483.4 391.0 3.26Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . 55.0 60.0 50.0 0.42


C o n s o l i d a t e d S t a t e m e n t s o f I n c o m eSony Corporation and Consolidated Subsidiaries • Year ended March 31

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1997 1998 1999 1999

Cash flows from operating activities:Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥139,460 ¥222,068 ¥179,004 $1,491,700Adjustments to reconcile net income to net cashprovided by operating activities—Depreciation and amortization, including amortizationof deferred insurance acquisition costs . . . . . . . . . . . . . 266,532 301,665 307,173 2,559,775

Accrual for pension and severance costs, less payments . . . . 19,521 40,367 25,817 215,142Loss on disposal of fixed assets . . . . . . . . . . . . . . . . . . . 13,411 22,678 15,079 125,658Gain on securities contribution toemployee retirement benefit trust . . . . . . . . . . . . . . . . — — (58,698) (489,150)

Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . (5,490) 4,755 18,587 154,892Changes in assets and liabilities:

(Increase) decrease in notes and accounts receivable . . . . (65,905) (113,050) 38,942 324,517(Increase) decrease in inventories . . . . . . . . . . . . . . . 41,825 (96,138) 70,693 589,108Increase in film inventories . . . . . . . . . . . . . . . . . . . . (37,565) (7,194) (27,103) (225,858)Increase (decrease) in notes and accounts payable . . . . . . 66,099 109,785 (24,063) (200,525)Increase (decrease) in accrued income and other taxes . . . . 89,887 (28,775) (30,125) (251,042)Increase in future insurance policy benefits and other . . . 131,947 134,707 199,967 1,666,391Increase in deferred insurance acquisition costs . . . . . . (51,067) (39,553) (57,417) (478,475)Changes in other current assets and liabilities, net . . . . 70,880 86,203 55,286 460,717

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,600 (25,168) (49,875) (415,625)Net cash provided by operating activities . . . . . . . . . . 723,135 612,350 663,267 5,527,225

Cash flows from investing activities:Payments for purchases of fixed assets . . . . . . . . . . . . . . . . (298,187) (378,053) (368,355) (3,069,625)Proceeds from sales of fixed assets . . . . . . . . . . . . . . . . . . 14,940 22,413 28,783 239,858Payments for investments and advances . . . . . . . . . . . . . . . (450,399) (463,239) (741,053) (6,175,442)Proceeds from sales of investment securities andcollections of advances . . . . . . . . . . . . . . . . . . . . . . . . . 316,787 323,443 530,097 4,417,475

Proceeds from merger of Loews Theatresexhibition business (Note 6) . . . . . . . . . . . . . . . . . . . . . . — — 53,007 441,725

Payments for purchases of marketable securities . . . . . . . . . (128,929) (95,163) (121,483) (1,012,358)Proceeds from sales of marketable securities . . . . . . . . . . . . 46,105 46,730 171,868 1,432,233(Increase) decrease in time deposits . . . . . . . . . . . . . . . . . (18,361) (54,831) 79,876 665,634Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 — — —

Net cash used in investing activities . . . . . . . . . . . . . . (517,998) (598,700) (367,260) (3,060,500)Cash flows from financing activities:Proceeds from issuance of long-term debt . . . . . . . . . . . . . . 171,698 342,101 54,208 451,733Payments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . (209,383) (332,154) (69,889) (582,408)Decrease in short-term borrowings . . . . . . . . . . . . . . . . . . . (192,034) (2,345) (71,601) (596,675)Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,657) (21,582) (24,501) (204,175)Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 881 (3,790) (445) (3,708)

Net cash used in financing activities . . . . . . . . . . . . . . (247,495) (17,770) (112,228) (935,233)Effect of exchange rate changes on cash and cash equivalents . . 11,537 (1,112) (14,855) (123,792)Net increase (decrease) in cash and cash equivalents . . . . . . (30,821) (5,232) 168,924 1,407,700Cash and cash equivalents at beginning of year . . . . . . . . . . 459,339 428,518 423,286 3,527,383Cash and cash equivalents at end of year . . . . . . . . . . . . . . ¥428,518 ¥423,286 ¥592,210 $4,935,083

Supplemental data:Cash paid during the year for—

Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 87,723 ¥239,054 ¥191,378 $1,594,817Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,004 64,102 49,096 409,133


C o n s o l i d a t e d S t a t e m e n t s o f C a s h F l o w sSony Corporation and Consolidated Subsidiaries • Year ended March 31

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C o n s o l i d a t e d S t a t e m e n t s o f C h a n g e s i nS t o c k h o l d e r s ’ E q u i t ySony Corporation and Consolidated Subsidiaries • Year ended March 31

Yen in millions

AccumulatedAdditional other Treasury

Common paid-in Retained comprehensive stock, atstock capital earnings income cost Total

Balance at March 31, 1996 . . . . . . . . ¥299,885 ¥441,735 ¥648,723 ¥(221,170) ¥ (26) ¥1,169,147Exercise of stock purchase warrants . . . 336 336 672Conversion of convertible bonds . . . . 31,816 31,762 63,578Common stock warrants . . . . . . . . . . 200 200

Comprehensive income:Net income . . . . . . . . . . . . . . . . . 139,460 139,460Other comprehensive income,net of tax (Note 15)—Unrealized gains on securities:Unrealized holding gainsarising during the period . . . . (14,055) (14,055)

Foreign currency translationadjustments . . . . . . . . . . . . . . 121,282 121,282

Total comprehensive income . . . . . 246,687

Dividends declared . . . . . . . . . . . . . (20,882) (20,882)Purchase of treasury stock . . . . . . . . (3,156) (3,156)Reissuance of treasury stock . . . . . . . 3,086 3,086

Balance at March 31, 1997 . . . . . . . . 332,037 474,033 767,301 (113,943) (96) 1,459,332Exercise of stock purchase warrants . . . . 861 860 1,721Conversion of convertible bonds . . . . 73,298 73,214 146,512Common stock warrants . . . . . . . . . . 315 315

Comprehensive income:Net income . . . . . . . . . . . . . . . . . 222,068 222,068Other comprehensive income,net of tax (Note 15)—Unrealized gains on securities:Unrealized holding gainsarising during the period . . . . (22,105) (22,105)

Minimum pension liabilityadjustment . . . . . . . . . . . . . . (5,714) (5,714)

Foreign currency translationadjustments . . . . . . . . . . . . . . 40,496 40,496

Total comprehensive income . . . . . 234,745

Dividends declared . . . . . . . . . . . . . (24,286) (24,286)Purchase of treasury stock . . . . . . . . (7,948) (7,948)Reissuance of treasury stock . . . . . . . 5,164 5,164

Balance at March 31, 1998 . . . . . . . . ¥406,196 ¥548,422 ¥965,083 ¥(101,266) ¥(2,880) ¥1,815,555

(Continued on following page.)

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Yen in millions



Balance at March 31, 1998 . . . . . . . ¥406,196 ¥548,422 ¥ 965,083 ¥(101,266) ¥(2,880) ¥1,815,555Exercise of stock purchase warrants . . 81 80 161Conversion of convertible bonds . . . 10,096 10,094 20,190Common stock warrants . . . . . . . . . 640 640

Comprehensive income: Net income . . . . . . . . . . . . . . . . 179,004 179,004 Other comprehensive income,

net of tax (Note 15)— Unrealized gains on securities:

Unrealized holding gainsarising during the period . . . . 9,009 9,009

Less: Reclassificationadjustment for gainsincluded in net income . . (30,699) (30,699)

Minimum pension liabilityadjustment . . . . . . . . . . . . . (3,285) (3,285)

Foreign currency translationadjustments . . . . . . . . . . . . . (143,655) (143,655)

Total comprehensive income . . . . 10,374

Dividends declared . . . . . . . . . . . . (20,496) (20,496)Purchase of treasury stock . . . . . . . (4,084) (4,084)Reissuance of treasury stock . . . . . . 1,325 1,325Balance at March 31, 1999 . . . . . . . ¥416,373 ¥559,236 ¥1,123,591 ¥(269,896) ¥(5,639) ¥1,823,665

Dollars in thousands (Note 3)



Balance at March 31, 1998 . . . . . . $3,384,967 $4,570,183 $8,042,358 $ (843,883) $(24,000) $15,129,625Exercise of stock purchase warrants . . 675 667 1,342Conversion of convertible bonds . . . 84,133 84,117 168,250Common stock warrants . . . . . . . . 5,333 5,333

Comprehensive income:Net income . . . . . . . . . . . . . . . 1,491,700 1,491,700Other comprehensive income,net of tax (Note 15)—Unrealized gains on securities:Unrealized holding gainsarising during the period . . 75,075 75,075

Less: Reclassificationadjustment for gainsincluded in net income . (255,825) (255,825)

Minimum pension liabilityadjustment . . . . . . . . . . . . (27,375) (27,375)

Foreign currency translationadjustments . . . . . . . . . . . . (1,197,125) (1,197,125)

Total comprehensive income . . . 86,450

Dividends declared . . . . . . . . . . . (170,800) (170,800)Purchase of treasury stock . . . . . . (34,033) (34,033)Reissuance of treasury stock . . . . . 11,041 11,041Balance at March 31, 1999 . . . . . . $3,469,775 $4,660,300 $9,363,258 $(2,249,133) $(46,992) $15,197,208


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N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t sSony Corporation and Consolidated Subsidiaries

1. Nature of operations

Sony Corporation and consolidated subsidiaries (herein-after collectively referred to as “Sony”) is engaged in thedevelopment, design, manufacture, and sale of variouskinds of electronic equipment, instruments, and devicesfor consumer and industrial markets. Sony’s principalmanufacturing facilities are located in Japan, the UnitedStates, Europe, and Asia, and its products are marketedby sales subsidiaries and unaffiliated local distributorsthroughout the world. Sony also develops, produces,manufactures, and markets home-use game consoles andsoftware. Sony is engaged in the development, produc-tion, manufacture, and distribution of recorded music,in all commercial formats and musical genres. Sony isalso engaged in the development, production, manufac-ture, marketing, distribution and broadcasting of image-based software, including film, video, and television.Further, Sony conducts insurance operations principallythrough a Japanese stock life insurance subsidiary. Inaddition to the above, Sony is engaged in leasing andcredit card businesses, satellite distribution servicesincluding program supplying businesses in Japan,internet-related businesses, development of location-based entertainment complexes, and others.

2. Summary of significant accounting policies

Sony Corporation and its subsidiaries in Japan maintaintheir records and prepare their financial statements inaccordance with accounting principles generally ac-cepted in Japan while its foreign subsidiaries maintaintheir records and prepare their financial statements inconformity with accounting principles generally acceptedin the countries of their domiciles. Certain adjustmentsand reclassifications, including those relating to the taxeffects of temporary differences, capitalization of stockpurchase warrants, deferral of insurance acquisitioncosts and the accrual of certain expenses, have beenincorporated in the accompanying consolidated financialstatements to conform with accounting principlesgenerally accepted in the United States of America (U.S.GAAP). These adjustments were not recorded in thestatutory books of account.

