Ended March 31, 2003 Ended31, March Year Annual Report 2003 Annual Annual Report 2003 Ye ar Ended March 31 2003 Financial Highlights Sony Corporation and Consolidated Subsidiaries Year ended March 31 Yen in millions Dollars in except per share amounts and millions* except number of employeesPercent change per share amounts 2002 2003 2003/2002 2003 FOR THE YEAR Sales and operating revenue ¥7,578,258 ¥7,473,633 –1.4% $62,280 Operating income 134,631 185,440 +37.7 1,545 Income before income taxes 92,775 247,621 +166.9 2,064 Income before cumulative effect of accounting changes 9,332 115,519 +1,137.9 963 Net income 15,310 115,519 +654.5 963 Per share data: Income before cumulative effect of accounting changes —Basic ¥ 10.21 ¥ 125.74 +1,131.5% $ 1.05 —Diluted 10.18 118.21 +1,061.2 0.99 Net income —Basic 16.72 125.74 +652.0 1.05 —Diluted 16.67 118.21 +609.1 0.99 Cash dividends 25.00 25.00 0.21 AT YEAR-END Stockholders’ equity ¥2,370,410 ¥2,280,895 –3.8% $19,007 Total assets 8,185,795 8,370,545 +2.3 69,755 Number of employees 168,000 161,100 * 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, 2003. Please refer to pages 61 and 62 for detailed footnotes to the table above. Sony Corporation Annual Report 2003 Contents To Our Shareholders . 2 Management Discusses Key Issues . 5 At a Glance . 18 Sony World . 22 Research and Development . 45 Corporate Social Responsibility . 48 Management (Fiscal Year Ended March 31, 2003) . 49 Financial Section . 51 Fact Sheets. 69 Stock Information . 73 Corporate Governance . 74 New Members of the Board . 77 New Corporate Executive Officers . 80 Investor Information . 81 Cautionary Statement Statements made in this annual report with respect to Sony’s current plans, estimates, strategies and beliefs and other statements that are not historical facts are forward-looking statements about the future perfor- mance of Sony. Forward-looking statements include but are not limited to those statements using words such as “believe,” “expect,” “plans,” “strategy,” “prospects,” “forecast,” “estimate,” “project,” “anticipate,” “may” or “might” and words of similar meaning in connection with a discussion of future operations, financial performance, events or conditions. From time to time, oral or written forward-looking statements may also be included in other materials released to the public. These statements are based on management’s assumptions and beliefs in light of the information currently available to it. Sony cautions you that a number of important risks and uncertainties could cause actual results to differ materially from those discussed in the forward-looking statements, and therefore you should not place undue reliance on them. You also should not rely on any obligation of Sony to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Sony disclaims any such obligation. Risks and uncertainties that might affect Sony include, but are not limited to (i) the global economic environment in which Sony operates, as well as the economic conditions in Sony’s markets, particularly levels of consumer spending; (ii) exchange rates, particularly between the yen and the U.S. dollar, euro, and other currencies in which Sony makes significant sales or in which Sony’s assets and liabilities are denominated; (iii) Sony’s ability to continue to design and develop and win acceptance of its products and services, which are offered in highly competitive markets characterized by continual new product introductions, rapid development in technology, and subjective and changing consumer preferences (particularly in the Electronics, Game, Music and Pictures segments); (iv) Sony’s ability to implement successfully personnel reduction and other business reorganization activities in its Electronics and Music segments, (v) Sony’s ability to implement successfully its network strategy for its Electronics, Music, Pictures and Other segments and to develop and implement successful sales and distribution strategies in its Music and Pictures segments in light of the Internet and other technological developments; (vi) Sony’s continued ability to devote sufficient resources to research and development and, with respect to capital expenditures, to correctly prioritize investments (particularly in the Electronics segment); and (vii) the success of Sony’s joint ventures and alliances. Risks and uncertainties also include the impact of any future events with material unforeseen impacts. Sony Corporation Annual Report 2003 1 To Our Shareholders Operating Results for the Fiscal Year Ended March 2003 The business environment during the fiscal year ended March 31, 2003 was extremely difficult, with continued weakness in consumer spending caused by the unstable international situation and other factors, and a worldwide intensification of pricing pressure. Consolidated sales decreased 1.4% year on year to 7,473.6 billion yen, primarily due to lower sales in the core segment of Electronics, while sales in the Pictures segment increased significantly, reaching a record high. Consolidated operating