The preparation of financial statements in conformitywith U.S. GAAP requires management to make estimatesand assumptions that affect the reported amounts ofassets and liabilities and disclosure of contingent assetsand liabilities at the date of the financial statementsand the reported amounts of revenues and expenses dur-ing the reporting period. Actual results could differ fromthose estimates.

Significant accounting policies are as follows:

Basis of consolidation and accounting forinvestments in affiliated companies

The consolidated financial statements include theaccounts of Sony Corporation and those of its majority-owned subsidiary companies. All intercompany transac-tions and accounts are eliminated. Investments in 20%to 50% owned companies are stated at cost plus/minusequity in undistributed earnings/losses; consolidatednet income includes Sony’s equity in current earnings/losses of such companies, after elimination of unrealizedintercompany profits.

On occasion, a subsidiary or affiliated companyaccounted for by the equity method may issue its sharesto third parties as either a public offering or upon con-version of convertible debt to common stock at amountsper share in excess of or less than Sony’s average pershare carrying value. With respect to such transactions,the resulting gains or losses arising from the change ininterest are recorded in income for the year the changein interest transaction occurs.

The excess of the cost over the underlying net equityof investments in subsidiaries and affiliated companiesaccounted for on an equity basis is allocated to identifi-able assets based on fair values at the date of acquisi-tion. The unassigned residual value of the excess of thecost over the underlying net equity is recognized asgoodwill.

Translation of foreign currenciesAll asset and liability accounts of foreign subsidiariesand affiliates are translated into Japanese yen at appro-priate year-end current rates and all income and expenseaccounts are translated at rates that approximate thoserates prevailing at the time of the transactions. Theresulting translation adjustments are accumulated as acomponent of accumulated other comprehensive income.

Foreign currency receivables and payables are trans-lated at appropriate year-end current rates and theresulting translation gains or losses are taken intoincome currently.

Revenue recognitionRevenues from electronics, game and music sales arerecognized when products are shipped to customers.

Motion picture revenue is recognized beginning on thedate of theatrical exhibition. Revenue from televisionlicensing agreements is recognized when the motionpicture or television series first becomes available fortelecast. Revenue from home videocassette sales isgenerally recognized on the date of shipment.

Insurance premiums are reported as revenue whendue from policyholders. Benefits and expenses areassociated with earned insurance premiums so as toresult in the recognition of profits over the life of thecontracts. This association is accomplished through aprovision for liabilities for future benefits and amortiza-tion of acquisition costs.

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Cash and cash equivalentsCash and cash equivalents include all highly liquid in-vestments, generally with original maturities of threemonths or less, that are readily convertible to knownamounts of cash and are so near maturity that theypresent insignificant risk of changes in value because ofchanges in interest rates.

Marketable securitiesMarketable securities consist of debt and equity securi-ties. Debt securities and equity securities designated asavailable-for-sale, whose fair values are readily deter-minable, are carried at fair value with unrealized gainsor losses included as a component of accumulated othercomprehensive income, net of applicable taxes. Debtand equity securities classified as trading securities arecarried at fair value with unrealized gains or losses in-cluded in income. Debt securities that are expected tobe held-to-maturity are carried at amortized cost. Indi-vidual securities classified as either available-for-sale orheld-to-maturity are reduced to net realizable value by acharge to income for other than temporary declines infair value. Realized gains and losses are determined onthe average cost method and are reflected in income.

InventoriesInventories in electronics, game and music are valued atcost, not in excess of market, cost being determined onthe “average cost” basis except for the cost of finishedproducts carried by certain subsidiary companies whichis determined on the “first-in, first-out” basis.

Film costs include production, print, certain advertis-ing costs and allocated overhead. Film costs are amor-tized in the proportion that revenue for a period relatesto management’s estimate of ultimate revenues.

Unamortized film costs are compared with estimatednet realizable value on an individual film basis and write-downs are recorded when indicated. Film costs for motionpictures and television programs that are expected to beamortized against revenues from primary markets areclassified as current assets. Primary markets for motionpictures include theatrical, home videocassette and paytelevision. Primary markets for television programsinclude network and first-run syndication. All other filmcosts are classified as noncurrent.

Property, plant and equipment and depreciationProperty, plant and equipment is stated at cost. Depre-ciation of property, plant and equipment is computed onthe declining-balance method for Sony Corporation andJapanese subsidiaries and on the straight-line methodfor foreign subsidiary companies at rates based on esti-mated useful lives of the assets according to generalclass, type of construction and use. Significant renewalsand additions are capitalized at cost. Maintenance andrepairs, and minor renewals and betterments are chargedto income as incurred.

Intangibles and goodwillIntangibles, which mainly consist of artist contracts andmusic catalogs, are being amortized on a straight-linebasis principally over 16 years and 21 years, respectively.

Goodwill recognized in acquisitions accounted for aspurchases is being amortized on a straight-line basisprincipally over a 40-year period.

Deferred insurance acquisition costsCosts that vary with and are primarily related to acquir-ing new insurance policies are deferred and are beingamortized mainly over the premium-paying period of therelated insurance policies using assumptions consistentwith those used in computing policy reserves.

Future insurance policy benefitsFuture insurance policy benefits are computed based onactuarial assumptions.

Accounting for the impairment of long-lived assetsSony’s long-lived assets, including goodwill and identifi-able intangibles, held and used are reviewed for impair-ment whenever events or changes in circumstancesindicate that the carrying amount of the assets may notbe recoverable. When the sum of expected future cashflows (undiscounted and without interest charges) isless than the carrying amount of the asset, an impair-ment loss is recognized, based on the fair value of theasset. The fair value of goodwill is determined using adiscounted cash flows analysis.

Income taxesThe provision for income taxes is computed based onthe pretax income included in the consolidated state-ments of income. The asset and liability approach isused to recognize deferred tax assets and liabilities forthe expected future tax consequences of temporarydifferences between the carrying amounts and the taxbases of assets and liabilities.

Derivative financial instrumentsDerivative financial instruments, which include foreignexchange forward contracts, foreign currency optioncontracts, interest rate swap agreements, and interestrate and currency swap agreements, are used in Sony’srisk management of foreign currency and interest raterisk exposures of its financial assets and liabilities.

Foreign exchange forward contractsForeign exchange forward contracts are used to limitexposure to losses, resulting from changes in foreigncurrency exchange rates, on accounts receivable andpayable and anticipated transactions denominated inforeign currencies. Foreign exchange forward con-tracts which are designated and effective as hedgesof such currency exchange rate risk on existing assetsand liabilities are marked to market and included asan offset to foreign exchange gains/losses recorded

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on the existing assets and liabilities. Such contractson anticipated transactions, including contracts usedto hedge intercompany foreign currency commit-ments which do not qualify as firm commitments, aremarked to market with changes in value recognizedin foreign exchange gains/losses.

Foreign currency option contractsSony enters into purchased foreign currency optioncontracts to limit exposure to losses, resulting fromchanges in foreign currency exchange rates, onaccounts receivable and anticipated transactionsdenominated in foreign currencies. Sony also entersinto written foreign currency option contracts, ofwhich the majority are part of range forward con-tracts corresponding to the purchased foreign cur-rency option contracts. The carrying values of allforeign currency option contracts are marked tomarket with changes in value recognized in foreignexchange gains/losses.

Interest rate swap agreements and interest rateand currency swap agreements

Sony enters into interest rate swap agreements orinterest rate and currency swap agreements in orderto lower funding costs, to diversify sources of fund-ing and to limit Sony’s exposure to loss in relation tounderlying debt instruments resulting from adversefluctuations in interest rates or foreign currencyexchange rates. The related interest differentials paidor received under the interest rate swap agreementsand under the interest rate and currency swap agree-ments are recognized over the terms of the agree-ments in interest expense. Currency swap portionsof the interest rate and currency swap agreementswhich are designated and effective as hedges ofexposure to losses resulting from changes in foreigncurrency exchange rates on underlying debt denomi-nated in foreign currency are marked to market andincluded as an offset to foreign exchange gains/losses on the underlying debt.

After an underlying hedged transaction is settledor ceases to exist, all changes in fair value of relatedderivatives which have not been settled are recognizedin foreign exchange gains/losses.

Net income per shareBasic net income per share (EPS) is computed based onthe average number of shares of common stock out-standing during each period and diluted EPS assumesthe dilution that could occur if securities or othercontracts to issue common stock were exercised orconverted into common stock or resulted in the issuanceof common stock. EPS is appropriately adjusted for anyfree distributions of common stock.

Free distribution of common stockOn occasion, Sony Corporation may make a free distribu-tion of common stock which is accounted for either by atransfer of the applicable par value from additional paid-in capital to the common stock account or with no entryif free shares are distributed from the portion of previ-ously issued shares accounted for as excess of par valuein the common stock account. Under the JapaneseCommercial Code, a stock dividend can be effected byan appropriation of retained earnings to the commonstock account by resolution of the general stockholders’meeting, followed by a free share distribution withrespect to the amount appropriated by resolution ofthe Board of Directors’ Meeting.

Common stock issue costsCommon stock issue costs are directly charged to retainedearnings, net of tax, in the accompanying consolidatedfinancial statements as the Japanese Commercial Codeprohibits charging such stock issue costs to capitalaccounts which is the prevailing practice in the UnitedStates of America.

Comprehensive incomeSony adopted Statement of Financial AccountingStandards (FAS) No. 130, ”Reporting ComprehensiveIncome” in the quarter ended June 30, 1998. Compre-hensive income is defined in this standard as totalchange in stockholders’ equity excluding capital trans-actions. Sony’s comprehensive income comprises netincome plus other comprehensive income representingchanges in foreign currency translation adjustments,unrealized gains/losses on securities and minimumpension liability adjustment. Sony has elected to dis-close comprehensive income and its components in thestatement of changes in stockholders’ equity.

Recent pronouncements

Derivative instruments and hedging activitiesIn June 1998, the Financial Accounting StandardsBoard issued FAS 133, “Accounting for DerivativeInstruments and Hedging Activities”. This standard,which is effective for fiscal years beginning afterJune 15, 1999, requires all derivatives to be recog-nized in the statement of financial position as eitherassets or liabilities and measured at fair value. Toimplement this standard, all hedging relationshipsmust be reassessed. Sony is now in the process ofassessing the impact that this standard will have onSony’s results of operations and consolidated finan-cial position.

ReclassificationsCertain reclassifications of the financial statements forthe years ended March 31, 1997 and 1998 have beenmade to comform to the presentation for the year endedMarch 31, 1999.

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4. Reconciliation of the differences between basic and diluted net income per share (EPS)

3. U.S. dollar amounts

U.S. dollar amounts presented in the financial state-ments are included solely for the convenience of thereader. These translations should not be construed asrepresentations that the yen amounts actually represent,or have been or could be converted into U.S. dollars.

As the amounts shown in U.S. dollars are for conve-nience only, the rate of ¥120=U.S.$1, the approximatecurrent rate at March 31, 1999, has been used for thepurpose of presentation of the U.S. dollar amounts inthe accompanying consolidated financial statements.

Yen in millions Thousands of shares Yen

Weighted-averageNet income shares EPS

For the year ended March 31, 1997Basic EPS

Net income available to common stockholders . . . . . . ¥139,460 379,230 ¥367.7

Effect of Dilutive SecuritiesWarrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69Convertible bonds . . . . . . . . . . . . . . . . . . . . . . . . . . 2,455 79,729

Diluted EPSNet income for computation. . . . . . . . . . . . . . . . . . . ¥141,915 459,028 ¥309.2


Net income available to common stockholders . . . . . . ¥222,068 398,181 ¥557.7

Effect of Dilutive SecuritiesWarrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51Convertible bonds . . . . . . . . . . . . . . . . . . . . . . . . . . 2,271 65,890

Diluted EPSNet income for computation. . . . . . . . . . . . . . . . . . . ¥224,339 464,122 ¥483.4

Yen in millions Thousands of shares Yen Dollars

Weighted-averageNet income shares EPS


Net income available to common stockholders . . . . . . ¥179,004 409,753 ¥436.9 $3.64Effect of Dilutive Securities

Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Convertible bonds . . . . . . . . . . . . . . . . . . . . . . . . . . 2,361 54,047

Diluted EPSNet income for computation. . . . . . . . . . . . . . . . . . . ¥181,365 463,830 ¥391.0 $3.26

5. Accumulated amortization of intangibles and goodwill

Reconciliation of the differences between basic anddiluted EPS for the years ended March 31, 1997, 1998

and 1999 is as follows:

Accumulated amortization of intangibles and goodwillamounted to ¥218,225 million and ¥211,248 million

($1,760,400 thousand) at March 31, 1998 and 1999,respectively.

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7. Inventories

Inventories comprise the following:

Yen in millions Dollars in thousands

March 31 March 31,

1998 1999 1999

Current:Finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥630,613 ¥525,548 $4,379,567Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,035 101,754 847,950Raw materials, purchased components and supplies . . . . . . . . . 134,392 133,629 1,113,575Film — released . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104,585 110,740 922,833

— in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,302 6,227 51,892¥993,927 ¥877,898 $7,315,817

Noncurrent:Film — released . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥172,515 ¥159,877 $1,332,308

— in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,551 84,660 705,500¥249,066 ¥244,537 $2,037,808

8. Account balances and transactions with affiliated companies

Account balances and transactions with affiliated companies are presented below:


March 31 March 31,

1998 1999 1999

Accounts receivable, trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥9,425 ¥14,744 $122,867Accounts payable, trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 945 132 1,100


Year ended March 31 Year ended1997 1998 1999 March 31, 1999

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥96,183 ¥27,419 ¥25,885 $215,708Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 733 3,199 1,932 16,100

Dividends from affiliated companies accounted for bythe equity method for the years ended March 31, 1997,

1998 and 1999 were ¥3,071 million, ¥1,074 million and¥5,017 million ($41,808 thousand), respectively.

6. Proceeds from merger of Loews Theatres exhibition business

consolidates the results of Loews; Loews’ results are nowreported on an equity basis. In connection with theLoews merger and the subsequent public offering, Sonyreceived proceeds of ¥53,007 million ($441,725 thou-sand) and recorded a gain of ¥5,181 million ($43,175thousand), which is reflected in other income-other.

During the quarter ended June 30, 1998, Sony merged itsLoews Theatres exhibition business with Cineplex OdeonCorporation to create Loews Cineplex EntertainmentCorporation (“Loews”). Subsequent to the merger, Loewscompleted a public offering of its common stock. Afterthese transactions, Sony’s ownership in Loews is 39.5%.As a result of these transactions, Sony no longer

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9. Marketable securities and securities investments and other

and cost pertaining to available-for-sale securities areas follows:

Yen in millions

March 31, 1998 March 31, 1999

Gross Gross Gross Grossunrealized unrealized unrealized unrealized

Cost gains losses Fair value Cost gains losses Fair value

Available-for-sale:Debt securities . . ¥613,905 ¥27,146 ¥2,135 ¥638,916 ¥746,005 ¥36,632 ¥12,187 ¥770,450Equity securities . . 60,049 65,486 4,220 121,315 57,712 13,774 3,156 68,330

Total . . . . . . . . ¥673,954 ¥92,632 ¥6,355 ¥760,231 ¥803,717 ¥50,406 ¥15,343 ¥838,780

Dollars in thousands

March 31, 1999

Gross Grossunrealized unrealized

Cost gains losses Fair value

Available-for-sale:Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,216,708 $305,267 $101,558 $6,420,417Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 480,933 114,783 26,300 569,416

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,697,641 $420,050 $127,858 $6,989,833

Marketable securities and securities investments andother as of March 31, 1998 and 1999 include short-terminvestments in monetary trusts and long-term advancesto third parties of ¥131,662 million and ¥101,618 million($846,817 thousand), respectively.

At March 31, 1999, debt securities mainly consist ofJapanese government and municipal bonds and corpo-rate debt securities due within 1 to 15 years.

Proceeds from sales of available-for-sale securitieswere ¥347,790 million, ¥359,815 million and ¥621,045million ($5,175,375 thousand) for the years endedMarch 31, 1997, 1998 and 1999, respectively. On thosesales, gross realized gains computed on the average costbasis were ¥19,174 million, ¥18,028 million and ¥9,475million ($78,958 thousand) and gross realized losseswere ¥9,877 million, ¥13,793 million and ¥3,554 million($29,617 thousand), respectively.

In December 1998, Sony Corporation contributedcertain marketable equity securities, not includingthose of its subsidiaries and affiliated companies, toan employee retirement benefit trust, with no cashproceeds thereon. The fair value of these securities at

the time of contribution was ¥81,413 million($678,442 thousand). Upon contribution of theseavailable-for-sale securities, the net unrealized gainwas realized and was disclosed as “gain on securitiescontribution to employee retirement benefit trust” onthe statement of income. Since the unrealized gain,net of tax, had already been recorded as accumulatedother comprehensive income, the contribution itselfdid not impact the amount of comprehensive income.

The net change in unrealized gain or loss on tradingsecurities that has been included in earnings duringthe years ended March 31, 1997, 1998 and 1999 wasinsignificant.

In the ordinary course of business, Sony maintainslong-term investment securities, included in securitiesinvestments and other, issued by a number of nonpubliccompanies. The aggregate carrying amounts of the in-vestments in nonpublic companies were ¥60,527 millionand ¥41,203 million ($343,358 thousand) at March 31,1998 and 1999, respectively. The corresponding fairvalues at those dates were not computed as suchestimation was not readily determinable.

Marketable securities and securities investments andother include debt and equity securities of which theaggregate fair value, gross unrealized gains and losses

10. Short-term borrowings and long-term debt

Short-term borrowings comprise the following:Yen in millions Dollars in thousands

March 31 March 31,

1998 1999 1999

Loans, principally from banks, with weighted-average interest rates of3.99% and 2.34% per annum at March 31, 1998 and 1999, respectively . . ¥112,636 ¥40,877 $340,642

Commercial paper with interest of 6.15% per annum . . . . . . . . . . . . . . 1,981 — —¥114,617 ¥40,877 $340,642

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Long-term debt comprises the following:Dollars in

Yen in millions thousands

March 31 March 31,

1998 1999 1999

Unsecured loans, representing obligations principally to banks:Due 1998 to 2017 with interest ranging from1.0% to 9.25% per annum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 83,158

Due 1999 to 2017 with interest ranging from1.0% to 6.25% per annum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 60,385 $ 503,208

Secured loans, representing obligations principally to banks:Due 1999 to 2003 with interest ranging from3.0% to 10.13% per annum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,148

Due 1999 to 2012 with interest ranging from3.22% to 10.13% per annum . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,501 245,842

Medium-term notes of consolidated subsidiaries:Due 1998 to 2006 with interest ranging from3.41% to 8.04% per annum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231,419

Due 1999 to 2006 with interest ranging from2.87% to 8.04% per annum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172,698 1,439,150

Unsecured 2.0% convertible bonds due 2000, convertible currently at¥4,159.9 ($34.67) for one common share, redeemable before due date . . . 342 330 2,750

Unsecured 0.15% convertible bonds due 2001, convertible currently at¥6,519 ($54.33) for one common share, redeemable before due date . . . 105,882 89,762 748,017

Unsecured 1.5% convertible bonds due 2002, convertible currently at¥4,387.9 ($36.57) for one common share, redeemable before due date . . . 772 700 5,833

Unsecured 1.4% convertible bonds due 2003, convertible currently at¥5,415.5 ($45.13) for one common share, redeemable before due date . . . 17,428 13,627 113,558

Unsecured 1.4% convertible bonds due 2005, convertible currently at¥7,990.9 ($66.59) for one common share, redeemable before due date . . . 297,772 297,586 2,479,883

Unsecured 0.1% bonds, due 1999 with detachable warrants . . . . . . . . . . 1,000 1,000 8,333Unsecured 0.1% bonds, due 2000 with detachable warrants . . . . . . . . . . 2,000 2,000 16,667Unsecured 0.1% bonds, due 2001 with detachable warrants . . . . . . . . . . 3,500 3,500 29,167Unsecured 0.03% bonds, due 2004 with detachable warrants,net of unamortized discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 3,671 30,592

Unsecured 6.875% bonds due 2000, net of unamortized premium . . . . . . 50,149 50,066 417,217Unsecured 4.4% bonds due 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000 80,000 666,667Unsecured 6.125% U.S. dollar notes due 2003,net of unamortized discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193,022 193,104 1,609,200

Unsecured 1.95% notes of a consolidated subsidiary, due 1998 . . . . . . . . 15,000 — —Unsecured 2.55% notes of a consolidated subsidiary, due 2000 . . . . . . . . 5,000 5,000 41,667Unsecured 5.01% yen/U.S. dollar dual currency notes ofa consolidated subsidiary, due 2000 . . . . . . . . . . . . . . . . . . . . . . . . . 25,362 23,356 194,633

Unsecured 2.0% bonds of a consolidated subsidiary, due 2001 . . . . . . . . 15,000 15,000 125,000Unsecured 1.35% bonds of a consolidated subsidiary, due 2001 . . . . . . . . — 15,000 125,000Unsecured 2.5% bonds of a consolidated subsidiary, due 2003 . . . . . . . . 15,000 15,000 125,000Unsecured 2.0% bonds of a consolidated subsidiary, due 2005 . . . . . . . . — 15,000 125,000Unsecured fixed coupon U.S. dollar notes linked tothe Yen/U.S. dollar rate of a consolidated subsidiary, due 2001 . . . . . . . 859 784 6,533

Secured 3.8% bonds of a consolidated subsidiary, due 2001,redeemable before due date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000 3,000 25,000

Long-term capital lease obligations:Due 1998 to 2006 with interest ranging from1.15% to 16.28% per annum . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,863

Due 1999 to 2009 with interest ranging from1.18% to 11.67% per annum . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,568 179,733

Guarantee deposits received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,538 13,647 113,7251,189,214 1,125,285 9,377,375

Less — Portion due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . 84,794 87,825 731,875¥1,104,420 ¥1,037,460 $8,645,500

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On September 1, 1995, Sony Corporation issued¥1 billion ($8,333 thousand) of 0.1% bonds, with 500detachable warrants. One warrant, which became exer-cisable from October 1, 1995, entitles the holder tosubscribe ¥2 million ($17 thousand) for shares ofcommon stock of Sony Corporation at ¥5,330 ($44) pershare (subject to adjustment in certain circumstances).Upon issuance of the bonds, Sony Corporation boughtall of these warrants and distributed such instruments atfair market value to the then directors of Sony Corpora-tion as a part of their remuneration. All warrants havebeen exercised.