income increased 50.8 billion yen year on year to 185.4 billion yen, with the Electronics, Game and Pictures segments the primary contributors. In the Electronics segment, operating income improved significantly, due primarily to the strong performance of products such as digital still cameras and charge-coupled devices (CCDs), as well as the benefit of restructuring. Never- theless, this segment suffered a significant operating loss in the fourth quarter (January to March) that was greater than that in the same quarter of the prior year because of a reduction in inventories, an increase in patent related expenses, lower sales and other factors. Nobuyuki Idei Chairman and Group Chief Executive Officer 2 Sony Corporation Annual Report 2003 In the Game segment, operating income increased due to higher software unit sales and the benefit of continued reductions in hardware manufacturing costs. The Pictures segment also reported higher operating income, due primarily to the strength of releases such as Spider-Man, Men in Black II, xXx and Mr. Deeds. The Music segment, on the other hand, recorded an operating loss as restructuring expenses increased and music product sales decreased. As for restructuring, which we have been undertaking since the fiscal year ended March 31, 2000, on a consolidated basis, Sony recorded approximately 100 billion yen in charges during the fiscal year ended March 31, 2003, the brunt of which were incurred in the Electronics and Music segments. As a part of this restructuring in the Electronics segment, Aiwa Co., Ltd. was merged with Sony in December 2002, headcount was reduced, and businesses, primarily in the component category, were downsized or eliminated. In the Music segment, Sony Music Entertainment Inc., which conducts business in every area of the globe except Japan, reduced its headcount by more than 10% in order to cut costs and improve operational efficiency. Kunitake Ando President and Group Chief Operating Officer Sony Corporation Annual Report 2003 3 Looking Towards the Future Sony plans to continue inspiring our customers with dreams and impressions in the broadband era through the convergence of electronics and entertainment. However, with the environment in which Sony operates changing at a pace beyond our expectations, we believe it is necessary to transform Sony into an organization in step with the 21st Century through a series of new reforms that build on those undertaken so far, but are not merely linear extensions of them. In order to do so, as a second phase of restructuring building on the first phase begun in the fiscal year ended March 31, 2000, over the three years starting in the fiscal year ending March 31, 2004, we will reduce fixed costs by further concentrating managerial resources into strategic businesses, reorganiz- ing our global production structure and improving the productivity of back office support functions. Furthermore, to accelerate growth in our Electronics and Game segments, we are planning to invest in semiconductors, which hold the key to differentiation of our products, introduce products that integrate Electronics and Game technologies and invest in mid- to long-term technology development so as to strengthen the attractiveness of our products. In addition, as a part of the reorganization of our group operating structure, after voluntarily adding additional rules to assure good governance – such as the separation of the Chairman of the Board and head of business execution and the addition of certain qualifications for Board membership – we chose to adopt the “Company with Committees” structure, a management system made possible by revisions to Japan’s Commercial Code that became effective on April 1, 2003 (for more information see page 74). Through the implementation of such initiatives, we aim to transform Sony into a 21st Century enterprise, build a highly profitable business structure, and continue to pursue the goal of making Sony the strongest consumer brand. April 24, 2003 Nobuyuki Idei Kunitake Ando Chairman and Group CEO President and Group COO 4 Sony Corporation Annual Report 2003 Management Discusses Key Issues Solidifying Sony as the Strongest Consumer At our Corporate Strategy Meeting in May 2003, we Brand through the Convergence of Electronics set a target for 2006, the year in which we will cel- and Content ebrate our 60th anniversary. By that year, we aim for As the broadband era unfolds, Sony will continue to Sony to have a highly profitable business structure simi- assist customers in realizing their dreams and experienc- lar to the world’s leading multinationals. That means ing everlasting emotions through a variety of hardware, that, for the fiscal year ending March 31, 2007, we aim content and services. Sony will also continue to pursue to build a structure which can achieve an operating our vision – that of being the strongest consumer brand – income margin of 10% for Sony Group consolidated, as we promote the convergence of Electronics and excluding the Financial Services segment.