On August 16, 1996, Sony Corporation issued¥2 billion ($16,667 thousand) of 0.1% bonds, with1,000 detachable warrants. One warrant, which becameexercisable from October 1, 1996, entitles the holderto subscribe ¥2 million ($17 thousand) for shares ofcommon stock of Sony Corporation at ¥7,022 ($59) pershare (subject to adjustment in certain circumstances).Upon issuance of the bonds, Sony Corporation boughtall of these warrants and distributed such instrumentsat fair market value to the then directors and selectedemployees of Sony Corporation as a part of their remu-neration or salary. At March 31, 1999, 222 warrants wereoutstanding and will expire on August 15, 2000.

On October 13, 1997, Sony Corporation issued¥3.5 billion ($29,167 thousand) of 0.1% bonds, with1,750 detachable warrants. One warrant, which becameexercisable from November 2, 1998, entitles the holderto subscribe ¥2 million ($17 thousand) for shares ofcommon stock of Sony Corporation at ¥11,788 ($98) pershare (subject to adjustment in certain circumstances).Upon issuance of the bonds, Sony Corporation boughtall of these warrants and distributed such instruments atfair market value to the then directors and selectedemployees of Sony Corporation as a part of their remu-neration or salary. At March 31, 1999, all warrants wereoutstanding and will expire on October 12, 2001.

On August 17, 1998, Sony Corporation issued¥4 billion ($33,333 thousand) of 0.03% bonds, with2,000 detachable warrants. One warrant, which will beexercisable from September 1, 1999, entitles the holderto subscribe ¥2 million ($17 thousand) for shares ofcommon stock of Sony Corporation at ¥12,527 ($104) pershare (subject to adjustment in certain circumstances).Upon issuance of the bonds, Sony Corporation boughtall of these warrants and distributed such instrumentsat fair market value to the then directors and selectedemployees of Sony Corporation as a part of their remu-neration or salary. At March 31, 1999, all warrants wereoutstanding and will expire on August 16, 2004.

On March 4, 1998, Sony Corporation issued unsecuredU.S. $1.5 billion Notes due 2003 with an interest rate of6.125%. The Notes are redeemable before the due date.By entering into several interest rate and currency swapagreements and interest rate swap agreements, Sony haseffectively converted the cash stream for these Notesinto yen with fixed interest rates of 1.287% to 1.515%

per annum for ¥150,000 million ($1,250,000 thousand)principled amount and LIBOR plus 0.06997% per annumfor ¥43,425 million ($361,875 thousand) principledamount as of March 31, 1999.

At March 31, 1999, property, plant and equipmentwith a book value of ¥8,293 million ($69,108 thousand)was mortgaged as security for loans and bonds issued byconsolidated subsidiaries.

Aggregate amounts of annual maturities of long-termdebt during the next five years are as follows:

Year ending March 31 Yen in millions Dollars in thousands

2000 . . . . . . . . . . . . ¥ 87,825 $ 731,8752001 . . . . . . . . . . . . 224,394 1,869,9502002 . . . . . . . . . . . . 165,147 1,376,2252003 . . . . . . . . . . . . 224,283 1,869,0252004 . . . . . . . . . . . . 47,045 392,042

At March 31, 1999, Sony had unused lines of creditamounting to ¥2,101,709 million ($17,514,242thousand) of which ¥1,163,850 million ($9,698,750thousand) related to commercial paper programs and¥598,458 million ($4,987,150 thousand) related tomedium term notes. Under these programs, Sony isauthorized to obtain short-term financing at prevailinginterest rates for periods not in excess of 360 days.

The basic agreements with certain banks in Japaninclude provisions that collateral (including sums ondeposit with such banks) or guarantors will be furnishedupon the banks’ request and that any collateral fur-nished, pursuant to such agreements or otherwise, willbe applicable to all present or future indebtedness tosuch banks.

11. Insurance-related operations

Sony’s stock life insurance subsidiary maintains account-ing records as noted in Note 2 in accordance with theaccounting principles and practices prescribed by theJapanese Ministry of Finance (the “MOF”), which vary insome respects from U.S. GAAP. Those differences aremainly: that insurance acquisition costs are charged toincome when incurred in Japan whereas in the U.S.those costs are deferred and amortized generally overthe premium-paying period of the insurance policies,that future policy benefits calculated locally under theauthorization of the MOF are comprehensively adjustedto a net level premium method with certain adjustmentsof actuarial assumptions for the U.S. GAAP purposes andthat deferred income taxes are not recognized underlocal accounting practices. For purposes of preparing theconsolidated financial statements, appropriate adjust-ments have been made to reflect such items in accor-dance with U.S. GAAP.

The amounts of statutory net equity of the subsidiaryas of March 31, 1998 and 1999 were ¥40,625 millionand ¥40,626 million ($338,550 thousand), respectively.

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Deferred insurance acquisition costsInsurance acquisition costs to be deferred, such ascommission expenses, medical examination and inspec-tion report fees, etc., vary with and are primarily relatedto acquiring new insurance policies and are amortizedmainly over the premium-paying period of the relatedinsurance policies using assumptions consistent withthose used in computing policy reserves. Amortizationcharged to income for the years ended March 31, 1997,1998 and 1999 amounted to ¥15,855 million, ¥21,838million and ¥20,669 million ($172,242 thousand),respectively.

Future insurance policy benefitsLiabilities for future policy benefits are established inamounts adequate to meet the estimated future obliga-tions of policies in force. These liabilities are computedby the net level premium method based upon estimatesas to future investment yield, mortality and withdrawals.Future policy benefits are computed using interest ratesranging from approximately 2.5% to 5.5%, generallygraded down after 10 to 20 years. Mortality, morbidityand withdrawal assumptions for all policies are based oneither the life insurance subsidiary’s own experience orvarious actuarial tables. At March 31, 1998 and 1999,future insurance policy benefits amounted to ¥673,473million and ¥865,814 million ($7,215,117 thousand),respectively.

12. Financial instruments

Sony has certain financial instruments including financialassets and liabilities and off-balance-sheet financialinstruments incurred in the normal course of business.In applying a consistent risk management strategy, Sonymanages the exposure to market rate movements of itsfinancial assets and liabilities through the use of deriva-tive financial instruments which include foreign exchangeforward contracts, foreign currency option contracts,interest rate swap agreements and interest rate andcurrency swap agreements designated as hedges. Theseinstruments are executed with creditworthy financialinstitutions, and virtually all foreign currency contractsare denominated in U.S. dollars, euros and other curren-cies of major countries. Although Sony may be exposedto losses in the event of nonperformance by counter-parties or interest and currency rate movements, it doesnot anticipate significant losses due to the nature of itscounterparties or the hedging arrangements.

Following are explanatory notes regarding the finan-cial assets and liabilities and off-balance-sheet financialinstruments.

Cash and cash equivalents and time depositsIn the normal course of business, substantially all cashand cash equivalents and time deposits are highly liquidand are carried at amounts which approximate fair value.

Short-term borrowings and long-term debtThe fair values of short-term borrowings and total long-term debt, including the current portion, were estimatedbased on either the market value or the discountedamounts of future cash flows using Sony’s current incre-mental borrowing rates for similar liabilities.

Derivative financial instrumentsSony utilizes foreign exchange forward contracts andforeign currency option contracts primarily to fix thecash flow value resulting from accounts receivable andpayable and future transactions denominated in foreigncurrencies in relation to the core currencies (Japaneseyen, U.S. dollars and euros) of Sony’s major operatingunits. Foreign exchange forward contracts, the majorityof which mature within three months, are used to hedgethis risk which is substantially associated with accountsreceivable and payable and anticipated transactionsdenominated in foreign currencies. The contractedamounts outstanding at March 31, 1998 and 1999 were¥733,020 million and ¥718,474 million ($5,987,283thousand), respectively. The fair values of these contractswere estimated based on market quotations.

Sony has entered into interest rate swap agreementsand interest rate and currency swap agreements whichmature from 1999 to 2006 to reduce its exposure tolosses resulting from adverse fluctuations in interestrates or foreign currency exchange rates on underlyingdebt instruments. At March 31, 1998 and 1999, theaggregate notional principal amounts of the interestrate swap agreements were ¥91,235 million and ¥210,085million ($1,750,708 thousand), respectively, and thoseof the interest rate and currency swap agreements were¥430,297 million and ¥390,734 million ($3,256,117thousand), respectively. The fair values of such agree-ments were estimated based on the discounted amountsof net future cash flows.

Sony has entered into purchased foreign currencyoption contracts in the notional principal amounts of¥233,184 million and ¥414,896 million ($3,457,467thousand) at March 31, 1998 and 1999, respectively. Themajority of these contracts expire within three monthsof the balance sheet dates. Sony has also entered intowritten foreign currency option contracts in the notionalprincipal amounts of ¥279,406 million and ¥344,890million ($2,874,083 thousand) at March 31, 1998 and1999, respectively. The majority of these contracts arepart of range forward contract arrangements and expirein the same month with the corresponding purchasedforeign currency option contracts described above. Thefair values of such foreign currency options were esti-mated based on values quoted by brokers.

Sony’s stock life insurance subsidiary has enteredinto written government bond option contracts as anintegral part of short-term investing activities in order

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Yen in millions

Carrying amount Estimated fair value

At March 31, 1998Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 423,286 ¥ 423,286Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107,139 107,139Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (114,617) (114,617)Long-term debt including the current portion . . . . . . . . . . . . . . . . . . . . (1,189,214) (1,191,367)Forward exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (471) (1,682)Interest rate and currency swap agreements . . . . . . . . . . . . . . . . . . . . . — (24,757)Option contracts purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,461 2,461Option contracts written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,548) (2,548)Bond option contracts written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (909) (909)

At March 31, 1999Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 592,210 ¥ 592,210Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,304 24,304Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (40,877) (40,877)Long-term debt including the current portion . . . . . . . . . . . . . . . . . . . . (1,125,285) (1,351,358)Forward exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (516) (4,423)Interest rate swap agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (549) (1,025)Interest rate and currency swap agreements . . . . . . . . . . . . . . . . . . . . . — (21,470)Option contracts purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,252 3,252Option contracts written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,226) (4,226)Bond option contracts written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (436) (436)


Carrying amount Estimated fair value

At March 31, 1999Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,935,083 $ 4,935,083Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202,533 202,533Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (340,642) (340,642)Long-term debt including the current portion . . . . . . . . . . . . . . . . . . . . (9,377,375) (11,261,317)Forward exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,300) (36,858)Interest rate swap agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,575) (8,542)Interest rate and currency swap agreements . . . . . . . . . . . . . . . . . . . . . — (178,917)Option contracts purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,100 27,100Option contracts written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (35,217) (35,217)Bond option contracts written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,633) (3,633)

to fix the yields from bonds on hand to certain ranges.All of these contracts expire within two months of thebalance sheet date and their notional principal amountswere ¥181,509 million and ¥108,700 million ($905,833thousand) at March 31, 1998 and 1999, respectively. Foraccounting purposes, those transactions do not qualifyfor hedge accounting. Accordingly, those written bondoption contracts were marked to market. The fair valuesof such written bond option contracts were estimatedbased on market quotations. The average fair value and

the net gain/loss from those written bond option con-tracts during the years ended March 31, 1997, 1998 and1999 were insignificant.

The estimated fair values of Sony’s financial instru-ments, both on and off the balance sheets excludingnotes and accounts receivable, trade and notes andaccounts payable, trade that are carried at amountswhich approximate fair value and excluding debt andequity securities disclosed in Note 9, are summarizedas follows:

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13. Pension and severance plans

Upon terminating employment, employees of SonyCorporation and subsidiaries in Japan are entitled,under most circumstances, to lump-sum indemnities orpension payments as described below. For employeesvoluntarily retiring, under normal circumstances, mini-mum payment is an amount based on current rates ofpay and lengths of service. In calculating the minimumpayment for employees involuntarily retiring, includingemployees retiring due to meeting mandatory retirementage requirements, Sony may grant additional benefits.With respect to directors’ resignations, lump-sumseverance indemnities are calculated using a similarformula and are normally paid subject to the approvalof Sony’s stockholders.

Sony Corporation and most subsidiaries in Japanhave contributory funded defined benefit pensionplans, which are pursuant to the Japanese WelfarePension Insurance Law. The contributory pension planscover a portion of the governmental welfare pensionprogram, under which the contributions are made bythe companies and their employees, and an additionalportion representing the substituted noncontributory

pension plans. Under the contributory pension plans,the defined benefits representing the noncontributoryportion of the plans, in general, cover 60% of the in-demnities under the existing regulations to employees.The remaining indemnities are covered by severancepayments by the companies. The pension benefits aredetermined based on years of service and the compen-sation amounts, as stipulated in the aforementionedregulations, are payable at the option of the retiringemployee in a lump-sum amount or on a monthlypension. Contributions to the plans are funded throughseveral financial institutions in accordance with theapplicable laws and regulations.

Most foreign subsidiaries have defined benefitpension plans or severance indemnity plans which sub-stantially cover all of their employees, under which thecost of benefits is currently funded or accrued. Benefitsawarded under these plans are based primarily on currentrate of pay and lengths of service.

The components of net pension and severance costsfor the years ended March 31, 1997, 1998 and 1999were as follows:

Japanese plans:Yen in millions Dollars in thousands


Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥28,699 ¥35,318 ¥41,743 $347,859Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,959 13,303 14,020 116,833Expected return on plan assets . . . . . . . . . . . . . . . . . . . . (6,336) (7,978) (9,618) (80,150)Amortization of net transition asset . . . . . . . . . . . . . . . . (375) (375) (375) (3,125)Recognized actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . 5,406 6,369 8,032 66,933Amortization of prior service cost . . . . . . . . . . . . . . . . . . 985 1,178 1,234 10,283Net periodic benefit cost . . . . . . . . . . . . . . . . . . . . . . . . ¥40,338 ¥47,815 ¥55,036 $458,633

Foreign plans:Yen in millions Dollars in thousands


Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥15,988 ¥15,625 ¥15,842 $132,017Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,108 4,911 5,333 44,442Expected return on plan assets . . . . . . . . . . . . . . . . . . . . (3,095) (3,900) (4,475) (37,292)Amortization of net transition asset . . . . . . . . . . . . . . . . (110) (122) (122) (1,017)Recognized actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . 178 308 342 2,850Amortization of prior service cost . . . . . . . . . . . . . . . . . . — (70) (274) (2,283)Net periodic benefit cost . . . . . . . . . . . . . . . . . . . . . . . . ¥17,069 ¥16,752 ¥16,646 $138,717

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Japanese plans Foreign plans

Dollars in Dollars inYen in millions thousands Yen in millions thousands

March 31 March 31, March 31 March 31,1998 1999 1999 1998 1999 1999

Change in benefit obligation:Benefit obligation at beginningof year . . . . . . . . . . . . . . . . . . ¥393,448 ¥476,068 $3,967,233 ¥74,673 ¥85,159 $709,658

Service cost . . . . . . . . . . . . . . . 35,318 41,743 347,859 15,625 15,842 132,017Interest cost . . . . . . . . . . . . . . . 13,303 14,020 116,833 4,911 5,333 44,442Plan participants’ contributions . . 4,118 4,273 35,608 144 176 1,467Amendments . . . . . . . . . . . . . . . — — — (1,971) (1,079) (8,992)Actuarial loss . . . . . . . . . . . . . . 47,679 45,933 382,775 2,636 8,060 67,166Foreign currency exchange ratechanges . . . . . . . . . . . . . . . . . — — — 4,859 (9,322) (77,683)

Benefits paid . . . . . . . . . . . . . . (17,798) (19,176) (159,800) (15,718) (11,199) (93,325)Benefit obligation at end of year . . 476,068 562,861 4,690,508 85,159 92,970 774,750

Change in plan assets:Fair value of plan assetsat beginning of year . . . . . . . . . 204,491 236,966 1,974,717 43,837 54,597 454,975

Actual return on plan assets . . . . 7,843 27,845 232,042 7,016 7,005 58,375Foreign currency exchange ratechanges . . . . . . . . . . . . . . . . . — — — 3,164 (6,223) (51,859)

Employer contribution . . . . . . . . 25,667 106,738 889,483 3,993 8,274 68,950Plan participants’ contributions . . 4,118 4,273 35,608 144 176 1,467Benefits paid . . . . . . . . . . . . . . (5,153) (6,501) (54,175) (3,557) (3,532) (29,433)Fair value of plan assets atend of year . . . . . . . . . . . . . . . 236,966 369,321 3,077,675 54,597 60,297 502,475

Funded status . . . . . . . . . . . . . . . . 239,102 193,540 1,612,833 30,562 32,673 272,275Unrecognized actuarial loss . . . . . . (91,343) (102,739) (856,159) (4,617) (8,983) (74,858)Unrecognized net transition asset . . 2,729 2,354 19,617 492 263 2,191Unrecognized prior service cost . . . . (12,496) (12,805) (106,708) 2,651 2,847 23,725Net amount recognized . . . . . . . . . ¥137,992 ¥ 80,350 $ 669,583 ¥29,088 ¥26,800 $223,333

Amounts recognized in theconsolidated balance sheet consist of:Accrued pension andseverance costs . . . . . . . . . . . . ¥158,684 ¥106,343 $ 886,192 ¥29,088 ¥26,800 $223,333

Intangibles . . . . . . . . . . . . . . . . (9,767) (10,451) (87,092) — — —Accumulated other comprehensiveincome . . . . . . . . . . . . . . . . . . (10,925) (15,542) (129,517) — — —

Net amount recognized . . . . . . . . . ¥137,992 ¥ 80,350 $ 669,583 ¥29,088 ¥26,800 $223,333

Assumptions as of March 31:Discount rate . . . . . . . . . . . . . . 3.0% 2.7% 6.5-8.0% 4.4-7.3%Expected return on plan assets . . . 4.0% 4.0% 6.5-9.8% 6.9-9.8%Rate of compensation increase . . . 3.0% 3.0% 2.5-8.5% 2.8-8.5%

The changes in benefit obligation and plan assets,funded status, composition of amounts recognized in

the consolidated balance sheet and assumptionsused were as follows:

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As required under FAS 87 “Employers’ Accounting forPensions”, the assumptions are reviewed in accordancewith changes in circumstances. Such changes inassumptions are the primary reason for the fluctuationin the projected benefit obligation and unrecognizedactuarial loss.

Under FAS 87, Sony has recorded a pension liabilityto cover the amount of the projected benefit obligationin excess of plan assets, considering unrealized itemsand the minimum pension liability. The minimum pen-sion liability which Sony has recognized on substantiallyall of the Japanese plans represents the excess of accu-mulated benefit obligation over plan assets and accrued

pension and severance costs. A corresponding amountwas recognized as an intangible asset to the extent ofunrecognized prior service cost, and the balance wasrecorded as a component of accumulated other compre-hensive income, net of tax. The accumulated benefitobligation of the Japanese plans was ¥389,310 millionand ¥461,815 million ($3,848,458 thousand) as ofMarch 31, 1998 and 1999, respectively.

As discussed in Note 9, Sony Corporation contributedcertain marketable equity securities to an employeeretirement benefit trust. The securities held in this trustare qualified as plan assets under U.S. GAAP.

14. Income taxes

Income before income taxes and income tax expensecomprise the following:



Income before income taxes:Sony Corporation and subsidiaries in Japan . . . . . . . . . . ¥226,847 ¥293,520 ¥195,903 $1,632,525Foreign subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 85,582 160,229 172,225 1,435,208

¥312,429 ¥453,749 ¥368,128 $3,067,733

Income taxes—Current:Sony Corporation and subsidiaries in Japan . . . . . . . . . . ¥125,028 ¥145,890 ¥ 85,970 $ 716,417Foreign subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 44,032 64,223 72,416 603,466

¥169,060 ¥210,113 ¥158,386 $1,319,883

Income taxes—Deferred:Sony Corporation and subsidiaries in Japan . . . . . . . . . . ¥ (6,543) ¥ 7,221 ¥ 16,433 $ 136,942Foreign subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 1,053 (2,466) 2,154 17,950

¥ (5,490) ¥ 4,755 ¥ 18,587 $ 154,892

Sony is subject to a number of different income taxeswhich, in the aggregate, indicate a statutory rate inJapan of approximately 51% for the years ended March31, 1997 and 1998, and approximately 48% for the yearended March 31, 1999, respectively. Due to the changesin Japanese income tax regulations, the statutory ratewas reduced from 51% to 48% effective April 1, 1998and was further reduced from 48% to 42% effective

April 1, 1999. The respective newly enacted rates wereused in calculating the future expected tax effects oftemporary differences as of March 31, 1998 and 1999.The effect of the change in the tax rate on the balanceof deferred tax assets and liabilities was insignificant asof March 31, 1998 and reduced the net deferred taxliability and income tax expense by approximately ¥13,400million ($111,667 thousand) as of March 31, 1999.

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The significant components of deferred tax assets andliabilities are as follows:


March 31 March 31,

1998 1999 1999

Deferred tax assets:Operating loss carryforwards for tax purposes. . . . . . . . . . . . . . ¥ 79,761 ¥ 70,120 $ 584,334Accrued pension and severance costs . . . . . . . . . . . . . . . . . . . 54,487 61,123 509,358Warranty reserve and accrued expenses . . . . . . . . . . . . . . . . . . 52,445 57,085 475,708Inventory - intercompany profits and write-down . . . . . . . . . . . 38,915 39,469 328,908Future insurance policy benefits . . . . . . . . . . . . . . . . . . . . . . . 38,686 37,393 311,608Accrued bonus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,881 17,565 146,375Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,963 90,309 752,575

Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . 372,138 373,064 3,108,866Less: Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . (125,908) (122,656) (1,022,133)

Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . 246,230 250,408 2,086,733Deferred tax liabilities:

Insurance acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . (67,858) (72,352) (602,933)Undistributed earnings of foreign subsidiaries . . . . . . . . . . . . . (77,833) (55,106) (459,217)Gain on securities contribution to employee retirement benefit trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (24,712) (205,933)Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,264) (11,265) (93,875)Unrealized gains on securities . . . . . . . . . . . . . . . . . . . . . . . . (41,185) (11,243) (93,692)Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (45,773) (59,858) (498,816)

Gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . (245,913) (234,536) (1,954,466)

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 317 ¥ 15,872 $ 132,267

The valuation allowance mainly relates to deferredtax assets of consolidated subsidiaries with operatingloss carryforwards for tax purposes that are not expectedto be realized. The net changes in the total valuation

allowance for the years ended March 31, 1997 and 1998were increases of ¥3,902 million and ¥3,650 million,respectively, and for the year ended March 31, 1999 wasa decrease of ¥3,252 million ($27,100 thousand).

Reconciliation of the differences between the statutorytax rate and the effective income tax rate is as follows:

Year ended March 31

1997 1998 1999

Statutory tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51.0% 51.0% 48.0%Increase (reduction) in taxes resulting from:

Income tax credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.8) (2.4) (1.3)Valuation allowance recognized on current losses of subsidiaries . . . . . . . . 5.2 1.9 5.5Changes in Japanese income tax rates . . . . . . . . . . . . . . . . . . . . . . . . . . — (0.9) (3.6)Decrease in deferred tax liabilities on undistributed earnings offoreign subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.4) (2.7) (2.9)

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4 0.5 2.4

Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52.4% 47.4% 48.1%

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Net deferred tax assets are included in the consoli-dated balance sheets as follows:


March 31 March 31,

1998 1999 1999

Current assets—Deferred income taxes . . . . . . . . . . . . . . . . . . . . ¥121,189 ¥102,588 $ 854,900Other assets—Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,523 39,483 329,025Current liabilities—Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,279) (5,377) (44,808)Long-term liabilities—Deferred income taxes . . . . . . . . . . . . . . . (147,116) (120,822) (1,006,850)

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 317 ¥ 15,872 $ 132,267

At March 31, 1999, no deferred income taxes havebeen provided on undistributed earnings of foreignsubsidiaries not expected to be remitted in the foresee-able future totaling ¥337,056 million ($2,808,800thousand), and on the gain of ¥61,544 million on asubsidiary’s sale of stock arising from the issuance ofcommon stock of Sony Music Entertainment (Japan) Inc.in a public offering to third parties in November 1991,as Sony does not anticipate any significant tax conse-quences on possible future disposition of its remaininginvestment based on its tax planning strategies. Theunrecognized deferred tax liabilities as of March 31,1999 for such temporary differences amounted to¥86,902 million ($724,183 thousand).

Operating loss carryforwards for tax purposes of

consolidated subsidiaries at March 31, 1999 amountedto approximately ¥204,041 million ($1,700,342 thou-sand) and are available as an offset against future tax-able income of such subsidiaries. These carryforwardsexpire at various dates primarily up to 13 years. Realiza-tion is dependent on such subsidiaries generating suffi-cient taxable income prior to expiration of the losscarryforwards. Although realization is not assured,management believes it is more likely than not that allof the deferred tax assets, less valuation allowance, willbe realized. The amount of such net deferred tax assetsconsidered realizable, however, could be changed in thenear term if estimates of future taxable income duringthe carryforward period are changed.

Number of shares

Balance at March 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374,067,706Exercise of stock purchase warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117,838Conversion of convertible bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,999,499



Balance at March 31, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410,439,111

At March 31, 1999, 54,445 thousand shares of commonstock would be issued upon conversion or exercise of allconvertible debentures and warrants outstanding.

Shares of common stock that would be issued uponintegration of three listed subsidiaries are described inNote 18.

On November 20, 1991, Sony Corporation made a freeshare distribution of 33,908,621 shares for which noaccounting entry is required in Japan. Had the distribu-tion been accounted for in the manner adopted by

companies in the United States of America, ¥201,078million ($1,675,650 thousand) would have been trans-ferred from retained earnings to the appropriate capitalaccounts.

Conversions of convertible bonds into common stockare accounted for in accordance with the provisions ofthe Japanese Commercial Code by crediting approxi-mately one-half of the conversion proceeds to the com-mon stock account and the remainder to the additionalpaid-in capital account.

15. Stockholders’ equity

Changes in the number of shares issued and outstandingduring the years ended March 31, 1997, 1998 and 1999

have resulted from the following:

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The amounts of statutory retained earnings of SonyCorporation available for the payments of dividends tostockholders as of March 31, 1998 and 1999 were¥555,643 million and ¥610,133 million ($5,084,442thousand), respectively. The appropriations of retainedearnings for the year ended March 31, 1999, which havebeen incorporated in the accompanying consolidatedfinancial statements, will be proposed for approval atthe general stockholders’ meeting to be held on June29, 1999 and will be recorded in the statutory books ofaccount, in accordance with the Japanese CommercialCode, after stockholders’ approval. The above statutoryamounts available for dividend include cash dividendsfor the six-month periods ended March 31, 1998 and1999, respectively, which have been incorporated in theaccompanying consolidated financial statements.

Retained earnings include Sony’s equity in undistrib-uted earnings of 20% to 50% owned companies ac-counted for by the equity method in the amount of¥18,566 million and ¥20,159 million ($167,992 thou-sand) at March 31, 1998 and 1999, respectively.

The ordinary general meeting of stockholders held onJune 27, 1997 authorized Sony Corporation, pursuant tothe Japanese regulations, to acquire and retire up to atotal not exceeding 30 million outstanding shares of itscommon stock with its profit, on and after June 28,1997, whenever deemed necessary by the Board of Di-rectors in view of general economic conditions, Sony’sbusiness performance and financial condition and other

factors. At March 31, 1999, no common stock had beenacquired under this authorization.

The ordinary general meeting of stockholders heldon June 26, 1998 approved that (a) in addition to theshares discussed in the preceding paragraph, on andafter June 27, 1998, Sony Corporation may, by a reso-lution of the Board of Directors, acquire and retire upto a total not exceeding 30 million outstandingshares of its common stock with its additional paid-incapital at prices in total not exceeding ¥400 billion($3,333,333 thousand) and (b) Sony Corporation maygrant share subscription rights to directors and/oremployees pursuant to the Japanese regulations. AtMarch 31, 1999, no common stock had been acquirednor had any share subscription rights been grantedunder this approval.

During the year ended March 31, 1998, Sony adoptedstock appreciation rights (SAR) plans in Japan andEurope as incentive plans for selected employees. Sonyalso adopted an SAR plan in the United States duringthe year ended March 31, 1999. Under the terms of theplans, the employees can receive cash equal to the amountthat the market price of Sony Corporation’s commonstock exceeds the strike price of the SAR. The SAR vestratably over a period of three years, and are generallyexercisable up to six years from the date of grant. Sonyholds treasury stock for the SAR plan in Japan to mini-mize cash flow exposure associated with the SAR. Thestatus of the SAR plans is summarized as follows:

Yen Dollars

Number of Weighted-averageshares exercise price

Outstanding as of March 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — —Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242,200 ¥12,211 $101.76Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — —Expired or forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — —

Outstanding as of March 31, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242,200 12,211 101.76Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 862,925 10,467 87.23Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — —Expired or forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,750) 10,550 87.92Outstanding as of March 31, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,095,375 10,852 90.43

None of these shares was exercisable as of March 31,1999. At March 31, 1999 the weighted-average remain-ing contractual life of SAR outstanding was 5.1 yearsand the range of exercise prices was ¥7,263 ($60.53) to¥12,285 ($102.38) per share. In accordance withAccounting Principles Board Opinion No. 25, “Account-ing for Stock Issued to Employees” and its related inter-pretations, SAR compensation expense is measured as theexcess of the quoted market price of Sony Corporation’s

common stock over the SAR strike price. Sony usesvarious strategies to minimize the compensation expenseassociated with the SAR in the United States and Europe.Gains and losses relating to those strategies are recog-nized as SAR compensation expense. For the years endedMarch 31, 1998 and 1999, Sony recognized ¥0 millionand ¥886 million ($7,383 thousand) of SARcompensation expense, respectively.

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Other comprehensive income for the years ended March31, 1997, 1998 and 1999, was as follows:

Yen in millions

Pre-tax Net-of-taxamount Tax expense amount

For the year ended March 31, 1997:Unrealized gains on securities—

Unrealized holding gains arising during the period . . . . . . . . . . ¥ (23,735) ¥ 9,680 ¥ (14,055)Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . 127,705 (6,423) 121,282

Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . ¥ 103,970 ¥ 3,257 ¥ 107,227


Unrealized holding gains arising during the period . . . . . . . . . . ¥ (56,704) ¥ 34,599 ¥ (22,105)Minimum pension liability adjustment . . . . . . . . . . . . . . . . . . . . (10,925) 5,211 (5,714)Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . 35,985 4,511 40,496

Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . ¥ (31,644) ¥ 44,321 ¥ 12,677


Unrealized holding gains arising during the period . . . . . . . . . . ¥ 7,484 ¥ 1,525 ¥ 9,009Less: Reclassification adjustment for gains included

in net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (58,698) 27,999 (30,699)Minimum pension liability adjustment . . . . . . . . . . . . . . . . . . . . (4,617) 1,332 (3,285)Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . (151,971) 8,316 (143,655)

Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . ¥(207,802) ¥39,172 ¥(168,630)


Pre-tax Net-of-taxamount Tax expense amount


Unrealized holding gains arising during the period . . . . . . . . . . $ 62,367 $ 12,708 $ 75,075Less: Reclassification adjustment for gains included

in net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (489,150) 233,325 (255,825)Minimum pension liability adjustment . . . . . . . . . . . . . . . . . . . . (38,475) 11,100 (27,375)Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . (1,266,425) 69,300 (1,197,125)

Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . $(1,731,683) $326,433 $(1,405,250)

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17. Leased assets

Sony leases certain plant facilities, office space, ware-houses, employees’ residential facilities and other assets.

16. Research and development expenses and advertising costs

Advertising costsAdvertising costs included in selling, general andadministrative expenses for the years ended March 31,1997, 1998 and 1999 were ¥216,579 million, ¥268,985million and ¥315,310 million ($2,627,583 thousand),respectively.

Research and development expensesResearch and development expenses charged to cost ofsales for the years ended March 31, 1997, 1998 and1999 were ¥282,569 million, ¥318,044 million and¥375,314 million ($3,127,617 thousand), respectively.


March 31 March 31,

Class of property 1998 1999 1999

Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 2,501 ¥ 2,277 $ 18,975Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,682 19,616 163,467Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,103 8,581 71,508Accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,243) (11,730) (97,750)

¥22,043 ¥18,744 $156,200

An analysis of leased assets under capital leases is asfollows:


2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 5,071 $ 42,2582001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,403 36,6922002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,958 32,9832003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,846 32,0502004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,103 17,525Later years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,627 63,558

Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,008 225,066Less—Amount representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,440 45,333

Present value of net minimum lease payments . . . . . . . . . . . . . . . . . . . . . . 21,568 179,733Less—Current obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,136 34,467

Long-term capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥17,432 $145,266

required under operating leases that have initial orremaining noncancelable lease terms in excess of oneyear at March 31, 1999 are as follows:


2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 46,647 $ 388,7252001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,549 337,9082002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,545 271,2082003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,688 214,0672004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,248 168,733Later years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,773 756,442

Total minimum future rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥256,450 $2,137,083

The following is a schedule by year of the futureminimum lease payments under capital leases together

with the present value of the net minimum leasepayments as of March 31, 1999:

Rental expenses under operating leases for the yearsended March 31, 1997, 1998 and 1999 were ¥86,570million, ¥87,564 million and ¥98,925 million ($824,375thousand), respectively. The minimum rental payments

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18. Commitments and contingent liabilities

Commitments outstanding at March 31, 1999 for the pur-chase of property, plant and equipment and other assetsapproximated ¥34,305 million ($285,875 thousand).

Contingent liabilities for guarantees given in theordinary course of business and for employee loansamounted to ¥130,795 million ($1,089,958 thousand) atMarch 31, 1999.

Certain subsidiaries in the music business haveentered into long-term contracts with recording artistsand companies for the production and/or distribution ofprerecorded music and videos. These contracts covervarious periods mainly through March 31, 2002. As ofMarch 31, 1999, these subsidiaries were committed tomake payments under such long-term contracts of¥47,168 million ($393,067 thousand).

Sony Corporation and certain of its subsidiaries aredefendants in several pending lawsuits. However,based upon the information currently available to bothSony and its legal counsel, management of Sony believesthat damages from such lawsuits, if any, would nothave a material effect on Sony’s consolidated financialstatements.

Integration of three listed subsidiariesOn March 9, 1999, Sony Corporation and three listedsubsidiaries, Sony Music Entertainment (Japan) Inc.(“SMEJ”), Sony Chemicals Corporation (“SCC”) andSony Precision Technology Inc. (“SPT”) agreed thateach of such three subsidiaries should become awholly-owned subsidiary of Sony Corporation on orabout January 1, 2000.

Sony Corporation currently owns approximately 70%of each subsidiary’s common stock. Sony Corporationplans to carry out the integration of these subsidiariesby utilizing the exchange procedures included in theLaw amending the Commercial Code and other lawswhich are expected to be deliberated at the ordinarysession of the Diet in 1999. However, if the exchangeoffer procedures are judged to be impractical taking intoaccount the effective date of the amended CommercialCode and status of the related amendment to other lawsand regulations, an alternative method, which is legalunder the laws and regulations of Japan currently ineffect, may be selected. Any method will require approvalat stockholders’ meetings of each company.

The agreed share exchange ratios are 1 share of SMEJfor 0.835 share of Sony Corporation, 1 share of SCC for0.565 share of Sony Corporation, 1 share of SPT for0.203 share of Sony Corporation. As a result, approxi-mately 33 million shares of Sony Corporation would be

issued and the total capital (common stock and addi-tional paid-in capital) would increase by approximately¥348 billion ($2,900 million). The stock price for a rea-sonable period before and after the acquisitions wereagreed and announced will be used to calculate the in-crease in total capital based on U.S. GAAP.

Any of the above exchange ratios may be amendedupon mutual deliberation between Sony Corporationand the relevant subsidiary if a material change occursin respect of conditions based upon which the relevantratio is determined. In this case, the stock price for areasonable period before and after the amendment wasmade will be used for the new calculation of the totalcapital increase.

19. Business segment information

Effective for the year ended March 31, 1998, Sonyadopted FAS 131, “Disclosures about Segments of anEnterprise and Related Information” which requiresdisclosure of financial and descriptive information aboutSony’s reportable operating segments. The operatingsegments reported below are the segments of Sony forwhich separate financial information is available and forwhich operating profit/loss amounts are evaluatedregularly by executive management in deciding how toallocate resources and in assessing performance.

The Electronics segment designs, develops, manufac-tures and distributes audiovisual equipment, instru-ments and devices throughout the world. The Gamesegment designs, develops and sells PlayStation gameconsoles and related software mainly in Japan, theUnited States and Europe, and licenses to third partysoftware developers. The Music segment is mainlyengaged worldwide in the development, production,manufacture, and distribution of recorded music, in allcommercial formats and musical genres. The Picturessegment develops, produces and manufactures image-based software, including film, video, and televisionmainly in the United States, and markets, distributesand broadcasts in the worldwide market. The Insurancesegment represents insurance-related underwriting busi-ness, primarily individual life insurance business in theJapanese market. The Other segment consists of variousoperating activities, primarily including leasing andcredit card businesses, a business focused on parts trad-ing services within the Sony group, satellite distributionservices including program supplying businesses inJapan, internet-related businesses in the United Statesand development of location-based entertainmentcomplexes. Sony’s products and services are generallyunique to a single operating segment.

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Business segments

Sales and operating revenue:


Year ended March 31 Year ended

1997 1998 1999 March 31, 1999

Sales and operating revenue:Electronics —

Customers . . . . . . . . . . . . . . . . . . . . . . . ¥3,930,292 ¥4,377,346 ¥4,355,001 $36,291,675Intersegment . . . . . . . . . . . . . . . . . . . . . 201,339 312,764 313,448 2,612,067

Total . . . . . . . . . . . . . . . . . . . . . . . . . 4,131,631 4,690,110 4,668,449 38,903,742Game —

Customers . . . . . . . . . . . . . . . . . . . . . . . 408,335 699,574 760,071 6,333,925Intersegment . . . . . . . . . . . . . . . . . . . . . 10,943 22,977 23,751 197,925

Total . . . . . . . . . . . . . . . . . . . . . . . . . 419,278 722,551 783,822 6,531,850Music —

Customers . . . . . . . . . . . . . . . . . . . . . . . 570,119 660,407 718,878 5,990,650Intersegment . . . . . . . . . . . . . . . . . . . . . 21,961 34,307 41,394 344,950

Total . . . . . . . . . . . . . . . . . . . . . . . . . 592,080 694,714 760,272 6,335,600Pictures —

Customers . . . . . . . . . . . . . . . . . . . . . . . 438,551 642,714 540,109 4,500,908Intersegment . . . . . . . . . . . . . . . . . . . . . 3 450 59 492

Total . . . . . . . . . . . . . . . . . . . . . . . . . 438,554 643,164 540,168 4,501,400Insurance —

Customers . . . . . . . . . . . . . . . . . . . . . . . 227,920 291,061 339,368 2,828,067Intersegment . . . . . . . . . . . . . . . . . . . . . 14 7 1 8

Total . . . . . . . . . . . . . . . . . . . . . . . . . 227,934 291,068 339,369 2,828,075Other —

Customers . . . . . . . . . . . . . . . . . . . . . . . 87,917 84,388 81,192 676,600Intersegment . . . . . . . . . . . . . . . . . . . . . 152,457 163,841 206,137 1,717,808

Total . . . . . . . . . . . . . . . . . . . . . . . . . 240,374 248,229 287,329 2,394,408Elimination . . . . . . . . . . . . . . . . . . . . . . . . (386,717) (534,346) (584,790) (4,873,250)

Consolidated total . . . . . . . . . . . . . . . . . . . . . ¥5,663,134 ¥6,755,490 ¥6,794,619 $56,621,825



Equity earnings (losses) included in salesand operating revenue:Electronics . . . . . . . . . . . . . . . . . . . . . . . . ¥ (322) ¥(2,738) ¥(1,253) $(10,442)Music . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,755 2,026 1,581 13,175Pictures . . . . . . . . . . . . . . . . . . . . . . . . . . 152 (1,469) (5,584) (46,533)Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . (704) (3,333) (4,307) (35,892)

Total . . . . . . . . . . . . . . . . . . . . . . . . . ¥4,881 ¥(5,514) ¥(9,563) $(79,692)

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Segment profit or loss:



Operating income (loss):Electronics . . . . . . . . . . . . . . . . . . . . . . . . ¥239,312 ¥314,538 ¥129,853 $1,082,108Game . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,045 116,936 136,500 1,137,500Music . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,216 54,084 38,147 317,892Pictures . . . . . . . . . . . . . . . . . . . . . . . . . . 28,925 35,544 37,370 311,417Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 19,099 20,326 18,048 150,400Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,422) (10,292) (8,845) (73,708)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 388,175 531,136 351,073 2,925,609Elimination . . . . . . . . . . . . . . . . . . . . . . . . 3,390 10,749 10,313 85,941Unallocated amounts: Corporate expenses . . . (21,235) (21,675) (22,737) (189,475)

Consolidated operating income . . . . . . . . . . . . 370,330 520,210 338,649 2,822,075

Other income . . . . . . . . . . . . . . . . . . . . . . . . 92,643 83,963 152,905 1,274,208Other expenses . . . . . . . . . . . . . . . . . . . . . . . (150,544) (150,424) (123,426) (1,028,550)

Consolidated income before income taxes . . . . . ¥312,429 ¥453,749 ¥368,128 $3,067,733

Assets:


March 31 March 31,

1997 1998 1999 1999

Total assets:Electronics . . . . . . . . . . . . . . . . . . . . . . . . ¥3,014,756 ¥3,253,990 ¥3,058,355 $25,486,292Game . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128,056 197,605 188,796 1,573,300Music . . . . . . . . . . . . . . . . . . . . . . . . . . . . 714,792 835,939 755,765 6,298,042Pictures . . . . . . . . . . . . . . . . . . . . . . . . . . 796,942 915,545 836,134 6,967,783Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 716,843 899,016 1,129,005 9,408,375Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275,824 309,150 388,497 3,237,475

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,647,213 6,411,245 6,356,552 52,971,267Elimination . . . . . . . . . . . . . . . . . . . . . . . . (204,006) (221,112) (215,732) (1,797,767)Corporate assets . . . . . . . . . . . . . . . . . . . . 237,039 212,910 158,233 1,318,608


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Other significant items:



Depreciation and amortization:Electronics . . . . . . . . . . . . . . . . . . . . . . . . ¥187,960 ¥197,449 ¥218,608 $1,821,734Game . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,738 12,536 3,895 32,458Music . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,707 30,933 34,523 287,692Pictures . . . . . . . . . . . . . . . . . . . . . . . . . . 13,286 16,668 11,329 94,408Insurance, including deferred insuranceacquisition costs . . . . . . . . . . . . . . . . . . . 15,870 22,410 21,085 175,708

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,141 17,539 15,402 128,350Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 263,702 297,535 304,842 2,540,350

Corporate . . . . . . . . . . . . . . . . . . . . . . . . . 2,830 4,130 2,331 19,425Consolidated total . . . . . . . . . . . . . . . . . . . . . ¥266,532 ¥301,665 ¥307,173 $2,559,775

Capital expenditures for segment assets:Electronics . . . . . . . . . . . . . . . . . . . . . . . . ¥226,696 ¥301,197 ¥252,363 $2,103,025Game . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,757 17,114 3,941 32,842Music . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,807 28,361 45,222 376,850Pictures . . . . . . . . . . . . . . . . . . . . . . . . . . 15,194 13,477 10,747 89,558Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 176 633 836 6,967Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,502 24,102 36,574 304,783

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 296,132 384,884 349,683 2,914,025Corporate . . . . . . . . . . . . . . . . . . . . . . . . . 1,946 3,071 4,047 33,725

Consolidated total . . . . . . . . . . . . . . . . . . . . . ¥298,078 ¥387,955 ¥353,730 $2,947,750

The capital expenditures in the above table representthe additions to fixed assets of each segment.

The following table is a breakdown of Electronics

sales and operating revenue to external customers byproduct category. The Electronics business is managedas a single operating segment by Sony’s management.



Audio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥1,029,961 ¥1,127,788 ¥1,072,621 $ 8,938,508Video . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 816,582 870,854 969,129 8,076,075Televisions . . . . . . . . . . . . . . . . . . . . . . . . . . 704,075 709,043 702,620 5,855,167Information and Communications . . . . . . . . . . 764,512 894,810 914,140 7,617,833Electronic components and other . . . . . . . . . . . 615,162 774,851 696,491 5,804,092

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥3,930,292 ¥4,377,346 ¥4,355,001 $36,291,675

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Sales and operating revenue:Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥1,590,820 ¥1,843,149 ¥1,908,600 $15,905,000U.S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,639,334 2,101,907 2,157,061 17,975,509Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,304,491 1,567,121 1,666,714 13,889,283Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,128,489 1,243,313 1,062,244 8,852,033

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥5,663,134 ¥6,755,490 ¥6,794,619 $56,621,825


March 31 March 31,

1997 1998 1999 1999

Long-lived assets:Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 730,075 ¥ 843,800 ¥ 903,345 $ 7,527,875U.S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . 824,439 845,887 703,208 5,860,067Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . 174,524 192,695 181,621 1,513,508Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194,683 209,984 143,006 1,191,717

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥1,923,721 ¥2,092,366 ¥1,931,180 $16,093,167

There are not any individually material countries withrespect to the sales and operating revenue and long-lived assets included in Europe and Other areas.

Transfers between reportable business or geographicsegments are made at arms-length prices. Operatingincome is sales and operating revenue less costs and

operating expenses. Unallocated corporate assets consistprimarily of cash and cash equivalents and marketablesecurities maintained for general corporate purposes.

There has been no sales and operating revenue witha single major external customer for the years endedMarch 31, 1997, 1998 and 1999.

Geographic information

Sales and operating revenue which are attributed tocountries based on location of customers and long-lived

assets for the years ended March 31, 1997, 1998 and1999 are as follows:

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Sales and operating revenue:Japan—

Customers . . . . . . . . . . . . . . . . . . . . . . . ¥2,048,406 ¥2,361,734 ¥2,336,463 $19,470,525Intersegment . . . . . . . . . . . . . . . . . . . . . 1,386,422 1,697,655 1,822,282 15,185,683

Total . . . . . . . . . . . . . . . . . . . . . . . 3,434,828 4,059,389 4,158,745 34,656,208U.S.A.—

Customers . . . . . . . . . . . . . . . . . . . . . . . 1,672,173 2,156,173 2,232,490 18,604,083Intersegment . . . . . . . . . . . . . . . . . . . . . 126,637 153,603 140,239 1,168,659

Total . . . . . . . . . . . . . . . . . . . . . . . 1,798,810 2,309,776 2,372,729 19,772,742Europe—

Customers . . . . . . . . . . . . . . . . . . . . . . . 1,100,958 1,338,232 1,480,181 12,334,842Intersegment . . . . . . . . . . . . . . . . . . . . . 42,381 62,506 65,466 545,550

Total . . . . . . . . . . . . . . . . . . . . . . . 1,143,339 1,400,738 1,545,647 12,880,392Other—

Customers . . . . . . . . . . . . . . . . . . . . . . . 841,597 899,351 745,485 6,212,375Intersegment . . . . . . . . . . . . . . . . . . . . . 603,518 715,156 724,240 6,035,333

Total . . . . . . . . . . . . . . . . . . . . . . . 1,445,115 1,614,507 1,469,725 12,247,708Elimination . . . . . . . . . . . . . . . . . . . . . . . . (2,158,958) (2,628,920) (2,752,227) (22,935,225)


Operating income:Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥259,376 ¥348,458 ¥206,162 $1,718,017U.S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,928 75,820 78,583 654,858Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,597 74,064 81,185 676,542Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,858 69,490 47,683 397,358Corporate and elimination . . . . . . . . . . . . . . (60,429) (47,622) (74,964) (624,700)

Consolidated total . . . . . . . . . . . . . . . . . . . . . ¥370,330 ¥520,210 ¥338,649 $2,822,075

The following information is sales and operatingrevenue and operating income which show those recog-nized by geographic origin for the years ended March 31,1997, 1998 and 1999. In addition to the disclosurerequirements under FAS 131, Sony discloses this

information as supplemental information in light of thedisclosure requirement of the Japanese Securities andExchange Law, which a Japanese public company issubject to.

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R e p o r t s o f I n d e p e n d e n t A c c o u n t a n t s

Yebisu Garden Place Tower Telephone 03-5424-810020-3, Ebisu 4-chomeShibuya-ku, Tokyo 150-6013

April 26, 1999

To the Stockholders and Board of Directors ofSony Corporation (Sony Kabushiki Kaisha)

In our opinion, the accompanying consolidated balance sheets and the related consolidated state-

ments of income, cash flows and changes in stockholders’ equity present fairly, in all material respects,

the financial position of Sony Corporation and its consolidated subsidiaries at March 31, 1998 and

1999, and the results of their operations and their cash flows for each of the three years in the period

ended March 31, 1999, in conformity with accounting principles generally accepted in the United

States of America. These financial statements are the responsibility of the company’s management; our

responsibility is to express an opinion on these financial statements based on our audits. We con-

ducted our audits of these statements in accordance with auditing standards generally accepted in the

United States of America which require that we plan and perform the audit to obtain reasonable

assurance about whether the financial statements are free of material misstatement. An audit includes

examining, on a test basis, evidence supporting the amounts and disclosures in the financial state-

ments, assessing the accounting principles used and significant estimates made by management, and

evaluating the overall financial statement presentation. We believe that our audits provide a reason-

able basis for the opinion expressed above.

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June 1, 1999

To the Board of Directors ofSony Corporation (Sony Kabushiki Kaisha)

We have examined Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)of Sony Corporation and its consolidated subsidiaries (collectively as “Sony”) taken as a whole, included in pages 29through 42 of Sony’s Annual Report to stockholders for the year ended March 31, 1999. Management is responsiblefor the preparation of Sony’s MD&A pursuant to the rules and regulations adopted by the Securities and ExchangeCommission. Our responsibility is to express an opinion on the presentation based on our examination. We haveaudited, in accordance with generally accepted auditing standards in the United States of America, the consolidatedfinancial statements of Sony as of March 31, 1998 and 1999, and for each of the years in the three-year period endedMarch 31, 1999, and in our report dated April 26, 1999, we expressed an unqualified opinion on those consolidatedfinancial statements.

Our examination of MD&A was made in accordance with attestation standards established by the AmericanInstitute of Certified Public Accountants and, accordingly, included examining, on a test basis, evidence supportingthe historical amounts and disclosures in the presentation. An examination also includes assessing the significantdeterminations made by management as to the relevancy of information to be included and the estimates andassumptions that affect reported information. We believe that our examination provides a reasonable basis for ouropinion.

The preparation of MD&A requires management to interpret the criteria, make determinations as to therelevancy of information to be included, and make estimates and assumptions that affect reported information.MD&A includes information regarding the estimated future impact of transactions and events that have occurred orare expected to occur, expected sources of liquidity and capital resources, operating trends, commitments, anduncertainties. Actual results in the future may differ materially from management’s present assessment of thisinformation because events and circumstances frequently do not occur as expected.

In our opinion, Sony’s presentation of MD&A includes, in all material respects, the required elements of therules and regulations adopted by the Securities and Exchange Commission; the historical financial amounts includedtherein have been accurately derived, in all material respects, from Sony’s consolidated financial statements; andthe underlying information, determinations, estimates, and assumptions of Sony provide a reasonable basis for thedisclosures contained therein.

Yebisu Garden Place Tower Telephone 03-5424-810020-3, Ebisu 4-chomeShibuya-ku, Tokyo 150-6013

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Corporate OfficesSony Corporation7-35, Kitashinagawa 6-chome, Shinagawa-ku,Tokyo 141-0001, JapanPhone: 03-5448-2111Facsimile: 03-5448-2244

InformationIf you have any questions or would like a copy of our Form20-F annual report filed with the U.S. Securities andExchange Commission or quarterly reports to shareholders,please direct your request to:

JAPANSony CorporationInvestor Relations7-35, Kitashinagawa 6-chome, Shinagawa-ku,Tokyo 141-0001Phone: 03-5448-2180Facsimile: 03-5448-2183

U.S.A.Sony Corporation of AmericaInvestor Relations550 Madison Avenue, 9th Floor,New York, NY 10022-3211Phone: 212-833-6849Facsimile: 212-833-6938

To receive financial information by facsimile,phone 800-618-4550.

U.K.Sony Europe Finance PlcInvestor Relations15th Floor, Commercial Union Tower,St. Helens, 1 Undershaft, London EC3A 8NPPhone: 0171-426-8606Facsimile: 0171-426-8677

Sony on the InternetSony’s Home Pages on the World Wide Web offer a wealth ofcorporate and product information, including the latestannual report and financial results.‘Sony online World’ http://www.world.sony.com/‘Sony online USA’ http://www.sony.com/

Environmental ReportIf you would like a copy of the above report, please directyour request to:Sony CorporationCorporate Environmental AffairsPhone: 03-5448-3533Facsimile: 03-5448-7838This report is also available on the World Wide Web.http://www.world.sony.com/eco/http://www.sony.co.jp/eco/

I n v e s t o r I n f o r m a t i o n

Ordinary General Meeting of ShareholdersThe Ordinary General Meeting of Shareholders will be heldat the end of June in Tokyo.

Independent AccountantsPrice WaterhouseTokyo, Japan

Depositary, Transfer Agent, and Registrar forAmerican Depositary ReceiptsMorgan Guaranty Trust Company of New YorkShareholder RelationsP.O. Box 8205, Boston, MA 02266-8205, U.S.A.Phone: 800-360-4522

Co-Transfer and Co-Registrar AgentCIBC Mellon Trust Company2001 University Street, 16th Floor,Montreal, Quebec, H3A 2A6, CanadaPhone: 514-285-3600

Transfer Agent of Common Shares Handling OfficeThe Toyo Trust and Banking Co., Ltd.Corporate Agency Department10-11, Higashisuna 7-chome, Koto-ku,Tokyo 137-8081, JapanPhone: 03-5683-5111

Overseas Stock Exchange ListingsNew York, Pacific, Chicago, Toronto, London, Paris,Frankfurt, Düsseldorf, Brussels, Vienna, and Swissstock exchanges

Japanese Stock Exchange ListingsTokyo, Osaka, Nagoya, Fukuoka, and Sapporo stockexchanges

Number of Shareholders(As of March 31, 1999)193,357

Printed in Japan

Sony Corporation

Sony Corporaton

Annual Report 1999

year ended march 31, 1999...1 page sony corporation annual report 1999 to our shareholders the...

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